3.23      The Committee has been advised that any agreement between the BHB and the RCA to pool and jointly licence their rights will be capable of being challenged if the subsequent licensing practices of this partnership result in negative effects on the market; for example, with respect to prices, output, innovation, or the variety and quality of goods and services available to the general public.

3.24      Furthermore, for the purposes of UK and EU competition law, the BHB and the RCA are likely to be considered dominant in the markets in which they operate, which essentially are the markets for the supply in the UK of pre-race data and pictures of horseracing – of which the RCA is the only source.  The proposed multiple role of the BHB in the future (ie: its position as governing body, regulator, commercial licensor, revenue collector, Tote operator and bookmaker) could only reinforce this dominance. 

3.25      Dominance confers a responsibility not to abuse that position.  Because of Racing’s position of dominance, it should be precluded from imposing royalty charges that are excessive or abusive.  However, judged on past and recent utterances by the BHB, the Committee has no confidence that abuse will not occur. 

3.26      The Committee understands that there are legal remedies in such circumstances, but believes that the Government has a duty of care in respect of legislative change that could lead to litigation and/or the involvement of the competition authorities.  In particular, the Government should be aware that its decisions will have a major impact on a much-admired industry that is unique in the world.

3.27      Home Office determinations of previous Levy schemes imply that the Government’s intention is that any commercial negotiations between Betting and Racing should have as their objective the replacement of the level of funding currently derived from the Levy.  In this respect, Betting would have no reservations about direct negotiations with Racing that were conducted fairly and without advantage to either side.  However, the flawed nature of the current proposals would make equitable negotiations impossible.

3.28     There is also the question of how a commercial mechanism would operate, for without statutory power it would not be possible for any Betting organisation to agree standard terms or royalty rates that were binding on individual bookmakers.  In addition, there is the question of VAT, to which, under current tax regulations, payments by bookmakers would become subject.  As the Home Office knows, Betting cannot recover VAT outputs; thus the effect of this new imposition would be to reduce the revenue available to Racing. 

3.29      For these and other reasons given elsewhere, this paper argues that if the HBLB is to be disbanded there are other and better methods than those proposed of achieving the Home Office’s aims which do not involve discarding arrangements that have been beneficial to all concerned. 

4.            Overview

4.1        In addition to its proposals with regard to the Levy, the Tote and racecourse bookmaking, the Chancellor has announced that a new method of taxing Betting (GPT) is to be introduced by the end of 2001.  This is a positive development that is very much welcomed by the industry.

4.2        Another major Government initiative is the review of gambling legislation being conducted by a committee under the chairmanship of Sir Alan Budd.  The Review Body is due to report in the summer of 2001 and its recommendations may involve Betting in substantial regulatory change.

4.3      4.3        It is the Committee’s position that the proposed abolition of the Levy, the privatisation of the Tote, the pending introduction of a new taxation regime, and the review of legislation are not separable issues and that together they represent the greatest potential for change since the introduction of licensed betting offices 40 years ago. 

4.4       Betting wishes to respond positively to this challenge, but can do so only if the Government ensures that the various regimes currently under review are replaced by equitable and workable alternatives.

4.5       The Committee believes that as the performance of Betting affects employment, taxation revenue, social order and leisure activity, the Government will not wish its policies to be detrimental to a major business that makes an important economic and social contribution and has the potential to be a world leader. 

4.6          In particular, the Committee is certain that the Government will seek to ensure that the changes likely to arise from the processes described above will produce solutions that are fair to all parties.  By definition, this would exclude the BHB Plan, which clearly underlines Racing’s intention to take advantage of a dominant position. 

4.7       In the Committee’s view, implementation of the Home Office proposals would give the BHB a level of power out of proportion to its status within Racing, a situation that would be bound to be resisted by other important interests within the sport, notably the racecourses.

4.8       The Committee contends that the Home Office’s decision to dismantle the Levy system has implications that go beyond the simple requirement of finding a new method of transferring funds from Betting to Racing.

