Memorandum submitted by Taffy Ltd
EXECUTIVE SUMMARY
The Select Committee's terms of reference
1. What the likely effects would be of
allocating on-course betting pitches on a purely commercial basis,
as has been proposed by the Racecourse Association.
2. There are likely to be risks to the licensing
objectives, to the principles of fair competition and to the life
and vibrancy of the ring. These issues are discussed further below.
3. What indications on security of tenure,
if any, were given to those buying positions on bookmaker's lists
in recent years?
4. Asking what indications on security of
tenure were given to those buying positions on bookmaker's lists
is not a particularly appropriate question in the light of the
history set out later in this document. It was the Levy Board,
a statutory body created by the 1963 Act, that established the
Sparrow Committee and the Board accepted the Committee's recommendations.
They included recognising the principles of seniority and the
ability to pass on seniority to successors. It was that Committee
that recommended the establishment of an auction system (as subsequently
implemented by the NJPC) to enable the transfer of list positions.
Thus the Levy Board, Sparrow Committee and NJPC were responsible
for creating the market that bookmakers invested so heavily in.
Coupled with the Committee's recognition of the principles of
inheriting seniority, this amounted to a powerful representation
that the investment in a list position was something that could
be relied as a long-term business asset.
5. Equally, whilst there may have been no
express representation that the purchase of a list position was
a right without any time limit, there was no statement either
(from the Levy Board or the NJPC or the Government) that it was
limited to a certain period of time and/or liable to be revoked
or abolished.
6. What the role of Government should
be in the process for agreeing on a future framework for allocation
of on-course pitches for bookmakers.
7. The role the Government plays will depend
on the type of system adopted (see below) but since there is a
risk to the licensing objectives if no new list position system
is introduced or the problem left otherwise unresolved, the Government
is duty bound to involve itself in the process leading to a new
arrangement.
Possible outcomes
8. It is unlikely that there will be a complete
answer that will meet the competing interests of all the parties
involved in the administration of on-course bookmaking. We have
suggested the following possible outcomes and we have commented
in the body of this document on their advantages and disadvantages:
(b) Revert to the pre-2005 Act system.
(c) Reintroduce the five times rule or similar.
(d) Replace pitch list seniority with a seniority
licensing system.
(e) Compensate on-course bookmakers for loss
of pitch list seniority.
9. Our preference would be to replace the
existing list positions with a new licensing system that is described
below.
Replacing pitch list positions with a licensing
system
10. It is and will continue to be a mandatory
condition of each premises licence granted to each racecourse
that it provides an area in which bookmakers can operate. After
2012 the racecourses can decide the size of the area provided
for betting, the terms on which bookmakers might enter, how long
they might stay or how many times they might enter the course
or use the same pitch and how much they would have to pay for
the privilege.
11. In the absence of being fully compensated
for the loss of list positions, the on-course bookmakers wish
to be confident that they have both the right (provided charges
are paid and other relevant rules obeyed), to enter the course
and the security of knowing that they will retain their list position
which enables them to chose the most advantageous pitch (no doubt
their usual pitch) that such list position gives them. Further,
it is important, both to the development of the ring and to give
the bookmakers a capital return on the investment in their businesses,
that they are able to transfer their list positions for market
value.
12. The racecourses may have resented the
loss of a certain amount of control over what happens on their
land as a result of their obligations under the certificate of
approval and the authority of the Levy Board. Presumably, they
would welcome greater control in any new system of list positions.
13. A possible solution would be to replace
the list positions with standard form licences granted by each
racecourse to each bookmaker on each list. For example, bookmaker
number one in the list at Ascot would have a licence to place
a pitch in the relevant ring and have first choice where that
pitch is placed within the relevant ring. The licence would be
subject to payment of the entrance fee and other relevant terms.
14. There would be no capital cost for the
grant of the licence that would simply replace the existing list
position and therefore reflect and encompass the investment made
already by the bookmaker.
15. Licences would be freely transferable
either by private treaty or public auction thereby enabling the
bookmakers to realise their investments on retirement or withdrawal
from the business generally or a course in particular.
16. The racecourses might want the opportunity
to conduct the auctions themselves and take a commission in the
same way that the NJPC did if they also have the obligation to
provide staff and services in administering the activities in
the ring. Alternatively, a new body could conduct auctions if
one is set up to replace the NJPC.
17. In order to avoid the loss of commission
in sales by private treaty, all sales could be subject to a percentage
commission and the racecourse could provide the place and the
means to advertise the prospective sale in a similar way to estate
agents.
18. Licence terms and rates of commission
should be standardised to maintain consistency throughout the
country and in the interests of transparency and fairness.
19. There remain two important issues:
— How can a licence retain its
value if the racecourse has a free hand to add new pitch positions
and develop (subject to approval by the Licensing Authority) new
rings?
— How long should the licences
last? At present, the bookmakers face the prospect of an asset
that they thought would last without any time limit (ie their
pick list position) being reduced to less than five years.
20. The two issues are linked. If the licences
were granted for an unlimited period, they would retain their
value and provide a better commission on sales at auction. Equally,
if the racecourses developed new betting areas, these would be
available to the licensees as they would simply pick from the
old or the new areas as they wished and in the order that they
appeared on the picking/licensee list.
