Memorandum submitted by the Federation
of Racecourse Bookmakers (FRB)
EXECUTIVE SUMMARY
Since the introduction of the Fergusson scheme
in 1958 and subsequent regulatory regimes, on-course bookmakers
have had the right to inherit and subsequently purchase "list
positions" on racecourses in the UK.[1]
Currently, list positions are recognised by all interested parties,
including the RCA. Such recognition has been the cornerstone of
the right for on-course bookmakers to buy or sell their list positions
at auction. It has been understood by all bookmakers that their
list positions, and correspondingly their rights to operate their
pitches, are held in perpetuity, subject to the continued existence
of the racecourse in question.
The importance of the list position was stressed
to the DCMS prior to the Gambling Act 2005. This legislation does
not expressly refer to the existing and acknowledged position
of bookmakers' tenure of their list positions. The RCA has announced
that, in 2012, they will cease to recognise the current list positions.
This decision is opportunistic and manifestly unfair threatening,
in effect, the ruin of bookmakers' businesses since their assets
are being completely devalued. Over £100 million has been
traded by bookmakers for their list positions since the introduction
of the auction system in 1998.
As the bookmakers' submissions illustrate, many
on-course bookmakers are small family concerns and one of them
is an AIM listed company. If the RCA are allowed to proceed as
they say they will, then small individual bookmakers, shareholders
of an AIM listed company and persons who have invested their pensions
and savings in list positions will have their assets stripped
from them without any compensation. This may lead, as a consequence,
to the destruction of the established starting price regulatory
mechanism, which has been tried and tested and is approved throughout
the industry. The on-course bookmakers are the cornerstone of
that system.
A remedy for this problem would be for the RCA
to accept the need to return to the practice on sale and transfer
of list positions that was established prior to the Gambling Act
2005 Failing this, Parliament must reintroduce a body with a mandate
to ensure that bookmakers' list positions are recognised and to
have jurisdiction over their sale and transfer. FRB has read and
adopts the submissions made by the Association of British Bookmakers
(ABB).
1. Introduction
1.1 The Federation of Racecourse Bookmakers
(FRB) is an amalgam of three trade associations which compromise
almost the entirety of on-course bookmakers in the United Kingdom:
the Rails Bookmakers Association, the National Association of
Bookmakers and the Association of Racecourse Bookmakers.
1.2 These submissions should be read in
conjunction with the submissions of Mr Barry R Johnson, Mr David
Neville Porter, Mr Glen Paul Shackleton, Mr Geoffrey Banks and
Mr Michael Martin Campbell. These individuals are all members
of the FRB but make their submissions as representing their particular
concerns and their own perceptions of the issue which form the
subject matter of this inquiry.
1.3 Furthermore, Mr Clive Reams, former
Chief Executive of the National Joint Pitch Council, has made
a submission, as has Mr Robin Grossmith, a director of the FRB.
These submissions deal with the circumstances leading to the introduction
of the current system of sale and transfer of list positions,
and role of the NJPC in its administration. Mr Grossmith's statement
annexes letters from the lawyers of the FRB to Sir John Sparrow,
former Chairman of The Levy Board, Mr Keith Elliott, a Government-appointed
member of The Levy Board and Mr Tom Clarke, current Chief Executive
of the NJPC. Mr Richard Marriott OBE, former Chief Executive of
the NJPC, has made a submission that refers to and confirms the
accuracy of Mr Clarke's letter. Mr Marriott's submission has been
annexed to Mr Robin Grossmith's submission.
2. The terms of reference
2.1 The terms of reference were clearly
set out in the Select Committee's announcement No.35 on 26 July
2007. After careful consideration, the FRB decided that it is
likely to be of the greatest assistance to the Select Committee
first to address the second term of reference before making submissions
in respect of the first and third.
2.2 The Racecourse Association (RCA) set
out its position with regard to lists most fully in its letter
of 14 March 2007. A copy of that letter is served herewith as
Annexe 1. In particular it will be noted that the stated position
of the RCA is (at paragraph 3):
"Given the marked differences in the new
licensing regime when compared with the current position, the
RCA's approach is to start with a clean sheet of paper".
(FRB's emphasis)
2.3 As appears hereafter, the FRB takes
the strongest objection to "a clean sheet of paper"
approach if the use of that expression is intended to mean that
the well-established security of tenure framework, within which
so many on-course bookmakers have built their businesses over
many years, should or can properly be regarded as wholly or largely
irrelevant for the future.
