Monday, August 08, 2022

NZ racing shakeup raises industry hackles


Opponents of the sweeping changes proposed for the racing industry in New Zealand are questioning whether the reforms are legally and practically possible.

The changes proposed in a government commissioned review of the industry by Australian racing figure John Messara cover the structure, finance and legislation governing the industry, the system of betting and the industry owned monopoly operator, the Totalisator Agency Board (TAB), and the racing clubs, race courses and prize money.

He recommends a sweeping series of changes including stripping the New Zealand Racing Board of most of its powers, leasing out the TAB to an Australian operator, closing 28 of the country’s 48 race courses, turning the NZ Racing Board into a Wagering Board responsible only for broadcasting and betting, and devolving power to run thoroughbred, harness racing and greyhounds to the respective codes.

He is also seeking changes to the taxation regime to cancel the gambling levy (worth NZ$13 million a year ($9 million) and using this to boost stake money.

Messara finds that “on any test, the thoroughbred racing industry in New Zealand today is in a state of serious malaise.”

Thoroughbred racing accounts for two thirds of the jobs, turnover, and economic benefits generated by the racing industry.

A study by an economic consultancy carried out as part of the Messara review says the racing industry contributed $1.63 billion to the economy, with over 14 000 direct and indirect full time equivalent positions with an average of eighteen race meetings a week (across all three codes).

However, Messara says that overall the industry lost money and had done so for many years. The foal crop was falling, and wagering was static. There were too many race tracks, many needing substantial upgrades.

Owners’ costs in 2016/17 are calculated at $199.3 million and prize money (after payments to trainers and jockeys) at $45.6 million “leaving a collective deficit met by owners of $153.7 million.”

“This is a return of 22.9 percent which compares poorly with the 48.1 percent (return achieved) in New South Wales.”

His core recommendation is a pool of prize money of at least $100 million which would improve the return to owners to 42.6 percent. He recommends increasing minimum stakes across all classes of races by between 67 percent and 150 percent, which would, for example, double the minimum stakes for Group One races to $400,000.

However, his plans for achieving this pool of prize money are contentious, and the details are sometimes sketchy.

For instance, neither the Racing Board nor the government has the power to compel racing clubs to close.

The Racing Board currently issues licences to racing clubs to hold a specified number of race days in a year, and legally it can withdraw those licences from clubs.

This would put pressure on the smaller clubs to fall into line with government policy, but it does not in itself transfer the assets of any club to a central pool as Messara is recommending.

Moreover, the idea that the government can somehow command the handover of racing club assets has left many in the industry scratching their heads about how this might be done should clubs dig their toes in and decline to co-operate.

Empowering legislation would be one answer. On this matter the Messara report referring to clubs’ assets including land holdings says “…these are in fact better described as industry assets.”

He recommends “to have this clarified in legislation enabling the properties to be vested in the Code regulator for the benefit of the thoroughbred racing as a whole.”

The suggestion of legislation has led to claims that this is a nationalisation of private assets for the benefit of the owners and breeders of thoroughbred horses.

A massive transfer of wealth from smaller racing clubs to private individuals aided and abetted by the government, is the way one industry observer put it.

It is clear in the current law that the members of racing clubs do not own the club’s assets. (They are not shareholders.)

The assets of the club – principally the land and the buildings – are owned by a range of parties, usually by the clubs themselves, but often the land is owned by the local council or is held in trust (where a donor has given the land for racing), or by Maori who have leased land to the racing club.

Added complications are that Maori may also have land claims affecting certain racecourses and some courses host both thoroughbred and harness racing.

While ownership of the assets is a mixed picture, neither the government nor the Racing Board own any part of them.

Hence Messara’s recommendation that the government pass legislation to transfer the assets from the clubs and their mixture of owners to thoroughbred racing has created considerable concern and controversy.

Under the Messara plan this body (with strong owner and breeder representation) could, and likely would, dispose of the land and use the capital to invest in upgrading courses and to provide increased stakes. He is very firm that the prize pool must go up and should reach $100 million over five years.

His other core recommendation involves the leasing of the TAB to an Australia operator. This is justified mainly on grounds of scale.

“Under the current structure, the NZRB will be unable to deliver the sustainable level of funding required to revitalise the New Zealand Racing Industry and lift TAB operations to a basis of efficiency required to be competitive against international wagering operators of scale.

“Due to its lack of scale, the NZRB is not capable of providing a best-in-class proposition to customers, across most areas of core competency, as that demands a level of ongoing capital investment that is substantially more than the NZRB’s current capacity.”

Messara goes on to recommend “a full operational outsourcing of all domestic wagering, broadcast and gaming operations, to a single third-party wagering and media operator of international scale, under a long term contract, with the NZRB holding the licence.”

He regards the issue of scale as “insurmountable” and points out the average Australian aged over 18 wagers 2.5 times as much as the New Zealand equivalent, which combined with a population only a fifth of that of Australia means “the NZRB can never realistically meet or maintain market and customer expectations.”

Carrying on as at present means the NZRB will be unable to deliver the level of funding required by the racing industry.

Outsourcing to Australia will be humiliating for many New Zealanders and difficult for a government as nationalistic as the current coalition in which the New Zealand First party is a full partner, with the party’s leader Winston Peters as Deputy Prime Minister and Minister of Racing.

Reports into the racing industry going back as far as 1965 and 1970 concluded that voluntary rationalisation of the industry was unlikely to succeed, and the Messara Report quotes the 1970 Royal Commission that changes “may even have to be imposed for the benefit of the industry as a whole.”

The will of the government and the capacity of the industry to deal with these latest proposals are now going to be tested again.

 

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