21. Of course, that leaves the question
as to the number of pitch positions available. The system that
worked successfully prior to the 1998 changes was based on limiting
the number of pitches as a percentage of the number of entrants
to the racecourses and all interested parties set it independently.
In other words bookmakers with a vested interest in that particular
track could not be involved in the setting of the numbers.
22. Alongside the licence system, there
could still be more flexibility in charging than the old five
times rule as it seems likely that the racecourses would need
to match the market conditions. In other words, there may be reduced
charges for quieter meetings to ensure attendance and increased
charges for the most lucrative meetings and/or best list positions.
INTRODUCTION
1. his document consists of the submissions
of the following on-course bookmakers to the Select Committee
inquiring into on-course horserace betting:
2. The Select Committee's terms of reference
are:
— What the likely effects would
be of allocating on-course betting pitches on a purely commercial
basis, as has been proposed by the Racecourse Association.
— What indications on security
of tenure, if any, were given to those buying positions on bookmaker's
lists in recent years.
— What the role of Government
should be in the process for agreeing on a future framework for
allocation of on-course pitches for bookmakers.
3. The current concern, at least as far
as the on-course bookmakers are concerned, is that they stand
to lose a substantial investment in the bookmaker's lists positions
(referred to in this document as "list positions") by
2012, if not before. With this in mind, the above terms of reference
are perhaps incomplete in that they do not specifically ask for
suggested solutions to the problem. If the likely effects of allocating
pitches on a commercial basis are damaging to the horseracing
and betting sector and if indications of security of tenure were
given and if the Government should have a role in agreeing the
future framework for allocation of on-course pitches, the problem
still remains unresolved. Therefore, in responding to the invitation
to provide submissions, we have also suggested possible scenarios
for dealing with pitches in the future.
4. Further, the terms of reference cannot
be sensibly addressed without a consideration of how the current
position has come about and certainly the question of whether
indications of security of tenure were given involves an examination
of the historical background to list positions. Therefore we set
out below a summary of the development of the pre-1 September
2007 system for list positions. We then examine how list positions
were dealt with (or more accurately, not dealt with) in the gambling
reform process from the Budd Committee to the implementation of
the 2005 Act. After that we respond to the terms of reference
and set out various possible scenarios for a new system from 2012
if not before.
THE BACKGROUND
HISTORY TO
THE PRE-2005
ACT SYSTEM
Regulation of on-course bookmakers prior to 8
October 1998
1. There was an agreement made in 1958 known
as the "Ferguson Agreement" between the National Association
of Bookmakers ("the NAB"), the Jockey Club, and the
Racecourse Association ("RCA"). The Ferguson Agreement
provided for the NAB to regulate the conduct of on-course betting
by bookmakers and it established a system for the allocation of
the position of each pitch at any racecourse on the basis of seniority.
2. Seniority Lists were maintained for each
ring (Members, Tattersalls and Rails) at each racecourse. There
were different lists for different meetings, eg Ascot Summer,
Ascot Winter and Royal Ascot. There were also different lists
for each ring for each meeting, eg the Bookmakers List (for bookmakers
who took bets on the meeting taking place at the track), the Away
Bookmakers' List (who took bets on meetings other than the one
they were attending) and Supplementary and Extended Supplementary
Lists (being reserve lists in order of priority of those bookmakers
who would be offered a pitch on a temporary basis when one was
available).
3. Under NAB rules bookmakers would be allocated
pitches in order of seniority so that the most senior bookmaker
on any particular list would be allocated pitch number 1. Obviously,
certain locations in the ring provided more advantageous trading
opportunities than others and, generally speaking, the higher
up the list a bookmaker was, the better the location of his pitch.
4. Three distinct but related principles
came to be recognised:
— The pitch number, which as stated,
could pass on from predecessor to (certain qualifying) successors
without a loss of pitch position.
— Personal seniority, which would
commence on the day that a person commenced trading in the ring
as the principal bookmaker in the business. Personal seniority
was important in terms of being in line to take up higher pitch
positions in the list when they became available on the retirement
of bookmakers up the list.
— Commensurate seniority which
would only arise pursuant to rule 8.10 of the National Pitch Rules
when there were significant changes in the layout of the ring.
5. Commensurate seniority was introduced
as a way of fixing the seniority position between different bookmakers
so that the same ranking order could apply when the ring was reconstructed.
When the new places became available, the first in rank on the
list had the first choice of a pitch; the second in rank on the
list had the second choice and so on. Consequently, the allocation
of pitches before the change in the ring should have been equivalent
in terms of seniority to the allocation of pitches after the change
in the ring. Rule 8.10 was used as the basis for the integration
of the lists in 1998.
The Regulation of Bookmakers after 7 October 1998
6. On 8 October 1997 the RCA gave notice
terminating the Ferguson Agreement as of 7 October 1998. Following
this, the Horserace Betting Levy Board ("the Levy Board")
established a review committee headed by Sir John Sparrow, known
as the Sparrow Committee, to enquire into and report on the regulation
of bookmakers. The Sparrow Committee recommended the establishment
of the NJPC to administer and regulate on-course bookmaking. The
NJPC derived its power to perform its functions by the imposition
of conditions in the Certificates of Approval of racecourses as
discussed in greater detail below.