3. What indications on security of tenure,
if any, were given to those buying positions on bookmakers' lists
in recent years?
3.1 Background
3.1.1 The acknowledged concept of the legality
of a bookmaker to stand in a defined location and to be charged
a maximum by a racecourse to do so has existed since the Racecourse
Betting Act 1928.
3.1.2 Such a concept has been recognised
as necessary to promote a disciplined and orderly racecourse betting
market and to protect the integrity of the Starting Price, which
is the prevailing odds in the on-course fixed-odds betting market
at the time a race begins.
3.1.3 Bookmakers' Lists, based on seniority
and transfer of seniority, evolved thereafter (ie from 1928) in
a transparent, recognised and orderly way.
3.1.4 Since 1958 there have been several
systems that governed the sale and transfer of list positions.
Every one of these systems embraced the list position as an asset.
Of these systems, that implemented after recommendations by the
Committee Chaired by Sir John Sparrow in 1997 is the most recent
(prior to the Gambling Act 2005), hence the emphasis placed upon
it in this submission.
3.1.5 Following its appointment in October
1997, a Sub Committee appointed by the Horserace Betting Levy
Board, under the Chairmanship of Sir John Sparrow, reported on
24 March 1998. A copy of the report is served herewith as Annexe
2.[2]
As a direct result of the Sparrow report the structure of on-course
betting was refined and improved. That structure, which allowed
bookmakers to buy and sell their list positions, has remained
in place since 1998. It has been overseen and regulated principally
by the National Joint Pitch Council (NJPC) whose constitutional
membership has always been fully representative of relevant interests,
including the RCA.
3.1.6 One of the primary aspirations of
the Sparrow Reporting Committee was towards "improved arrangements
for the administration of betting rings both in the short and
long terms". The "revitilisation of the betting rings"
will be "to the benefit not only of the racegoers and bookmakers,
but also the racecourses and the off-course punters" (Annexe
2; Sparrow Report; Introduction; Section 1.6).[3]
These statements of intention illustrate the longevity that the
Committee envisaged for the system it recommended and their anticipation
that it would have a positive impact on all parties involved,
including the RCA.
3.1.7 During the consultation period, both
the Rails Bookmakers Association (RBA) and the RCA put forward
suggestions to the Sparrow Reporting Committee as to how the seniority
system should be modernised and improved. Notably, neither interested
party disagreed with the main proposition. Accordingly, the Committee
concluded that they saw "no reason [...] why the principle
should not be retained, but that it needs to be streamlined and
improved in order to make it effective into the twenty-first century"
(Sparrow Report; Section 4.1). This statement further reiterates
the point about foreseen longevity of the changes and demonstrates
the RCA's contribution to and approval of them.
3.1.8 Furthermore, both the RCA and the
RBA agreed that "there should be a system for transferring
seniority positions for value" (Sparrow Report; Section 4.2).
With regard to this, the auction system that the Committee recommended
was designed to "maximise the prices achieved by bookmakers
who wish to retire or acquire a better position" (s.4.2).
This indicates the list position's status as an asset and, by
placing the emphasis on value, implies that duration of tenure
is not uncertain.
3.1.9 Section 5 of the Sparrow Report entitled
Transfer of Seniority Positions constituted the core of the position
for the future and received the support of all parties to the
review, including the RCA. After collecting information from both
the RCA and National Association of Bookmakers, the Committee
concluded that the seniority position, which "confers the
right to occupy a particular pitch in the betting ring" is
the "only interest to which a bookmaker has a right and which
may be transferred" (Sparrow Report; Section 5.2). Notably,
any attempt by the racecourses to sell pitches to bookmakers "may
be interpreted as a charge of admission to the betting ring and,
as such, would be in breach of the provisions of Section 13(2)
of the Betting, Gaming and Lotteries Act 1963" (s.5.2).
3.1.10 Regarding the method of transfer
of seniority position, the Sparrow Committee concluded that it
"is in the interests of both the bookmakers and racecourse"
(s.5.3) that the seniority positions should be sold via open auction
to the highest bidder. This was to be "conducted through
the NJPC and administered by the LJPC and the Betting Ring manager"
(s.5.3). Since 1998, under the auspices of these official bodies
and the Levy Board, this is precisely the way in which seniority
positions have been bought and sold.
