UK Horseracing has got a massive crisis on its hands with Levy income being hit by a 17 million shortfall and the racecourses’ contributions to prize money about to take a massive dip due to the closure of hundreds of betting shops.
Whats the solution? A lot of people in racing are pressing for the levy to be based on a turnover model as opposed to the current profit based one. I can see the logic in this as betting on UK horseracing has never been higher and yet racing isn’t getting its fair whack. Some firms are betting so irresponsibly on horseracing that they are near on using racing as a loss leader in attracting customers in the hope they will lose money on ‘in running’ sports or their ever popular on line casinos.
Since the betting exchanges developed their zero margin product in 2002 the end user has never had it so good and as time has gone by its just got better with bookmakers competing fiercely with themselves and the exchanges. The industry competes so strongly on Racing that only 20% of betting in this sector ends up on the zero margin exchanges.
The exchanges are able to bet to nothing as they don’t pay duty or levy in the same way traditional bookmakers do. Bookmakers pay 15% duty and 10% levy (once over £500,000 threshold) on all horseracing gross profits whereby the unlicensed layers on the exchanges pay nothing apart from a tiny commission on winnings to the exchange (typically 1%-5%) and then the exchange makes a small contribution from this pool.
In 2003 the then BHB chairman Peter Savill highlighted the disparity in the exchange’s contribution to Racing by pointing out that for every 1 billion pounds turned over in betting shops on horseracing the levy got £14 million whereby the exchanges contribution for the same turnover was just £1 million.
At present betting shops produce the highest margin return on stake as they are not as competitive as on line operators and in most cases don’t offer best odds guarantee so the levy will be doubly hit by their closures.
From January to March this year the Racing Post did a study on SPs and concluded that if every favourite was backed at a level stake during this period the bookmakers would only win 2.62% of stakes. Obviously this dosen’t tell the true story as the vast majority of business would be at best odds guaranteed so its safe to say the bookies would have made a big loss so no money for racing!
On course there is also a problem whereby high SPs are being returned on the top of the market horses. Before betting exchanges bookies hedged with themselves and market forces produced a fair SP that turned a nice profit for the off course market. Now the exchanges are here on course bookies don’t cut prices if they can still get a fractionally better price on the machine. Every bookie seems to have it in their DNA that they have to lay the favourite even if they have to top the exchange price.
Whats the solution?…quite simply level the playing field by making every exchange layer pay a 10% levy on every winning UK horse transaction.
How will this be a benefit?
*Racing will get a much bigger return from Exchange transactions.
*Exchange prices will no longer be zero margin as it would be unviable so the book would now be 110%. On course bookmakers would start trading with themselves again as the exchange price safety net would be pulled from under their feet. A fairer SP will be returned once again which will increase off course profitability and thus bolstering the funds of racing.