The Sparrow Report March 1998
7. The Sparrow Committee made many recommendations
regarding the administration of on-course bookmaking including:
— the merger of the various bookmakers'
lists at each racecourse (apart from the waiting lists);
— the retention in principle of
the system of seniority of pitches;
— the facility for the personal
seniority of a bookmaker to be held by the company (if any) through
which he traded; and
— a system for the sale by auction
of seniority positions.
8. The Levy Board incorporated the NJPC
with effect from 8 October 1998 to implement the new scheme which
included:
— Certificates of approval for
racecourses to be withdrawn by the Levy Board;
— The NJPC to introduce the National
Pitch Rules for the regulation of oncourse bookmaking;
— The NJPC to introduce a scheme
for merging the various bookmakers' lists for each ring;
— The NJPC to formulate rules
for the authorisation of bookmakers to carry on betting on approved
racecourses and regulation of that bookmaking;
— The Levy Board would grant new
certificates to racecourses subject to conditions that all betting
at the racecourse would be administered and regulated by the NJPC
and that the course would only admit a bookmaker to carry on betting
on the course if he agreed to be bound by the NJPC's rules.
9. It was of course the repeal of the 1963
Act and the system of the issue of Certificates of Approval that
resulted in the disappearance of the whole legal basis for a seniority
system and auction of list positions.
10. Section 4 of the Sparrow Report deals
with the seniority system. The Sparrow Committee agreed that the
principle of the seniority system should be retained but needed
to be streamlined and improved. In addition, they considered that
there should be a system for transferring seniority positions
for value. New seniority lists would be created by the NJPC for
both boards and rails, to be known as The Bookmakers' Lists.
11. The Committee went on to say at paragraph
4.5 of the Report:
"The current positions in the NAB's Pitch
Rules covering inheritance are complex, but we believe that the
principle of a bookmaker's seniority position being capable, upon
death, of being inherited by the spouse or a child, who would
then trade from the appropriate pitch or auction the seniority
position, is sound."
12. When one looks at the history of gambling
law reform, from the proposals by the Budd Committee to the passing
of the 2005 Act, the soundness of the principle of a bookmaker's
seniority being capable of being inherited and of that list position
being transferred by auction has never been questioned, criticised
or even, for that matter, expressly considered.
13. The Committee felt it was clear from
the Joint Discussion Documents between the RCA and the NAB that
bookmakers' seniority that conferred the right to occupy a particular
pitch in the betting ring did not confer any proprietary rights.
Clearly this meant that a bookmaker had no rights in the land
that his pitch occupied as that belonged at all times to the racecourse.
14. The Committee was also advised by Counsel
that any attempt by the racecourse to sell pitches to bookmakers
might be interpreted as a charge for admission to the betting
ring. Such a charge would breach the provisions of section 13(2)
of the 1963 Act which restricts the amount that racecourses can
charge bookmakers for access to the ring to five times the public
admission charge to the course (known as "the five times
rule").
15. The Committee concluded that the only
interest to which "a bookmaker has a right and which may
be transferred, for a consideration or otherwise, is the bookmaker's
seniority position, ie his position in the order of seniority
between other bookmakers."
16. The Committee stated "We have concluded
that it is in the interests of both the bookmakers and the racecourse
that the full value of any seniority position is realised on a
disposal by way of sale, rather than transfers at previously agreed
sums, and we recommend that this should be achieved through the
auction of bookmaker's seniority positions to the highest bidder,
to be conducted through the NJPC and administered by the LJPC
and the Betting Ring Manager".
17. The Committee further recommended that
all transfers of bookmaker's seniority positions on sale should
only be made through the auction system and the NJPC (through
the Local Joint Pitch Council ("LJPC")) shall be entitled
to receive a transfer administration fee, set by the LJPC in accordance
with the LJPC guidelines to be paid by the vendor. However, the
Committee recognised that there would be occasions when it is
appropriate to change a company's nominated individual and notification
of any change should be effected through the NJPC upon payment
of the registration fee. They then said "Individual bookmakers
will therefore be able, upon retirement, or by their will, to
transfer their seniority position to a named individual, who must
hold a current bookmaker's permit".
18. The proposals for the structure and
objectives of the NJPC are set out in Appendix 2 to the Report.
Under paragraph 4 it states the NJPC will be funded through the
pitch administration fees paid by all bookmakers working in the
betting ring, and from the transfer administration fees and the
registration fees paid on the auction and transfer of seniority
positions. Clearly the contrivance of giving monetary value and
creating a market in list positions was a convenient way to raise
ongoing funds to run the NJPC without having to call upon the
Government or the racecourses for payment. The bookmakers were
paying but they were also getting a business asset in return that
could be sold on or left to their successors.
19. The main objectives of the NJPC included:
— Setting up five Regional Joint
Pitch Councils (RJPCs) and 1 LJPC for each racecourse.
— To draft the National Pitch
Rules for submission to Levy Board for approval, and after to
promulgate and enforce them.
— To hear and decide appeals from
the RJPCs on the interpretation of the National Pitch Rules.
— To report annually to the Levy
Board.
— To maintain lists of bookmakers'
seniority positions for each racecourse, merging the List of Bookmakers,
the Supplementary List and the Extended Supplementary List. The
waiting list to be retained.
— To arrange auctions of seniority
positions to the highest bidder.
— To issue all pitch holders and
bookmakers on the Supplementary List and Extended Supplementary
List with identity badges to be worn at all times in the betting
ring.