3.1.11 In addition to transfer of seniority
position via auction, individual bookmakers have been able, upon
retirement or by their Will, "to transfer their seniority
position to a named individual who must hold a current bookmaker's
permit" (s.5.6). Notably, the Committee recommended that
transfer shall not be "effective until registered by the
NJPC, to whom the relevant registration fee must be paid"
(s.5.6). As a not-for-profit corporation, the NJPC redistributed
these funds to relevant parties, including the RCA.
3.1.12 The Sparrow Report provided unequivocal
indication upon which on-course bookmakers could and did rely
in making their important decisions as to with what presence and
in what betting rings they wished to begin or continue to operate
and develop their businesses. The video produced by Sir John Sparrow
for distribution to the interested parties reinforced the clear
view that the sale and purchase of list positions was in perpetuity.
3.2 Indications Post-Sparrow
3.2.1 The post-Sparrow system has always
functioned under the auspices of the NJPC, a not- for-profit company
limited by guarantee. Its authority to act as the administrator
of betting rings was anticipated by Sparrow and further authorised
and legitimised by the Certificates of Approval issued to racecourses
by the Levy Board. From the time of the first pitch auction, the
NJPC's Conditions of Sale explained that:
"Title to the lot sold will not pass to
the buyer until the transfer of the relevant Security Position
has been recorded by the NJPC in accordance with the National
Pitch Rules".
This is not the language of the sale and purchase
of permits or licences which are short term or entirely speculative
as to their duration. No reservation of title is made.
3.2.2 This permanence of pitch tenure was
yet further reinforced by NJPC staff on many occasions. Such opportunities
arose at auctions, bookmakers' seminars and at NJPC roadshows.
All concerned parties were fully involved in the process, including
the RCA, who were substantial beneficiaries from the commission
on auction sales. If there had been doubt in anyone's mind as
to the status or tenure of what was being bought and sold then
someone, either buyer, seller, administrating body or RCA, would
undoubtedly have raised a note of caution. At no stage did this
occur and nor was any indication given that the list positions
were secured in anything other than perpetuity.
3.2.3 The sale and purchase of pitches at
auction since 1998 has produced a turnover of approximately £100
million. Via commission on sales, already mentioned, the RCA has
directly or indirectly received slightly in excess of £3.5
million, as has been distributed by the NJPC, which has been used
for racecourse improvements.
3.2.4 Far from giving any contradiction
to the ongoing state of affairs, racecourses have welcomed the
strength and good order of the betting ring. This is unsurprising;
it directly improved the product offered to the racing public
and thereby encouraged greater numbers to attend race meetings.
3.2.5 The established success of the auction
system, with a mutuality of benefit to all involved, has provided
the strongest ongoing indication (if any were needed) that bookmakers'
investment in pitches provided a long term integrity and vitality
to the ring which was not (and certainly need not be) dependent
on the Levy Board and/or the NJPC maintaining their respective
roles or structures. Market regulation often changes; such change
should not destroy or undermine the underlying market or the fundamentals
which underpin its successful operation.
3.3 Extraneous Indications
3.3.1 The treatment of the asset value of
pitches by, for example, the Inland Revenue (for capital gains
or probate purposes) and the Divorce Courts has been consistent
only with those assets being regarded as of permanent worth rather
than their having a speculative or wasting value.
3.3.2 Moreover, as the submission of Neville
Porter illustrates, the asset value of pitches has been a central
tenet in bringing a bookmaking business to the A.I.M. market.
Had there been any concern that the bookmaker's pitches described
in the prospectus were of impermanent or speculative value, it
is inconceivable that this would not have been raised either by
potential investors or by the legal and financial advisers to
the issue.
3.4 Indications: Conclusions
3.4.1 The FRB recognises that merely because
its members (and every other party engaged in the process) have
acted in reliance on a certain belief, it does not necessarily
follow that that belief was well founded. Having made that theoretical
concession, there can be no doubt that the belief that pitches
(more accurately seniority of position on bookmaker's lists) were
traded in perpetuity was justified and encouraged.
3.4.2 Parliament may, of course, by primary
legislation overturn the existing system despite the disturbing
and, for many bookmakers, catastrophic consequences. However,
by its express provisions the Gambling Act 2005 does not do so.
Nor, by any necessary implication, was any such radical change
intended. Given Parliament's presumed adherence to the European
Convention on Human Rights (now enshrined in the Human Rights
Act 1998), this is to be expected. See especially Article 1, First
Protocol: the right to property.
3.4.3 The maintaining of on-course bookmakers'
rights to their valuable assets, represented by pitches, is consistent
with good order in the administration of racing, fair dealing,
the presumed intention of Parliament, and, most relevantly in
the context of these submissions, every indication from every
worthwhile source of the intended position now and for the future.
