A Rust masterclass to achieve a win-win Levy settlement
In the past half century racing could not have survived without the levy payment from High Street bookies. The original intention of establishing the Levy was to provide a means of compensating racing for the loss of attendance that was anticipated when off-course betting shops were legalised in 1961.
In the 54 years since, Levy battles between bookies and Racing have gone like this:
Racing: “Give us more.”
Refereeing these bouts was the Secretary of State, who became punch-drunk long before the fighters but not as quickly as the audience. In 2010, Culture Secretary Jeremy Hunt said, “It’s a big disappointment that the racing and gambling industries have failed to sort this out – but frankly the government should never be the last resort in an essentially commercial negotiation. We have therefore announced our intention to remove the role of the Secretary of State from determining the Levy scheme in future – and I hope this time will be the very last one that I have to be involved.“
The Levy is to be replaced by a Racing Right; trouble is, nobody knows when. The target date for the Bill has not yet been set.
Bookmakers and Racing have 1 week left to reach agreement on the next Levy deal. When they sit down round the table, who’ll be holding the strongest hand?
Yesterday Ladbrokes announced a drop in earnings before taxes of 56.7%. Today William Hill announced profits were down 39%. Hill’s share price has dropped by 20% since May. Neither company pays Levy in full on its internet business; their offshore base allows them to avoid this ‘tax’ of 10.75% of gross profits on horseracing business. They make a voluntary payment, along with other ‘avoiders’ Betfred and Coral. In the last year that collective payment was £4.5m. The BHA estimates that Levy avoidance costs the sport £30m annually.
Some offshore betting companies voluntarily pay the Levy in full: Bet365 and 32Red, for example. Neither of those operates a High St betting shop estate. Hills and Ladbrokes own more than half of the UK’s 8,500 betting shops and are legally bound to pay Levy on all horseracing business conducted in those shops.
The trouble is that the horseracing product on the High Street earns the bookies very little once expenses are paid. I’d put the nett profit from racing business at under 2% on average. Some of the smaller shops make a loss on horseracing after expenses.
Even the big boys run loss-makers. A prominent, highly respected bookmaking figure told me recently that he estimates that 15% of the UK’s betting shops operate at a loss. Some of those will close if the proposed Coral-Ladbroke Merger goes ahead. Hills CEO has said they will not be panicked into merger talks. Betfair and Paddy Power recently announced they’d joined forces. Paddy Power have almost 600 shops (Ireland and the UK combined). Betfair is online only.
High Street bookies need horse racing because enough of their customers still want to bet on it, although its market share of the betting cake is about half what it was 30 years ago.
But from a business viewpoint, they’d do much better without racing. If they didn’t have to sell it, they’d save on Levy payments and, crucially, on media rights costs – the price of bringing in pictures and data from the racecourses.
Do Bookmakers need racing?
So the bookies will settle down at the Levy table to haggle for something they must have rather than something they want. If Racing plays a concrete version of hardball, the bookies could simply walk away. They do not need racing for their business to flourish, all they need is a level playing field. If no betting shop offers racing as a product, punters won’t grieve for too long, and they won’t be organising coach parties to the track. They’ll moan for a month, then find something else to bet on.
As to who’d be bold enough to opt out first, well, that’s another question. Ladbrokes could not stop selling racing without a hundred percent confidence that their rivals would do exactly the same, and do it very quickly.
If the bookmakers did boycott racing, the sport would be dead in months. A handful of tracks might survive, but the vast majority would close. Levy payments and media rights money are the blood and oxygen keeping alive our 59 tracks.
So, you’d think Racing might be treading carefully as it approaches the negotiating table. But this week Jockey Club Racecourses and Arena Racecourse Company, who between them own more than 50% of the UK’s racecourses (15 tracks each), and operate almost 60% of the fixtures, decided to boycott bookies.
Aside from Levy and media rights payments, another channel drawing money from bookmakers into racing is race sponsorship. William Hill first sponsored in 1957 (The Ebor). Annual race sponsorship by bookmakers has been estimated at £9m. But Racing has said they don’t want any of it in the future unless the bookmaker concerned is an Authorised Betting Partner(ABP).
ABPs would need to agree to a “fair and mutually sustainable funding relationship” with Racing (effectively, “pay the Levy in full on your offshore business”). The value to bookmakers of race sponsorship is questionable. Their brands were built long ago, and much of the sponsorship is driven by CEOs who have a personal love of and commitment to racing.
So bookies don’t need to sponsor either. That £9m could be put to better use. But what else is on offer to ABPs? “A full package of benefits” to boost their business on British racing, which could include preferential rates for live streaming of races and the use of racecourse data, and even an ability to reposition fixtures to maximise turnover.
Now, think about that final offering…how would non-ABPs be prevented from benefitting from repositioned fixtures? Well, within that conundrum a small but highly significant giveaway resides, if my suspicions are correct.