20. Following the setting up of the NJPC,
one of its first tasks was the integration of the various lists—Tattersalls,
Rails, Away etc—for each racecourse into a single bookmaker's
list. In integrating the lists, the NJPC was supposed to reflect
the existing seniority of bookmakers as far as it could. Therefore
it had to take into account both the personal seniority of the
bookmaker occupying each position and give him the benefit of
his predecessor's seniority as Rule 8.10 did. The aim was to produce
a single ranking in order of bookmakers on any list which allowed
the more senior to have first choice of which pitch position they
wanted over the less senior.
21. The NJPC delegated most of the integration
of lists to the regional bookmakers' associations. It dealt with
the integration of the Southern Area lists itself and according
to its own version of a nationally agreed formula. This lead to
a number of appeals from aggrieved bookmakers who felt that they
had not been accorded their due and proper seniority. The NJPC
itself heard appeals against its own decisions and many appeals
were dismissed out of hand without affording the appellants a
proper hearing. Complaints about the way in which the NJPC handled
the integration of lists remain unresolved to this day. The NJPC
has been criticised for poor administration by both the DCMS and
the Culture Minister.
22. These historic issues are relevant to
the future administration of on-course bookmaking as they make
those who felt unfairly treated the last time the seniority system
was changed even more determined not to lose out again. The Working
Group on the Future Administration of Existing Betting Areas appear
to be proposing what amounts to a continuation of the NJPC in
all but name (see the Working Group's report dated 20 August 2007)
and it will be important to ensure that the so called New Co can
gain the trust, confidence and cooperation of both the bookmakers
and the racecourses (particularly since they are proposing a system
of administration that is essentially based on voluntary compliance).
THE LEAD
UP TO
THE IMPLEMENTATION
OF THE
GAMBLING ACT
2005
1. The following review of the build up
to the implementation of the 2005 Act on 1 September 2005 reveals
how the current problem of the threatened loss of list positions
has almost come about, if not by inadvertence, then certainly
by the interested parties failing to understand the full consequences
of the legal changes.
Gambling Review Report 2001 ("the Budd Committee"
Report)
2. The current problem had its roots in
the recommendation by the Budd Committee that the five times rule
should be abolished. It reported, "The horseracing industry
would like to see the restrictions on the amount they can charge
bookmakers for entry to racecourses lifted. The Levy Board and
the British Horseracing Board have strongly recommended that section
13 of the 1963 Act (the five times rule) should be repealed. They
argue that charges to bookmakers should be dictated by the market
and not by legislation. The Rails Bookmakers Association and the
National Association of Bookmakers are opposed to such a change.
The NAB believes that Racecourses would try to price out bookmakers
in order to benefit the Tote. The Rails Bookmakers assert that
the five times rule protects the punter, and if it is abolished
and bookmakers have to pay more for admission, the cost will have
to met by the punter. "
3. "The presence and bustle of activity
of on-course bookmakers at a racecourse is an integral part of
the event, and we do not believe that it would be in the commercial
interests of racecourses to price them out of the market. However,
we do believe that the "five times" rule is an anachronism,
and that racecourses and bookmakers should make their own commercial
arrangements. At the same time we recognise the force of the bookmakers'
arguments and we would expect the competition authorities to intervene
if racecourse owners acted unfairly. We therefore recommend that
the rules restricting charges for the entry of bookmakers to racecourses
or dog tracks should be abolished."
4. There does not appear to have been any
discussion or consideration that the abolition of the five times
rule might affect the retention or transfer of list positions
or even that the two issues were connected in any way.
A Safe Bet for Success 2002
5. The Government responded to the Budd
proposals and at paragraph 4.37 they referred to the above-mentioned
proposal stating, "We intend to give further consideration
to the proposal that current rules restricting charges for the
entry of bookmakers to racecourses should be abolished. Currently,
a bookmaker who wishes to operate on-course on race day can be
asked to pay no more than five times the relevant entrance fee.
While this restricts the freedom of the racecourse and track owners
to charge according to the market, it also ensures bookmakers
are not denied access by means of entry price and plays a part
in ensuring that there is a competitive on-course betting market."
6. The Government was sounding a note of
caution and recognised the risk that the smaller independents
could be priced off the course.
Joint Committee on the draft Gambling Bill 2004
7. In its written evidence to the Joint
Committee, the National Association of Bookmakers expressed similar
concerns to those set out in the Safe Bet for Success as
follows:
8. "The Draft Gambling Bill leaves
the question of the "five times rule" open which from
the point of view of existing and potential holders of seniority
positions is unsatisfactory. There is unanimous agreement among
racecourse bookmakers that this safeguard should remain in order
to ensure pitch tenure whilst at the same time maintain competition
between bookmakers and other betting outlets on the racecourse.
Racecourse bookmakers fear that removal would provide racecourses
with an opportunity to price bookmakers out of business which
would lead to higher margins among the remaining bookmakers. The
incentive for racecourses would be the resulting higher gross
profits earned by the "off-course" betting industry
from which the racecourses would benefit, the cost being borne
by punters. The majority of racecourses would probably not take
such action but it would be a real concern with respect to some
courses. We understand the aspirations of racecourses to maximise
income flows but we would hope that bookmakers charges can be
settled by negotiations within the existing framework."
9. Again, though, there is no express reference
or linkage with any risk to the list positions and the system
for transferring the same.
