Editorial: Family Feud Down Under

7 March 2002

So much for the Australian "Good Neighbor" policy. The simmering family feud between the states and territories in Australia has denigrated into public name-calling and threats of draconian sanctions. Realistically, all-out war is not far off.

The New South Wales Minister for Racing and Gaming, Hon. Richard Face was not quite honorable, but no doubt from his perspective accurate, when he used terms such as "parasites," "leaches," "bludgers" and "corporate pirates" to describe Northern Territory-based bookmaking firms in parliament last week.

The outburst was provoked as a result of Sportingbet moving its Australasian operation from Vanuatu to the Northern Territory two weeks ago in tandem with an announcement that the Northern Territory was dropping its turnover tax on racing from 1 percent to 0.33 percent.

As with most things, the issue is much more complicated then it appears at face value.

Firstly, and simplistically, gambling (at least since the days of ordered government rather than the colonies) has only been permitted in Australian states and territories after meeting a net public benefit test.

In respect to wagering on racing this was, at first, achieved by only permitting gambling if it took place on a licensed racecourse.

With the advent of radio broadcasting, illegal SP wagering off-course flourished. This was the first major technology discontinuity to affect the industry.

State governments, aside from targeting the illegal SP bookmakers, first attempted to control the negative byproducts of radio by legislating controls over the publishing betting information from a racecourse; these statutes are still in place today, but I'll return to this point later.

But Australians love a punt and the convenience listening to the races and the local SP in the barber shop or pub was, just that, too convenient.

The government's next step, given the net public benefit test was failing, was to introduce legal off-course betting in the form of a totalizator (pari-mutuel wagering). This was, after a slow start (and a crackdown on the SP bookies), a rip roaring success.

While the racing industry bemoaned the decline in attendances at the races, it was compensated by the overall growth in revenue fuelled by the increasing contribution to the industry from the government run totalizator agency boards (TABs). The governments didn't half mind either, as it received both a gambling tax and any profit.

The industry participants who suffered from the flight of turnover/handle off-course were bookmakers. Why? Because bookmakers, until '94 had no access to the off-course punters. Even after '94 the telephone betting that was permitted was under very strict conditions. The minimum bet was $200, and operators weren't able to publish the odds they were offering (except about the selected runner), effectively precluding them from 95 percent of the off-course market.

In a bid to both avoid illegal gambling and to again ensure funding of the racing industry in each state, the state governments reached an agreement known (paradoxically these days) as the "Gentlemen's Agreement". This facilitated the interchange of racing signals between the states and for all wagering (and hence taxes and levies) on the interstate racing to be retained within a state.

So everything settled down to happy coexistence, between the states and between each state's racing industries. While about 15 percent to 20 percent of the TAB's turnover in each state (Australia hasn't woken up to the importance of commingled pools like the United States has) and 40 percent of bookmaker's turnover is over the phone, more than 98 percent of all turnover was self-contained within a jurisdiction.

The consistent theme running through the policy has always been jurisdictional integrity, and the ability to segment the on-course and off-course market by effective intrastate controls. Despite lacking the requisite communications and banking powers (these are held at a federal level), the states and territories relied on each other's legislation to provide the counter balance to their own legislation to mutually assure jurisdiction integrity.

This all worked swimmingly until another disruptive technology--the Internet--appeared. What's more it appeared at the same time as Australia was undergoing the National Competition Policy review. This, for the racing industry, was not a good combination.

While the NCP was at first considered a means to break down the competitive barriers in the wagering industry, and this view was supported by early Competition Council papers, the more recent view is that jurisdictional sovereignty and determination of conditions associated with gambling is paramount.

But, the horse, or at least some of them, had bolted! The smaller territories snatched, with both hands, the opportunity to both encourage new business in their jurisdictions and to plunder the larger states' gambling taxes.

While plundering the legitimately exclusive tax base of another sovereign state is nasty, screwing its industry in the process is another matter altogether. Herein lies the nub of the problem: Every other State and Territory provides for its racing industry to receive a statutory levy, or directly hypothecates a share of its tax, on all wagering (not just racing but sport as well) to its racing industry.