And those suspicions were aroused because I could not see the common sense in all this. Bookmakers can survive, and thrive without Racing. Racing will die without bookmakers. Why is Racing behaving as though it holds all the aces?
The answer, I believe, is that the cards have already been dealt, and the hands are known to both parties. Due process means they cannot yet be shown. Saving face is an important consideration too, especially for Racing. Many in the sport have long believed bookies to be parasites. They must not be seen to get their way this time.
The key clue, in my opinion, lies with another shock recent announcement, that SiS will rise from the Intensive Care Unit to once again become the sole provider of pictures and data to UK betting shops.
In 2008, SiS lost its monopoly on supplying pictures and data to bookies from all UK courses. Turf TV took the rights to half the racecourses, and High Street bookies ended up paying around twice the costs for pictures and data (media rights).
Since the birth of TurfTV, SiS has steadily lost its way and looked doomed until the ‘shock’ announcement three weeks ago that a five-year deal (2018-2023) had been agreed, restoring its former monopoly.
SiS was set up in 1987. Its key shareholders were the major bookmakers. It provided the racing product at an affordable price. I strongly suspect that doing so again will be part of its brief in this new deal.
So, if bookmakers are paying less for the product, the wholesaler – Racing – will be taking a hit. But if that hit is offset by the SiS beneficiaries paying the Levy in full, then out from the business buzzword bag comes an old favourite: ‘win-win’.
Doing such a deal in the open would mean Racing backtracking on its long-held ‘let’s milk the bookies’ recipe for survival. And it would have brought scorn from many bookie-bashers in Racing’s ranks. Instead, it’s been delivered with the silky skill of a consummate politician, whose name I believe to be Nick Rust.
Nick became CEO of the BHA early this year, moving from his post as managing director, Ladbrokes Retail (their bricks and mortar betting shop division).
I know Nick quite well. Other than to wish him luck in his new position, I haven’t spoken to him since January, so the scenario I paint in this article is based purely on my instinct.
I first met Nick in the late 1990s when I worked for Tote Direct. Back then he was on a rapid upslope having been seconded from his position as a Ladbrokes district supervisor (one step above a betting shop manager) in a small Borders town, to be a runner for John O’Reilly, Ladbrokes marketing boss, in a short-term project.
Nick left a lasting impression on me. He’s a big man physically, but his presence does not come from his size. I believe he has flourished because of his personality. A hugely genuine and likeable man, a fine listener who listens because he cares about what you say, not about the impression he’s making on you, Nick is that rare bloke about whom no one has a bad word to say (at least not in my hearing).
Over the years he has added to his natural arsenal a finely tuned political antenna, a deep astuteness, and a rare aptitude for solving complex problems. Nick won’t care who gets the credit, so long as the task is achieved.
My guess is that, in this Levy showdown, Nick has been quietly directing everything in the background. First, a leak last month about this sponsorship boycott set the bookies sniffing the air cautiously. Asked then for a statement, here’s what the BHA said formally:
“The current Levy leakage, with the vast majority of remote betting activity not being captured, causes real economic damage to British Racing. However, we don’t comment on speculation and are happy to reinforce our long-standing position that betting firms are highly valued partners of our sport.”
Informally, read “It wasn’t me, Guv, but it doesn’t sound like a bad idea.”
On Tuesday, Nick was much more forthcoming: “This concept has been discussed and agreed in principle by the leaders of our sport.
“We cannot deliver a three-line whip and make sure that every part of racing is involved, but we can encourage and show the benefits to parties within racing of taking this approach, in terms of a true partnership with those betting operators who, if you like, do the right thing and partner with us.
“It’s great to see that Jockey Club Racecourses and Arc are deciding to support this initiative immediately. We hope to deliver as many parties as possible to deliver the concept of Authorised Betting Partner where there are preferred access and preferred goodies for those inside the tent, and restricted access for those who are not inside the tent.” How’s that for a blunt but family-friendly homage to LBJ’s comment about J Edgar Hoover?
Then, yesterday came the announcement that the EBF (European Breeders’ Fund), which spent £6m in racing sponsorship last year and are one of racing’s longest established sponsors, would no longer agree to joint sponsorships with bookmakers unless the bodies were Authorised Betting Partners.
Can’t you hear the cheers of the anti-bookmaking lobby?
But that EBF aggression was, I believe, the final front in the Levy war, a last echo to add to the din of sabre-rattling cover for a battle that was never going to be fought.
In September, when the news of the sponsorship ban leaked, I’d normally have thought Racing had abandoned whatever sense it had left. But knowing Mister Rust was at the helm, I suspected there was much more to it. And so it has proved – to me, at least. And I now expect that after a few grumbles, all major bookmakers will sign up as Authorised Betting Partners.
So, Racing gets the glory. SiS lives on. The bookies, at last, get an affordable product, and, in what will probably be the final Levy fight before the Racing Right comes in, Mister Rust gets the quiet satisfaction of having masterminded the bloodless war.