Government Response to the Joint Committee 2004
10. We can find no reference to the on-course
bookmakers and the abolition of the five times charge in the response.
11. The draft Gambling Bill went through
various iterations and the consequences for the list positions
from the repeal of the 1963 Act including the Levy Board's powers
to issue certificates of approval does not appear to have been
considered.
Advice to track premises licence holders—Consultation
Paper (March 2007)
12. It was probably the Consultation Paper
that first indicated that the existing list position system position
might be under threat (at least it did to the RCA) when it proposed
that bookmakers would have contracts direct with the courses that
would deal with authorisation and administration matters.
13. The proposed mandatory conditions to
be attached to horseracing track premises licences (which came
into force on 1 September 2007) provide that all existing betting
areas that are approved by the Levy Board on 31 August 2007 will
continue to allow mandatory access to betting operators for five
years. The relevant paragraphs are set out in Annexe 1 to this
document.
14. Racecourses may be able to vary the
location of betting rings that are subject to the five times rule
if they apply to the local licensing authority to vary the premises
licence. They can also establish new (additional) betting rings,
which are not subject to a mandatory condition replicating the
"five times rule". The cost of establishing a pitch
in these new areas will be left to regulation by the market. Any
relocated betting area (that had previously been a Levy Board
approved betting area immediately prior to 1 September 2007) must
allow the same rights of access to betting operators as if it
were the original area.
15. No additional charges may be applied
to betting operators and their assistants over and above the admission
charges and reasonable charges to reflect costs incurred in the
administration of the betting ring. If deemed appropriate, these
charges may be levied by a third-party administrative body appointed
by the racecourses and/or the betting operators. The third-party
body seems to be a reference to the NJPC or some equivalent body
such as New Co.
16. After 31 August 2012 the horseracing
tracks still have to provide a place where betting operators and
their assistants can carry on business and to which the public
may resort to bet. However, there are no conditions either restricting
charges or requiring them to maintain existing betting areas.
17. Interestingly, there were no consultation
questions in relation to these proposed mandatory conditions.
Advice to Track Premises Licence Holders: Responses—June
2007
1. The responses are very thin on the ground.
Paragraph 2.5 says that a trade association mentioned that some
of the phrases used did not accurately reflect the regulations.
Also there was a query as to how reasonable costs for administration
services would be defined.
2. No one raised the issue of the loss or
devaluation of seniority/picking positions. However, concerns
were being raised elsewhere and these lead to a debate on the
subject on 4 July 2007 and then to the establishment of the Select
Committee.
THE SELECT
COMMITTEE'S
TERMS OF
REFERENCE
What the likely effects would be of allocating
on-course betting pitches on a purely commercial basis, as has
been proposed by the Racecourse Association
1. There are likely to be risks to the licensing
objectives, to the principles of fair competition and to the life
and vibrancy of the ring. These issues are discussed further below.
What indications on security of tenure, if any,
were given to those buying positions on bookmaker's lists in recent
years?
2. Asking what indications on security of
tenure were given to those buying positions on bookmaker's lists
is not a particularly appropriate question in the light of the
history set out earlier in this document. It was the Levy Board,
a statutory body created by the 1963 Act, that established the
Sparrow Committee and the Board accepted the Committee's recommendations.
They included recognising the principles of seniority and the
ability to pass on seniority to successors. It was that Committee
that recommended the establishment of an auction system (as subsequently
implemented by the NJPC) to enable the transfer of list positions.
Thus the Levy Board, Sparrow Committee and NJPC were responsible
for creating the market that bookmakers invested so heavily in.
Coupled with the Committee's recognition of the principles of
inheriting seniority, this amounted to a powerful representation
that the investment in a list position was something that could
be relied as a long-term business asset.
3. Equally, whilst there may have been no
express representation that the purchase of a list position was
a right in perpetuity, there was no statement either (from the
Levy Board or the NJPC or the Government) that it was limited
to a certain period of time and/or liable to be revoked or abolished.
What the role of Government should be in the process
for agreeing on a future framework for allocation of on-course
pitches for bookmakers
4. The role the Government plays will depend
on the type of system adopted (see below) but since there is a
risk to the licensing objectives if no new list position system
is introduced or the problem left otherwise unresolved, the Government
is duty bound to involve itself in the process leading to a new
arrangement.
WHAT SHOULD
A NEW
SYSTEM OF
SENIORITY AIM
TO DO?
1. Any new system should aim to be:
— In the public interest including
furthering the key licensing objectives of:
— Preventing gambling from being a
source of crime or disorder, being associated with crime or disorder
or being used to support crime,
— Ensuring that gambling is conducted
in a fair and open way, and
— Protecting children and other vulnerable
persons from being harmed or exploited by gambling.
— Fair to the on-course bookmakers.
— Fair to the racecourses.
— Transparent, flexible and workable.
In the public interest
2. It is in the public interest that the
positive features of a trip to the races are maintained and, preferably,
improved. These features include:
— The ability to place bets with on-course
bookmakers in the rings.
— The largest possible choice
or selection of bookmakers. If on-course bookmakers lose entirely
their investment in their pitch list positions and face increased
(and increasing) charges to operate on racecourses, there will
be risks to two of the three licensing objectives. If there is
no proprietary (or quasi proprietary) interest in maintaining
a presence on a particular course and the charges to operate are
particularly uneconomic, attendance of on-course bookmakers is
likely to fall away or at least become increasingly inconsistent
save for the most popular racecourses and most lucrative meetings.