4.9          To illustrate this point, the Committee’s discussions prior to the Budget with the Treasury focused on the urgent need to eliminate the deduction paid by punters, thus enabling UK bookmakers to compete with the growing number of offshore, tax-free operations. 

4.10    4.10      In sharp conflict with this objective, a replacement for the Levy that led to an increase in Betting’s costs would exert pressure for the retention, or reintroduction, of a deduction, with the punter inevitably bearing the cost.  This is because it would not be commercially possible for bookmakers to absorb the costs of a gross profits tax at 15% as well as payments to Racing at much above their current overall level.

4.11      Retention of a deduction would, in turn, erode the benefit to the customer, Betting and the Exchequer of the major change in the taxation of betting referred to above.  It is difficult for the Committee to believe that the Government would wish to contribute to a situation in which a charge had to be imposed on punters for the benefit of racecourses or racehorse owners.

4.12        An important function of the HBLB when considering annual Levy Schemes is to take account of the capacity of bookmakers to pay and the needs  of Racing, rather than its aspirations which, historically, have usually been wholly insensitive to the commercial realities of horserace betting margins.

4.13        Similarly, in the event of a referral for determination, the Home Secretary has always accepted the need  to take into consideration both the needs of Racing and the capacity of bookmakers to pay. 

4.14        Any future transfer of funds from Betting to Racing that did not take account of the relative states of the two activities would be a departure from the principles that have governed this relationship for the past 40 years and which successive Governments have confirmed would not be changed other than by agreement with all the parties concerned. 

4.15      That this obligation has been taken seriously is apparent from the determination of the last two Levy Schemes to be referred (31^st and 33^rd), both of which were inflated by transfers from Betting Duty to Levy.  In each instance, the Home Secretary in question, in partnership with the Chancellor, accepted that regardless of the needs of Racing, bookmakers had a limited capacity to pay. 

4.16    4.16      It is the Committee’s contention that whilst it is generally recognised that the Levy is a compensatory contribution based on a combination of Racing’s need and Betting’s capacity to pay, the necessity of transferring this principle to any new arrangement has not been recognised in the Consultation Paper, or by Racing. 

4.17     The question of Racing’s need is particularly relevant following the recent decision by the RCA to enter into a ten-year £400 million plus media deal with the consortium Go Racing.  In this context, Racing also receives some £14 million a year from Satellite Information Services for picture rights, a sum the RCA will seek to increase when the current SIS/RCA agreement expires in April 2002. 

4.18        The Committee regards the principles implied by the transfers from Duty to Levy as fundamentally important as they indicate that even when Racing was able to demonstrate a need for increased outside funding, the Government accepted that there was no obligation on, or ability on the part of, Betting to make more than a fair and affordable contribution.

4.19        The Plan makes no mention of fairness or affordability.  It does not address the need for arbitration in the event of disagreement.  And it does not seek to emulate the Levy by proposing a system of relief for low turnover betting offices.  This relief has been an important contributor over the years to the viability of many betting offices.

4.20        Although the Home Office Consultation Paper appears to endorse the Plan, the Committee is encouraged by Mr O’Brien’s comments to its Chairman in his letter of 8^th March 2000, in which the Parliamentary Under-Secretary underlined his commitment to working closely with both Racing and Betting to “ensure the changes we make are for the better”. 

4.21        Mr O’Brien also committed the Home Office to “maintaining a close and continuing dialogue with bookmaking representatives through this process”.  This undertaking is welcomed by the Committee, which anticipates that this memorandum will draw the attention of the Minister to difficulties associated with the abolition of the Levy which may, until now, have been given insufficient prominence.

5.             The Horserace Betting Levy

5.1        Following the legalisation of off-course cash betting in 1960, the statutory Levy was introduced in 1961.  It had begun as a voluntary contribution and became statutory at the joint request of Racing and Betting. 

5.2       It is important to recognise that the Levy was not designed to be a payment for Racing’s “product”, but was regarded as compensation for a possible decline in attendances at racecourses due to competition from off-track betting offices.