4. 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
4.1 The FRB's difficulty in making a constructive
response to this issue lies in the fact that the issue is framed
in a vacuum. Without assuming any sufficient framework within
which racecourses are to operate in the future, it is difficult,
if not impossible, to anticipate what "a purely commercial
basis" might actually mean.
4.2 Section 13 of the Betting, Gaming &
Lotteries Act 1963 also provides for a limit to be placed upon
the amount a racecourse may charge a bookmaker for entrance to
the course for the purposes of betting. The Act stipulates that
the amount shall, in the case of the bookmaker, not exceed five
times the amount of the highest charge made to members of the
public for admission to the enclosure within which the bookmaker
will be betting. This rule dates back to the Racecourse Betting
Act 1928 and has been replicated in all subsequent legislation
concerning betting on racecourses—up to but not including
the Gambling Act 2005. This rule is usually referred to as "The
five times rule".
4.3 The disappearance of the five times
rule, with effect from 2012, is undoubted. However, that event
raises as many questions as it answers. This is so primarily because
it does not follow that the reasons for the Rule's existence and
the practical philosophy that underpinned the Rule have a diminished
ongoing validity.
4.4 Quite apart from the income afforded
to racecourses, the five times Rule provided vital security for
both punters and bookmakers. It protected punters from the prospect
of excessive margins resulting from bookmakers passing on to the
betting public the higher charges levied by racecourses. The Rule
also acted as a brake, tending to prevent the Ring being dominated
by the big rails bookmakers. The balance of the Ring helped ensure
the integrity of the Starting Price and thereby promoted a fair
deal for punters both on and off-course.
4.5 The above submissions are not an attempt
by the FRB to reintroduce the five times Rule, or something similar,
after 2012. Rather, they attempt to persuade that the pre-existing
structure is the appropriate starting point for negotiations between
the RCA, FRB and other parties within the industry with legitimate
interests. The FRB suggests that the terms of the 2005 Act positively
encourage such negotiation, not least in order to inform and assist
the Gambling Commission.
4.6 In view of the present uncertainties
and absence of detailed proposals (which is not intended as a
criticism of anyone), there is no obvious answer to the question
posed by the term of reference. What may be safely said is that
a purely commercial approach, without regard to the interests
of bookmakers or the racing public, is likely to lead to an overwhelming
feeling of injustice, discontent and substantial distrust in the
organisation of racing.
5. What the role of Government should be in
the process for agreeing on a future framework for allocation
of on-course pitches for bookmakers
5.1 The Government should fully acquaint
itself with the existing structure relevant to the matters under
enquiry in order, in the light of the 2005 Act, to guide RCA and
FRB to negotiate in order to achieve a framework which is consistent
with the will of Parliament in passing the Act in its present
form. This is particularly beneficial, given the extensive remit
of the Gambling Commission and its obligations to give guidance
to local authorities under s.25 of the Act.
5.2 It is clear that there must be constructive
dialogue between policy makers, the FRB and the RCA. A mechanism
for ensuring that bookmakers' list positions, their assets, are
recognised is essential for the future of the industry. This could
be achieved by explicitly restating the recognition of bookmakers'
lists as a prerequisite for racecourses being issued a track betting
license.
5.3 If the RCA cannot be persuaded through
discussions with bookmakers to reverse its decision, which effectively
destroys the major assets of on-course bookmakers, in a way which
reverts to the practice on sale and transfer of list positions
that was mutually agreed to prior to the Gambling Act 2005, then
the Government, as the legislative body, must act to address this
gap in the Gambling Act 2005 in accordance with the spirit of
the Act itself.
5.4 The Government will, of course, remain
mindful of its avowed intention to secure a fair and reasonable
outcome in the public interest and in the interest of all elements
of the racing industry. No outcome will be fair or just which
fails to acknowledge the sanctity of bookmakers' lists, representing,
as they do, an enormous investment for the benefit not only of
bookmakers, their families, their investors and employees but
also reflecting their dedication to ensuring the good and fair
relationship between bookmakers and punters, as the Gambling Commission
requires. Racing would be the loser.
October 2007
1 A bookmakers' list position determines their choice
of betting pitch or pitches. The location of a betting pitch is
extremely important as it often determines how much revenue the
bookmaker in question will generate on any given day of racing. Back
2
Not printed. Back
3
Not printed. Back
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