This would in turn mean the on-course odds offered to the public
are less competitive.
— The maintenance of the starting
price ("SP"). A substantial reduction in the number
of bookmakers in attendance on-course could undermine the integrity
and validity of the SP which would be damaging to the industry
generally and not in the public interest. It would neither be
in the public interest to price the independents and/or smaller
bookmakers out of the market nor for the large chains to abandon
the ring. They might leave if it was no longer cost effective
to arrange attendance or the SP was lost and they no longer had
a real incentive to take part in on-course bookmaking.
— Generally, maintaining the lively
atmosphere of the ring which is contributed to in a significant
way by the variety of competing on-course pitches.
Fair to on-course bookmakers
3. It is very easy to say what would be
unfair to on-course bookmakers. Many on-course bookmakers have
expended very sizeable sums of money in acquiring list positions
at auction with their investment often running into hundreds of
thousands of pounds. Others have maintained pitches in the less
profitable areas in the ring or on less popular courses over the
years in order to build up and improve (what they believed was)
their business asset in order to pass it on to their children.
It would be unfair to take away such investments with the stroke
of a pen and without proper reason or proper compensation.
4. To remove the protection of the five
times rule and place a heavier financial burden on the on-course
bookmakers at the same time as taking away their main, if not
sole, capital asset in the business is a severe blow. Without
doubt, these changes combined would be grossly unfair to bookmakers.
5. Looking at it another way, abolishing
or refusing to recognise the validity and value of list positions
whilst at the same time awarding the racecourses the ability to
raise a commercial charge for pitch positions (with no doubt the
best pitch positions costing the most), effectively amounts to
transferring the bookmakers' current business asset to the racecourses
for no consideration. One might ask, what have the bookmakers
done so wrong to be deprived in this way? What have the racecourses
done to deserve such an advantage?
6. In truth, both are the wrong questions
to ask as the intention, as originally expressed by the Budd report,
was merely to modernise the five times rule and put charging for
the use of what is the racecourses private land on a more commercial
footing. The loss of the value of list positions, as stated, was
probably inadvertent.
7. What would be fair to bookmakers? It
would be fair either to compensate them (but who would provide
the funds?) or, to allow them in some way to retain the value
of their list positions. It would also be fair to have some arrangement,
understanding or reassurance that they would neither lose that
value by some other means—such as an artificial increase
in the number of new pitch positions—or, by being priced
off the course with excessive entrance and/or service charges.
Fair to the racecourses
8. To work properly, any scheme fair to
the bookmakers has to be seen to be fair to the racecourses. If
not, it will be resented and more so than the five times rule.
Further, they may find some other means to redress the financial
balance as they see it. Either way, this is unlikely to be helpful
to the development of on-course betting or in the interests of
the public or, for that matter, either of the two parties involved
9. What would be fair to the racecourses?
Perhaps it is better to ask, what was the original expectation
of the racecourses? Certainly, the removal of the five times rule
and probably more flexibility to exploit—in a commercially
legitimate way—their ownership of the land. They were probably
not expecting the windfall of complete freedom to wash out the
system of list positions or to be entirely free from any obligation
to honour a pitch list. However, equally, they probably do not
welcome the burden of having to administer the arrangements of
on-course bookmaking themselves.
10. Turning back the clock in relation to
list positions is probably not realistic and the racecourses will
no doubt find it unappetising to think that the bookmakers will
have list positions in perpetuity. Thus to be fair to the racecourses,
they should have:
— Some flexibility going forward,
more than before the 2005 Act.
— They should have the ability
to develop their land in the interests of improving their business.
— They should be able to raise
a commercially based charge for the use of their land and not
be restricted by the five times rule or similar.
Transparent, flexible and workable
11. Any new system must be transparent.
As far as some are concerned, the NJPC's role was tainted from
the outset. Its calculation of seniority in 1998 in relation to
the Southern Area bookmakers was lacking in transparency and such
methodology used (if any) remains after nearly ten years incapable
of being properly explained. Severe prejudice was caused to some
bookmakers whilst others were given enormous advantage. History
would be repeating itself unless there is a fair, transparent
arrangement.
12. It also has to be workable in the sense
of being able to be applied not only in the transition from the
old to the new system but capable of dealing with changes in the
ownership of bookmaker businesses, development of the racecourse
and so on.
POSSIBLE OUTCOMES
1. It is unlikely that there will be a complete
answer that will meet the competing interests of all the parties.
We suggest the following possible outcomes with our comments on
their advantages and disadvantages:
(b) Revert to the pre-2005 Act system.
(c) Reintroduce the five times rule or similar.
(d) Replace pitch list seniority with a seniority
licensing system.
(e) Compensate on-course bookmakers for loss
of pitch list seniority.
Do nothing
2. If nothing is done to change either the
current state of affairs up to 2012 or thereafter there are likely
to be undesirable consequences for those involved in the on-course
betting industry and for the race going public.
3. The on-course bookmakers will have lost,
in some cases, an asset built up over several generations and/or
in other cases, a substantial financial investment. Their numbered
ranking on the lists at each course will be worth nothing, as
the current lists will cease to exist. They will face uncertainty
as to which pitches will be available to them and/or the cost
thereof.