5.3          During the passage of the Horserace Betting Levy Act, the Home Secretary, Mr R A Butler, emphasised that the Levy was not intended to subsidise individual racehorse owners through the transfer of public money from one section of the public (punters) to another.  The point of the Levy, Mr Butler said, was not to benefit any sectional interest, but to enable a great national sport to help itself.

5.4          This philosophy has been restated on a number of occasions, notably by another Home Secretary, Mr Kenneth Baker, who said in his determination of the 31^st Levy Scheme in March 1992 that “the Levy was never intended to provide a price for a product.  Indeed, it is difficult to see how it could do so”.

5.5       These definitions by two senior Ministers of the financial relationship between Betting and Racing contrast sharply with the current Home Office approach, which is to encourage bookmakers and the BHB to agree a commercial replacement for the Levy. 

5.6       For some time now, the BHB has been attempting to put together a package, or product, for sale to Betting.  However, as discussed elsewhere, no consultation with Betting, for instance as to the product it requires or the value it might place upon it,  has taken place and, in the Committee’s opinion, the proposed package is seriously flawed. 

5.7          The continuing inability of the major Racing organisations to agree on the future funding of Racing is a compelling  indication that the sport’s collective management is not sufficiently cohesive  or business orientated to form a reliable and mutually beneficial direct commercial partnership with Betting. 

5.8          Instead, there is every reason to believe that when the BHB finally does engage in discussions with Betting, an attempt will be made through exploitation of Racing’s position as a monopoly provider to extract from bookmakers and their customers larger payments than are fair or affordable. 

5.9          The Committee believes that any such attempt would be strongly resisted by Betting through the Courts and by reference to the competition authorities.  In this context, one leading bookmaking company has already lodged a complaint against the BHB with the Office of Fair Trading.

5.10        There is also the question of whether the price demanded by Racing will bear any relation to the value of the raw product provided to Betting, other than in a market dominated by a single supplier. 

5.11        To illustrate this point, whether it snows on Christmas Day is not in itself a betting event.  Neither is a General Election.  Similarly, a horserace requires the marketing, promotional, networking and risk management skills applied by bookmakers before it can become a betting medium.  The Committee is less than confident that these factors would be taken into account by Racing in attempting to set a market price.

5.12      In addition to collecting and distributing  the Levy, one of the main functions of the HBLB has been to act as an impartial conciliator, arbiter and line of communication between Racing and Betting.  This role has not been limited specifically to Levy negotiation issues, as the HBLB has been able to influence for mutual benefit such matters as the annual fixture list and race programme and has acted as a valuable and respected conduit for the advancement of mutual interest.

5.13        Another important consideration is that the Levy system offers Racing a number of tax advantages, whereas any commercial replacement would, in particular, attract VAT.  Logically, any payment made by Betting to Racing would include VAT, though this, in turn, would reduce the benefit to the sport. 

5.14       Given the oft-stated ambition of the BHB to extract substantially higher sums from bookmakers, if the Government proceeds as proposed the Committee anticipates conflict over where the burden of VAT should fall.

5.15        Because of the serious reservations identified in this response, the Committee considers that the HBLB should continue, with its powers of determination restored to the Government-appointed members.  However, if the Government does withdraw, the Committee believes that a new organisation responsible for the collection and distribution of funds for the benefit of Racing should be formed.

5.16        The Committee would be pleased to discuss with the Home Office the detailed nature and composition of such a  body.  Broadly, however, the Committee envisages it taking the form of a non-profit-making company (the Company) limited by guarantee and comprising Directors appointed in equal numbers by Betting and Racing, with an agreed number of independent Directors, including the Chairman, drawn from outside the two activities.

5.17        It would be important for the Company to have a strong and clearly understood constitution and for it to have the ability to collect from bookmakers those sums of money agreed through discussion within the Board, with the independent appointees acting as arbiters if required.  In this context, the Committee sees the Company issuing licences to receive racing pictures, with refusal to pay leading to withdrawal of the signal.  It would also be necessary for the Treasury to agree that payments collected by the Company would not attract VAT.

