British racing leaders are seeking an overhaul of the current business model, which has seen a declining commitment from the bookmakers to racing thanks to both technology changes that have allowed Internet wagering and betting exchanges to flourish and operators to move offshore.
The British model relies on a government-determined levy that requires bookmakers to pay a percentage of their race-wagering profits into racing.
In a letter from racing leaders to John Penrose, minister for tourism and heritage for the Department for Culture, Media, and Sport, which determines the Horserace Betting Levy rate, industry leaders documented a dramatic fall in money generated by the levy from more than $161-million each year from 2004 through 2007 to an expected yield this year of just $90.2-million. The letter called for replacing the levy with a completely new system that ensures bookmakers and betting exchanges return a fair share to racing.
“We are very doubtful that simply reforming the levy is likely to deliver a stable and/or fair relationship between the racing and betting industries in the long term as the levy appears unable to deal with the two principal challenges, namely the advent of online operators based offshore and the emergence of betting exchanges,” said the letter, which was signed by leaders from the British Horseracing Authority (England’s regulator), The Jockey Club, The Horsemen’s Group, and three leading track owners.
The bookmakers agree the levy should be ended, although they almost certainly will have disagreement on future ideas.
The Association of British Bookmakers (ABB) is calling for the 50-year-old levy to be ended in 2014 and replaced by commercially negotiated agreements between bet takers and racing.
“Under the ABB’s proposals, the horse racing and betting industries would have three years to set up and negotiate a long-term commercial deal on the core program of races,” said Dirk Vennix, ABB chief executive officer. “As set out in our submission, this should never be underpinned by an intellectual property right owned by a sports body but rather be a process of negotiation and contract between horse racing and betting.”
The input follows a call earlier this year for ideas on the future of the levy from the Department of Culture, Media, and Sport. That government department took action to address the offshore issue on July 14 when it announced plans to change its policy. Currently, offshore outlets that are properly regulated in the countries where they are based can operate in the United Kingdom, but that will change to a standard of any operation that wants to operate in the U.K. will have to be licensed by the U.K.
The new policy should make the levy more far-reaching. Penrose said overseas operators will be “subject to the same standards and requirements as those based in Britain.”
In recent years, even longtime British-based bookmakers like William Hill and Ladbrokes have moved their online platforms offshore, effectively avoiding the levy. In announcing the planned licensing changes, Penrose acknowledged changes are needed.
“The current system for regulating remote gambling doesn’t work,” Penrose said. “Overseas operators get an unfair advantage over U.K.-based companies, and British consumers who gamble online may have little or no protection depending on where the operator they deal with happens to be based.”
While the licensing changes would be significant, racing leaders are focused on changes to the levy. It is not an unfamiliar problem to some U.S. horsemen and other U.S. racing leaders who have called for changes to the U.S. business model to address handle migration to account-deposit wagering sites.
In Britain, racing is calling for a legal framework to guide a future commercial relationship between the sport and betting outlets, with a goal of creating a level playing field. The sport’s leaders would like a framework that would provide a starting point for direct negotiation with bookmakers and betting exchanges.
“Enforceable commercial arrangements between willing buyer and willing seller, made possible by legislation, will determine a market-based return to British racing from the betting industry,” the letter said. “In doing so, this will create a fair, level playing field between onshore and offshore operators and as between the different betting platforms in the marketplace: [licensed betting offices], remote including offshore operators, pool betting, spread betting, and betting exchanges.
“It is clear that to maintain British racing’s pre-eminent global position, government needs to take a one-off, decisive piece of action.”