4. Doing nothing might seem to be wholly
favourable to the racecourses; however, we would submit that in
fact it is not the best outcome for them. The racecourses will
be facing the challenge of retaining both the small independents
and the large chain operators neither of whom will have an incentive
to provide regular and consistent attendance if the costs of doing
so are too high and the availability of an attractive pitch is
not consistent or guaranteed. We believe that the racecourses
would accept that it is in their interests to maintain the regular
attendance at meetings of the widest possible choice of bookmakers,
at least if they are trying to give the public the most competitive
choice.
5. The racecourses would also face the burden
of the administration of the on-course presence and the determination
and collection of daily charges. There would be little incentive
for the on-course bookmakers to organise themselves to assist
the courses if, as there may be, an ongoing resentment about what
amounts to a transfer of their valuable assets to the racecourses
(as discussed above) for no consideration or compensation.
6. Most of all, the current position will
simply be unfair to the on-course bookmakers. There is no evidence
that it was what was intended by the Budd Committee, by Parliament,
by the DCMS, the Gambling Commission or the racecourses for that
matter. The above review of the history of the reform of on-course
bookmaking reveals that the loss of list positions was probably
inadvertent. It was overlooked, and policy that so significantly
affects and prejudices the livelihood of a group of people should
never be implemented as a result of inadvertence or neglect in
considering the consequences of related decisions.
7. If nothing is done, the policy may be
challenged legally by means of Judicial Review. An absence of
consideration of the consequences of the policy means that there
cannot have been a due and proper process or that there is a good
(or any) reason for denying the legitimate expectation of the
on-course bookmakers that list positions would continue.
8. In short, we would suggest that doing
nothing is not a viable option. Already, the market for auctioning
picking list positions has collapsed. The list is at risk of becoming
static and the on-course bookmakers becoming increasingly disillusioned.
This would not bode well for the future, as cooperation is required
between the on-course bookmakers, the racecourses, the Gambling
Commission and the Licensing Authorities to ensure a smooth and
successful transition into the new regulatory and licensing regime
under the 2005 Act.
Revert to the pre-2005 Act position
9. Some on-course bookmakers might simply
want to revert to how things were before the 2005 Act was implemented
at least as far as the administration on the course is concerned.
This has some attractions in so far as the bookmakers would know
the system and retain the ability to realise their investments
(by sale of their pitch position at auction) in their businesses.
10. The commission on the sales would be
paid to the racecourses that, in turn, could provide a proportion
of such revenue to fund a body set up by them to take up the burden
of administering the activity on the course, the rules of conduct,
the supply of services and the transfer of list positions.
11. The restriction on entrance charges
by means of the five times rule would assist the on-course bookmakers
to continue to make their businesses viable in the increasingly
tough environment where they face competition from the off-course
bookmakers (in relation to whom they lost their betting duty advantage),
the internet trade and the betting exchanges.
12. However, reverting to the pre-2005 Act
system holds less attraction for the racecourses. The Budd Committee
wanted the system changed as the five times rule was seen as too
restrictive. As identified above, it was intended that the racecourses
should be able to reach their own commercial arrangements with
on-course bookmakers regarding entrance/operating charges.
13. Part of the reason for reforming gambling
regulation generally was to provide a more commercial basis on
which those involved in the industry could provide their products
and services and give a more level playing field to compete with
the National Lottery. Arguably much of this has been lost in the
reform process where regulation has increased beyond that anticipated
by Budd. Nevertheless the commerciality of gambling as a legitimate
leisure pursuit was intended to provide greater flexibility to
operators and the market to reach arrangements and set prices.
14. There is good reason why the five times
rule could be replaced with something more flexible and commercial
that is related to the market rather than an artificial measure.
Equally, there is no good reason why this should go hand in hand
with an abolition of the list positions either, in terms of the
favourable pitches that the most senior bookmakers on a list might
expect and be entitled to occupy on a race day, or in terms of
the seniority relationship between the bookmakers vis a"
vis each other.
15. One of the benefits of the list position
system is that it reflects (with the notable exceptions of some
of the Southern Area lists) seniority built up and/or inherited
and it does not follow that the biggest and richest bookmakers
are the most senior on the lists. The big chains do not necessarily
dominate the best pitches which must be good for competition principles
and consequently be in the interests of the public.
Reintroduce the five times rule or similar
16. Merely reintroducing the five times
rule would not solve the current problem either. It would not
be a reasonable replacement for the loss of investment in the
list positions. As discussed above, it is unlikely to be acceptable
to the racecourses. So both groups would probably remain dissatisfied
and it would be seen as a defeat and reversal of the long reform
process leading up to the current position. Having said that,
the independent bookmakers might like to have some comfort that
they will not be priced out of the rings. Whether this is provided
in the form of some alternative restriction to the five times
rule or simply informally by the racecourses is another matter.
17. One possibility could be that prices
are capable of being reviewed by the Licensing Authority if the
number of bookmakers attending on race days falls below a certain
level on so many consecutive meetings. One would hope that market
forces would dictate the level of entrance charges so that they
are kept in check by the need to attract bookmakers on to the
course.
Replace pitch list seniority with a seniority
licensing system
18. It is and will continue to be a mandatory
condition of each premises licence granted to each racecourse
that it provides an area in which bookmakers can operate. As discussed
above, this requirement provides much greater flexibility to the
racecourse than ever before. After 2012 they can decide the size
of the area provided for betting, the terms on which bookmakers
might enter, how long they might stay or how many times they might
enter the course or use the same pitch and how much they would
have to pay for the privilege.