5.18        The Committee further envisages the Company funding the Jockey Club’s integrity services and the BHB’s administrative activities, with the remainder of its income being allocated to racecourses.  A new body carrying out such functions would allay many of the concerns expressed in this response by the Committee on behalf of Betting.  In addition, HBLB has a skilled staff and it is envisaged that at least some of this expertise could be utilised.

6.             Merit of the Existing System

6.1       The BHB has alleged that Racing suffers from “chronic underfunding”. The reality is that Racing is in excellent health, is the envy of most countries in which the sport is important, and is justified in its claim to provide the best, most varied and most interesting horseracing in the world.

6.2       There are three related reasons for Racing’s pre-eminence.  The first is the activities of bookmakers and the second is the financial contribution made by Betting through the Levy.  The third is the independence, impartiality and general efficiency of the HBLB and its staff.

6.3          This paper refers elsewhere to the marketing, promotional, networking and risk management skills applied by bookmakers to the raw material supplied by Racing. 

6.4          In addition to contributing to the Levy and paying fees to racecourses through SIS, betting shops provide a free outlet for Racing throughout the country, thus exposing the sport to a far larger audience than it could ever hope to attract to the racecourse.  Because of this coverage, Racing is enjoyed by millions, with betting offices attracting no less than seven million people a year (some 400 million visits), resulting in an estimated 1.2 billion individual transactions. 

6.5           Without the interest stimulated by Betting, both on and off-track, Racing would be a minority sport incapable of sustaining anywhere near the current number of 59 racecourses and the commercial activity they generate.  

6.6          Together, Betting and Racing represent one of the UK’s largest job providers, with almost 100,000 people employed in one of the two activities. 

6.7          Today, prize money is at a record level, having risen by 8.4% to £69.06 million in 1999 and by a further 3.8% to £71.89 million last year.  The HBLB is a major donor to the prize money pool, having contributed £33.28 million in 2000. 

6.8           The remainder of the HBLB’s income is, of course, expended on, among other things, integrity services and the advancement of veterinary science .  There can be no guarantee that this pattern of expenditure, or current statutory priorities, would survive a transfer from the HBLB, with its three independent members, to the BHB.

6.9          Racecourse attendances are also healthy.  In spite of 19 less race meetings due to bad weather towards the end of last year, attendances for 2000 were almost on a par at 5.l63 million with 1999’s record figure.  This meant that average attendances in 2,000 were at a record level.

6.10        Statistics concerning the number of horses in training in 2000 are not yet available, but there were 14,431 in 1999, 12.64% more than was the case five years earlier.

6.11        This paper does not attempt to argue that Betting has promoted Racing for purely altruistic motives.  Obviously, bookmakers have commercial objectives and the most accurate definition of the relationship between Betting and Racing is one of mutual self-interest. 

6.12        The HBLB, and the money raised by it, has played a vitally important role in this relationship.  The existence of a body on which independent members hold the balance of power has ensured that funds raised through the Levy have been expended for the good of Racing as a whole, rather than in the interests of particular factions within the sport.

6.13        Due largely to investment by the HBLB in racecourses, there has been significant entrepreneurial interest in recent years in purchasing existing racecourses and in developing new sites, the BHB having received no less than eight applications for new tracks in 1999.

6.14        It would be stretching credulity to argue that Racing has achieved its high domestic and international status in spite of the Levy and in spite of chronic underfunding.  It is understandable that Racing should want more money – there are few activities in modern life that would admit to requiring less.  But the status of the British sport is undeniable and Betting is proud to have played a part in this success story.

6.15        Under such circumstances, it is remarkable that elements within the BHB (other sections of Racing do not necessarily agree) should wish the HBLB to be abolished, particularly as the Levy system does not attract VAT.  It is equally remarkable that Racing should wish to treat Betting, its shop window, as a milch cow.

7.                     The BHB Plan

7.1       The Home Office Consultation Paper (par 2.1) refers to the Plan as setting out a structure for the future funding of the sport based on the combining of what it (the BHB) describes as British Racing’s rights into a package for sale to bookmakers and media companies.  Racing’s rights are described as the horserace fixture list, copyright and database and the television signal from the racecourses. 