The Northern Territory, on the other hand, makes a fixed annual payment to the Darwin Turf Club, and keeps all taxes raised for itself.

The way the numbers work: For every $1 the Northern Territory earns in turnover tax the Australian Racing Industry loses between $3 and $13, depending on whether it's lost bookmakers levy or TAB payments. Unfortunately, given that the TABs currently have a 95 percent share of the off-course market, its going to be sharply skewed toward $13.

On that basis is there any wonder there is going to be war?

Earlier I mentioned that the statutes limiting non-licensed operators were still in place; the only reason why they haven't been used recently is that there is no case law to date to determine where something on the Internet is published, viz, is it where the server or the receiver is?

While it is under appeal to the High Court of Australia, a defamation case probably holds the key, or at least precedent. The trial judge's ruling, supported by the Court of Appeal, was that the material was published where it was received; although he went further to say that "the better view was that it was simultaneously published both in Victoria (where it was received) and in New Jersey (where it was served from)."

In a countermove on March 4, Sportingbet announced that it would sponsor provincial and country racing to the tune of $3 million dollars. At the risk of being seen as ungrateful, I think the racing industry's view will be, or at least for mine should be, that they can stick their money up their jumper!

The racing industry, and the racing industry alone, decides where it spends its "economic rent" from wagering on racing. There have been enough debates on this issue in Australia as a result of the TABs trying to direct the hundreds of millions they pay in levies to make this point quite clear.

The public benefit test in each state to allow wagering by its citizens is dependent on its direct contribution to its racing industry.

There is no logical argument (greed is never logical) to depart from these principles.

Therefore, the only way to allow for competition in the off-course market in each state is to ensure that there is no negative impact on the racing industry in that state; that means on the same terms as the TABs.

This would mean that Sportingbet, on one argument, should contribute about 4.3 percent of turnover back to the racing industry based on the domicile of their account punter. Admittedly this is a simplistic and most opportunistic view because the different dynamics of the tote v. bookie wagering means trying to assess the relative impact of varying retention and recycling rates. But that argument would need to overcome the entrenched determination based on turnover and that won't be easy.

Either way, surely the principle is fair: Publish your prices, compete for the punter, take bets by phone and Internet without restriction and pay a comparable fee to the racing industry.

Anything less than that is raping and pillaging.

But it's not going to be that simple, is it? Sportingbet isn't going to roll over and "do the right thing" are they?

The Australian Racing Board has its long-scheduled first meeting of the year on March 8. The Board is the peak body of all controlling bodies of thoroughbred racing, and in some ways has more powers in aggregate then the ministers in each state individually. As a result I'm sure that they won't take the matter lying down. Rape should never be accepted!

I am prepared to bet that there is no way that the Board will allow the racing industry to be fractured by divisiveness. Australia has a well funded vibrant racing industry--that's not saying it couldn't do better--but either way the race to the bottom that Sportingbet proposes is a road to ruin.

It's 60 years this year since Darwin, the capital of the Northern Territory, was bombed by the Japanese--the only bombing of mainland Australia. It was a pretty wild and lawless place back then where the rougher elements of Australia "hid out." Obviously nothing much has changed, so perhaps there should be a full-scale re-enactment to mark the anniversary. They wouldn't get an objection from me.

Tim Ryan is a graduate of Agricultural Science, though he is probably best described as an innovator. He has worked in consumer online information and transaction systems since their inception and was the Australian pioneer of television data broadcast and is still the Consultant General Manager of the Seven Network’s teletext and datacast services – the principal provider of real time wagering information in Australia. Tim was an innovator of integrated wagering information and transaction systems. He has also consulted to a number of wagering system developers on the internationalisation of their systems. Tim became a NSW licensed bookmaker early in 2000 for regulatory reasons associated with the development of wagering systems. Despite not being a ‘working’ bookmaker Tim was appointed to the Australian Registered Bookmakers Advisory Council, Australia’s peak body representing all its 800 bookmakers. In this capacity he was instrumental in lobbying the independent Senators and the Government to ensure the exclusion of wagering from the Interactive Gambling Act.