19. In the absence of being fully compensated
(which is discussed below), the on-course bookmakers wish to be
confident that they have both the right (provided charges are
paid and other relevant rules obeyed), to enter the course and
the security of knowing that they will retain their list position
which enables them to chose the most advantageous pitch (no doubt
their usual pitch) that such list position gives them. Further,
it is important, both to the development of the ring and to give
the bookmakers a capital return on the investment in their businesses,
that they are able to transfer their list positions for market
value.
20. The racecourses may have resented the
loss of a certain amount of control over what happens on their
land as a result of their obligations under the certificate of
approval and the authority of the Levy Board. Presumably, they
would welcome greater control in any new system of list positions.
21. A possible solution would be to replace
the list positions with standard form licences granted by each
racecourse to each bookmaker on each list. For example, bookmaker
number one in the list at Ascot would have a licence to place
a pitch in the relevant ring and have first choice where that
pitch is placed within the relevant ring. The licence would be
subject to payment of the entrance fee and other relevant terms.
22. There would be no capital cost for the
grant of the licence that would simply replace the existing list
position and therefore reflect and encompass the investment made
already by the bookmaker.
23. Licences would be freely transferable
either by private treaty or public auction thereby enabling the
bookmakers to realise their investments on retirement or withdrawal
from the business generally or a course in particular.
24. The racecourses might want the opportunity
to conduct the auctions themselves and take a commission in the
same way that the NJPC did if they also have the obligation to
provide staff and services in administering the activities in
the ring. Alternatively, a new body could conduct auctions if
one is set up to replace the NJPC.
25. In order to avoid the loss of commission
in sales by private treaty, all sales could be subject to a percentage
commission and the racecourse could provide the place and the
means to advertise the prospective sale in a similar way to estate
agents.
26. Licence terms and rates of commission
should be standardised to maintain consistency throughout the
country and in the interests of transparency and fairness.
27. There remain two important issues:
— How can a licence retain its
value if the racecourse has a free hand to add new pitch positions
and develop (subject to approval by the Licensing Authority) new
rings?
— How long should the licences
last? At present, the bookmakers face the prospect of an asset
that they thought would last without any time limit (ie their
pick list position) being reduced to less than five years.
28. The two issues are linked. If the licences
were granted for an unlimited period, they would retain their
value and provide a better commission on sales at auction. Equally,
if the racecourses developed new betting areas, these would be
available to the licensees as they would simply pick from the
old or the new areas as they wished and in the order that they
appeared on the picking/licensee list.
29. Of course, that leaves the question
as to the number of pitch positions available. The system that
worked successfully prior to the 1998 changes was based on limiting
the number of pitches as a percentage of the number of entrants
to the racecourses and all interested parties set it independently.
In other words bookmakers with a vested interest in that particular
track could not be involved in the setting of the numbers.
30. Alongside the licence system, there
could still be more flexibility in charging than the old five
times rule as it seems likely that the racecourses would need
to match the market conditions. In other words, there may be reduced
charges for quieter meetings to ensure attendance and increased
charges for the most lucrative meetings and/or best list positions.
Compensate on-course bookmakers for loss of pitch
list seniority
31. An alternative to continuing some sort
of system of list positions is to compensate the on-course bookmakers
for the loss of their investments. The amount of compensation
could be assessed by reference to the NJPC records of auction
prices for list positions at the different racecourses.
32. It should be possible to have an independent
firm of auditors undertake the necessary analysis of the records.
They may have to extrapolate the likely values for those positions
on the list that were not sold at any time by auction and to update
valuations of list positions sold in previous years to a date
before the anomaly about the 2005 Act came to light.
33. Whilst compensation would be a potential
way of leaving behind the previous system of seniority and remedying
the unfairness that the on-course bookmakers would otherwise suffer
under the 2005 Act, it has two disadvantages. First, there is
likely to be some significant elements of judgement in the valuation
of list positions and therefore disagreement by some with the
outcome. Those aggrieved would no doubt wish to have a route of
appeal which gives rise to more bureaucracy and administrative
cost. Secondly, there is the question of who funds the compensation.
As the Government's plan is that the administration and regulation
of gambling should be self funded by the charging of application
fees and annual licence fees, there is unlikely to be a budget
set aside as a contingency to pay compensation to the unforeseen
loss of list position value.
34. The racecourses could fund the compensation
for on-course bookmakers as they are receiving the benefit of
the abolition of the lists. With no list, there would be more
scope to charge differing entrance charges depending on the position
allocated to the on-course bookmaker. As identified above, the
racecourses would be likely to create their own lists and sell
the positions to the highest bidders.
35. Compensation could be funded in this
way by affording credits to those on the list with the highest
number of credits being awarded to the highest on the list and
the lowest number of credits to the last on a list. These credits,
equivalent to the monetary value of the list position (according
to an auditor's valuation) could be used to purchase the list
positions on the racecourses own list.
36. However, we can see that there are a
number of areas of potential conflict in a complex system such
as this and the exchange of list positions for licences would
be more straightforward to administer.
This position has been endorsed by Celia Barlow
MP who feels that important lessons can be learnt from her constituents'
experiences.
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