7.2       More than anything, it has been the marketing and promotional activities of bookmakers and the sport’s close association with Betting that has made Racing a national pastime.  Put simply, the rights Racing now wishes to sell to Betting would be worth nothing without the value added by bookmakers. 

7.3           The Consultation Paper (par 2.3) notes the BHB’s suggestion that this approach, as outlined in the Plan, would enable Racing to work with Betting more effectively.  It also states that the Government welcomes the positive vision set out in the Plan for Racing and its business partners.  This expression of support requires the Committee to reiterate that the reversal of (alleged) chronic underfunding through exorbitant demands on bookmakers is not regarded by Betting as either positive, or, indeed, acceptable.

7.4           Apart from the question of whether the aforementioned rights have legal status and/or significant value, the Home Office’s apparent acceptance of the Plan has the potential to dramatically undermine the long-standing and balanced relationship between Racing and Betting.

7.5          There may at times have been differences of view concerning how much the Levy should yield, but usually such issues have been resolved by negotiation and, failing that, by arbitration.  Generally, it has been recognised that Racing and Betting are inter-dependent and that neither activity can prosper if the other is in decline.

7.6          Based on the existing principles of capacity to pay and need, Betting is prepared to make a fair contribution to Racing.  The BHB has made plain, however, its ambition to extract substantially more from bookmakers, irrespective of capacity to pay, and more than could be obtained other than in a single seller market.

7.7          In normal commercial circumstances, a seller and a buyer with differing views on the value of a commodity would reach an accommodation through negotiation.  The circumstances here are far from usual for the following reasons:

·      the Government proposes to withdraw from the process after 40 years of acting as a final arbiter

·      Betting has developed over many years on the basis of paying a statutory Levy

·      the Levy system affords relief for low turnover betting offices which could be forced out of business if this protection is lost

·      Racing will be a monopoly supplier if it can establish fixture list and pre-race data rights

·      the BHB is on record as stating that it intends to extract a higher payment from betting than that obtained through the Levy.

·      Racing has recently negotiated media rights that should greatly reduce its demands on betting.

·      transfer of the Tote to a consortium would provide Racing with another new asset and  revenue stream

·      the BHB Plan whereby a package of rights would be sold to bookmakers is seriously flawed for the reasons given below

7.8       The BHB has identified a number of “products” in which it claims to have rights with a view to selling them as a package to bookmakers.  The package  comprises:

Ø      the fixture list

Ø      pre-race data

Ø      picture rights   

Ø      the television signal from racecourses  

Ø      a licence to bet on British racing

7.9      This paper has already commented on the potential for abuse arising from the so far unconfirmed decision by the BHB and the RCA to pool rights for licensing purposes. The Committee also questions the validity of the package described above.

7.10        For example, the fixture list is compiled not for the benefit of bookmakers, but to ensure that racehorses, jockeys and racegoers arrive at the right racecourse on the correct day. The fact that the BHB controls the list does not necessarily imply the existence of copyright or data base protection.  Thus, unless the BHB is willing to allow bookmakers to substantially influence (including the exercise of a veto) the compilation of the fixture list, and unless bookmakers wish to exert such influence, it seems to the Committee that there is no case for payment.

7.11        The race programme exists not to facilitate off-course Betting, but to enable horseracing to take place.  Bookmakers take bets on the results of racing, information that is in the public domain.  They do not need to reproduce the fixture list and therefore are not at risk of breaching any copyright that may exist.

7.12        Betting is Racing’s shop window.  Bookmakers spend many millions of pounds each year on the marketing and promotion of Racing.  Pre-race data is part of this marketing material and if the BHB refused access to this information to those bookmakers who require it, interest in the sport would quickly diminish. 

7.13        Pre-race data is not expensive to compile and must have a limited value, assuming it has a legal worth at all.

7.14        It would also appear that Racing wishes to subject bookmakers to double charging for access to horseracing pictures.  In the first instance, the Plan requires a payment to the BHB for the right to acquire pictures, to be followed by a further charge by the RCA for their delivery.  This is cumbersome, illogical and inferior to the present method of payment through Satellite Information Services (SIS).

7.15        Having included in its package all of the rights it claims to possess, the BHB wishes to further inflate the cost to the bookmaker by imposing a charge for a licence to bet on British horseracing.  This fee is intended to include payment for such elements of Racing’s “product” as the Rules of Racing and those measures taken to protect the integrity of the sport. 

7.16        As race results are in the public domain, it is difficult to understand what – in addition to the items discussed above - the bookmaker would receive for this charge.  It is recognised that there are certain expenses, such as the cost of the integrity services, associated with staging Racing, but these activities are undertaken primarily in the interests of the sport itself..

7.17        The Committee’s advice is that as these features are for Racing’s benefit, rather than that of bookmakers, any such licence would be unenforceable.  In any case, bookmakers are already legally licensed to bet.

7.18        Comment attributed to the BHB indicates that it is Racing’s intention to offer the five elements listed above as a complete package.  However, not all bookmakers require the same material. 

7.19        Betting offices generally require pictures from racecourses, which at present are delivered by SIS.  A betting shop could choose to operate without pictures, although this would be unusual.  Telephone bookmakers cannot show pictures and Internet operators may not want them.

7.20        Pre-race data (assuming that it has a legal value – the Committee is aware that there may be an appeal against a recent Court judgement) is not required by bookmakers who buy the SIS service and receive their information from that source.  Nor is it a necessity for telephone or Internet bookmakers. 

7.21        If it emerges that the BHB is entitled to charge for each of the various elements listed above, it would be more sensible to unbundle the proposed package and to offer each item separately.  The Committee is advised that it would be an abuse for Racing to insist on charging for a package when buyers do not require, or cannot use, some of the constituent parts. 

7.22     Given the complexity of the arrangements proposed in the Plan, plus the potential for litigation described elsewhere in this response, the Committee believes that the appointment of the proposed new Company offers a far more practical solution.  As stated, this arrangement would also resolve the question concerning with whom Racing would negotiate an agreement that would be binding in law. 

8.            Regulation and Administration of Racecourse Betting

8.1          The Committee fully supports the integrity objectives outlined in paragraph 4.1.8 of the Consultation Paper.  

8.2          The solution outlined elsewhere in this paper offers an opportunity to maintain arrangements with regard to the regulation of the racecourse betting ring.  Dependent on the Government’s decision on whether to appoint a racecourse regulator, this could include the NJPC continuing to perform a regulatory function as a subsidiary of the new proposed new Company.

8.3           The Committee believes that any future role of the NJPC should be confined to regulation of the betting ring and that its involvement should be conditional on it being a subsidiary of the new Company.  The NJPC has played a part in the recent modernisation of the ring, but would not be acceptable as a regulator unless it was accountable to an industry-wide body.

8.4          The Committee would not wish the modernisation of the racecourse ring introduced by the NJPC to be reversed.  However, the NJPC currently undertakes both regulatory and administrative functions, a dominance that could be used to exploit on-course bookmakers to the detriment of the ring and the racegoing public.

8.5          The Consultation Paper envisages bookmakers and racecourses taking responsibility for the administration of the racecourse pitch function currently undertaken by the NJPC.  The Committee supports this proposal and suggests that bookmaker input into pitch administration could be undertaken by a sub-committee of the proposed new Company. 

8.6          Racecourses could supply an equal number of members of this sub-committee and, at local level, bookmakers and racecourse committees could operate at each track, in accordance with guidelines compiled by the parent Company.

8.7          It is noted that in its submission to the Gambling Review the NJPC supported the abolition of Section 18(1)  of the Betting Gaming and Lotteries Act 1963 (the five times the admission rule).

8.8          The Committee believes that the five times rule, which was conceived to prevent bookmakers being priced out of the betting ring, thus restricting punter choice, should continue.  As this charge is linked to admission prices, it has risen with inflation and is as fair and necessary today as it was when it was introduced.

8.9          The Committee sees a similarity in the relationship between racecourse bookmakers and the RCA and the BHB and off-track bookmakers in that the RCA could be expected to exploit to the detriment of the racecourse ring any change which allowed the RCA (which has an interest in the Tote) to impose a fee, other than the statutory five times admission, on racecourse bookmakers, or to interfere in the regulation of the ring. 

8.10        If a racecourse regulator is appointed, terms of reference should not include the administration or regulation of starting prices on the grounds that it would be inappropriate for the Government, or its appointee, to become involved in Off-Course Betting’s price mechanism. 

8.11        During 2000, unfounded misgivings over instructions issued by the SP Executive, the body currently responsible for the starting price operation, were resolved by the appointment of the independent accountant Arthur Andersen to conduct a thorough review.  The report prepared by Arthur Andersen was widely welcomed and endorsed and, in the interests of accountability and transparency, the Committee would support this type of review taking place at regular intervals.

9.           Pool Betting on Horseracing

9.1       The Government’s intention, as stated in the Consultation Paper, to sell the Tote to a Racing consortium, is not supported by Betting.  The Committee believes that:

·      the Tote should be sold through flotation or an auction process.  This would ensure that taxpayers did not lose through a sale at less than market value and that, following the sale, there would be fair competition between the Tote and other bookmakers

·      the Tote should not be sold to Racing because there would exist a conflict of interest between owning a bookmaking company and taking decisions on the licensing of intellectual property rights, since decisions on such licences would substantially effect the way in which competition occurred between bookmakers

·      if a transfer to Racing is to proceed, before this happens the Tote’s off course interests (licensed betting offices and telephone business), which are in direct competition with bookmakers, should be sold

·      there is no justification for conferring immunity from competition on a privately owned Tote by awarding a long-term monopoly in the provision of pool betting

·      It would anti-competitive for the Tote to be owned by Racing, be in competition with other bookmakers, and be able to sell (or refuse) the Tote licence to competitors at a price it would determine itself

9.2       The Home Secretary has stated (Hansard 2^nd March 2000, col 371) that the price paid by a Racing consortium for the Tote should be “a fair one which strikes the right balance between the respective legitimate interests in the Tote of both Racing and the tax payer”.  The clear implication here is that a discount will be offered to reflect the “legitimate interests of Racing”.  If this were not to be the case, the Home Secretary could have been expected to refer to a “market rate”.  This creates two concerns:

a)         a sale at undervalue would prejudice the interests of taxpayers.

b)         a sale at undervalue would amount to a subsidy to the Tote, which would then enjoy a competitive advantage in bookmaking markets.  Its owners would have less debt than comparable privately owned bookmakers and would therefore enjoy an unjustified costs advantage which would distort competition.

9.3          The Committee has been advised that the sale of the Tote at undervalue would require State aid clearance on the grounds that it would distort, or threaten to distort, competition. 

9.4          A counter-argument heard by the Committee is that the purpose of the Tote has always been to benefit Racing and that a sale to its beneficiary (Racing) would not affect competition.  There can be no argument, however, that the Tote undertakes considerable economic activities which have greatly expanded and diversified since its creation and which significantly affect competition and trading conditions.

9.5          In simple terms, the Tote and bookmakers compete for the same betting pound and not all of the Tote’s profits are diverted to Racing, as is often claimed.

9.6          Study of the Tote’s recent accounts reveals that the percentage of Tote profits contributed to Racing has declined from 62% in 1996 to 33% in 1999.  In other words, an increasingly large proportion of Tote revenue has been utilised to grow its betting office estate, which competes directly with other bookmakers. 

9.7           The Committee also believes that selling the Tote to Racing would distort competition in the market for bookmaking services.  The concern here arises from the parallel proposal to replace the Levy with a system whereby Racing raises revenue from bookmakers by licensing intellectual property rights. 

9.8          If this proposal proceeds, and Racing is in a position to affect the way in which competition occurs through its decisions in setting fees to bookmakers and participating in the bookmaking market through its ownership of the Tote, there will be a clear and irreconcilable conflict of interest.

9.9          Given the other proposals in the Home Office Consultation Paper, it is clear that the one entity that should not own the Tote is Racing and the Committee believes that the Government would be wrong to proceed with such a sale. 

9.10       The proposal that the Tote be owned by a Trust does not answer this concern, as the intellectual property rights will be licensed by the BHB, which will also be involved in the Trust.  In this context, it is envisaged that the BHB will nominate one of the eight trustees and that a further four trustees will be appointed by other Racing bodies which also nominate directors of the BHB.

9.11        The Committee can identify no justification for conferring immunity from competition on a privately owned Tote by granting a long term monopoly in the provision of pool betting.  The grant of a long period of immunity from competition – the Consultation Paper proposed up to 15 years - would amount to a disguised benefit to the purchaser of the Tote and would distort competition.

9.12        In the Committee’s opinion, the pool betting sector should be opened up to competition, subject possibly to a short transitional period to enable the Tote to adjust its activities in advance of becoming subject to market pressures.  Furthermore, it is the Committee’s understanding that established competition law principles recognise that, where exclusive rights are granted, competition should, in any event, take place at the tendering stage.

9.13        For the reasons given, the Committee believes that the proposed sale of the Tote to a Racing consortium is wrong in principle, anti-competitive, and inconsistent with European Union rules on the grant of State aids. 

10.            Conclusions

10.1        Ideally, the existing statutory framework for raising a horserace betting levy should be retained.

10.2        Transfer of the Levy Board’s responsibilities to the BHB would contribute to the establishment of Racing as a monopoly supplier thus conferring an unfair advantage in its dealings with Betting.

10.3        On-going disagreement within Racing indicates that the BHB and its member organisations are not equipped to take on new regulatory, fiscal and commercial responsibilities

10.4        To ensure a continued balance between the inter-dependent activities of betting and racing, the HBLB should be replaced by a non-profit-making Company limited by guarantee which would have similar responsibilities, including the power to collect payments from bookmakers for distribution to Racing, but with no direct Home Office involvement. 

10.5        Following the appointment of a racecourse regulator, whose role should be confined to integrity issues, pitch administration should be undertaken by on-course bookmakers and racecourses.

10.6        The Tote should not be sold at undervalue to Racing, but should be disposed of through a flotation or auction process.

10.7        After a short transitional period following sale of the Tote, pool betting should be opened up to competition.

11.            Recommendations

11.1     The Bookmakers’ Committee makes the following recommendations in response to the Home Office Consultation Document:

a.         Ministers should reconsider the decision to abolish the Levy Board and, instead, implement change that would remove the responsibility for dispute determination from the Home Secretary and restore it to the Board’s Government-appointed Members.

b.         If the recommendation above is unacceptable to Ministers, Government should recognise, equally, that the BHB’s Future Funding Plan for Racing is not acceptable to Betting as the basis of a future commercial relationship between Racing and Betting.  It is not the product of consultation or negotiation nor is it commercially deliverable.

c.        Full and proper consideration be given to the setting up of a non-statutory but legally established body or company, representative of both Racing and Betting, for the purpose of collecting fees from bookmakers and distributing the resultant funding to Racing in accordance with agreed priorities.

d.        Agreement should be obtained from the Treasury that payments made by bookmakers to such a company continue to be free of VAT.

e.        Any future role for the NJPC be confined to the regulation of the Betting ring and any such involvement should be conditional upon the NJPC being subsidiary to a new company.

f.         Subject to the recommendations of the Gaming Review, the provisions currently contained in Section 18(1) of the Betting Gaming & Lotteries Act 1963 (the five times admission rule) be retained.

g.        Ministers should reconsider their intention to sell the Tote to a Racing consortium and should instead make it available to the market through flotation or auction.

h.         If a sale to Racing is to proceed, the Tote’s off-course interests should be sold first.

i.         The intention to award a long-term monopoly in the provision of pool betting, thus conferring immunity from competition, be abandoned as anti-competitive and unfair.

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