Appendix: Government response
I am writing to respond to the conclusions and recommendations
set out in the Culture, Media and Sport Committee's report on
on-course horserace betting published on 23 January. My response
has been delayed pending the conclusions of the Existing Betting
Areas Working Party which has been looking at this issue, and
I am grateful for the Committee' patience in allowing the Federation
of Racecourse Bookmakers (FRB) and the Racecourse Association
(RCA) to continue their discussions until after Easter Recess.
This extension provided some badly needed breathing space at a
point when the dialogue was at a sensitive stage.
I would like to thank the Committee for its detailed
consideration of the issues. This clearly reflects the important
roles that racing and horserace betting continue to play in the
sporting life and culture of this country, and the Government
is committed to the future prosperity of both the racing and bookmaking
industries. We are rightly proud of the unique atmosphere that
exists at British racecourses on race days, and this is enhanced
by the variety of on-course betting opportunities available to
the public.
Below I set out the Government's responses to the
conclusions and recommendations in the Committee's report, but
since the Committee offered some much appreciated support for
the Working Party, it may be useful if I first summarise the progress
it has made.
I convened the Existing Betting Areas Working Party,
under the independent chairmanship of Sholto Douglas-Home (then
Global Head of Marketing and Communications at Reuters), to assist
representatives of the FRB and RCA to agree a non-legislative
mechanism for allocating positions to bookmakers within racecourses'
existing betting rings that both bodies could recommend to their
members for adoption after cessation of the Five Times Rule.
To this end the group, which met seven times, took
account both of bookmakers' case that the list positions which
they had purchased should be honoured, and of the requirement
of racecourses to establish a robust commercial system governing
bookmakers' entry into, and the allocation of positions within,
existing betting rings. The terms of reference specified that
the focus of the group's work should be on identifying workable
solutions rather than debating how the present situation came
about. A decision was also taken to set on one side the issue
of pitch allocation in new betting areas, although this remains
a pressing matter and one which the FRB feel has a material impact
on the value of their list positions.
On the basis of suggestions submitted by both parties,
the Working Party enjoyed considerable success in identifying
the individual elements within a satisfactory new relationship
to operate from 1 September 2012. Concepts on which there was
some level of agreement in principle (though the FRB indicated
they would require much more specific details before agreeing
to consult their members), included:
- Term agreements recognising
existing pitch list positions for a fixed period (length to be
determined, see below), which would cover bookmakers' positions
in both existing and new betting areas;
- The ability of bookmakers to trade list positions,
with racecourses taking a commission on trades;
- Detailed contracts setting out not only bookmakers'
obligations in terms of payments, attendance and behaviour but
also racecourses' obligations in terms of services and facilities
provided to bookmakers;
- Provisions for bookmakers who refuse to accept
new arrangements;
- Bookmakers paying a percentage of annual turnover
or a discountable daily fee (depending on local preference) in
return for access to the betting ring;
- Regular access fee reviews (3 or 5 yearly to
be agreed);
- Provision for expert determination in the event
of disputes over payments.
One key area where the Working Party could not reach
an agreed position was the total term over which contracts recognising
existing pitch list positions (referred to by the RCA as "First
right of refusal") should operate. The RCA's initial position
was that this term could not extend beyond 2012; the FRB's was
that it should be indefinite. Both sides offered some flexibility
on the issue. Following discussions in the Working Party and subsequent
consultations with its members, the RCA agreed that they would
be prepared to recommend to racecourses, subject to certain conditions,
that the Right of First Refusal period could extend to 25 years
beyond the date of implementation of the Gambling Act, that is
to 31 August 2032. The FRB agreed that the overall term might
be limited to 99 years (thereby relinquishing the principle of
perpetuity).
In the final meetings of the group a possible compromise
position emerged, under which a subsequent period or periods of
25 years could be negotiated, with appropriate commercial settlements,
at the 20 year point (initially, in 2028). However, there remain
differences of opinion over whether only one or multiple extensions
may be appropriate; and whether these extensions should be unilateral
(i.e. the bookmakers having an automatic right to renew contracts
on payment of the agreed sum), or bilateral (i.e. renewal subject
to agreement by both the bookmaker and the racecourse involved).
The RCA have agreed to give further consideration to whether three
successive automatic 25-year extensions, subject to agreement
on an appropriate fee, might be acceptable.
Since clarity had been achieved on the respective
issues during the course of seven meetings, Sholto Douglas-Home
proposed at the final meeting on 18 April that the best way forward
would be for local discussions to commence at a small number of
individual racecourses to be agreed between the FRB and RCA. These
should proceed on the basis of the areas of agreement identified
above, and also (to avert long discussions on points of principle)
on a public statement agreed by both parties setting out their
respective positions on the three key issues of term, the commercial
relationship and arbitration. A copy of this is attached.[2]
The aim of the negotiations would be to establish whether agreement
or compromise could in fact be reached at local level on the remaining
contentious issue set out above, rather than though continued
centralised meetings and discussions. The mechanics of the local
negotiation process, and the choice of racecourses to be involved,
were subject to further discussion between the FRB and the RCA.
I move now to each of the Select Committee's conclusions
and recommendations in turn.
Conclusion/recommendation 1
1. We
support the removal of the five times rule and the move to commercial
negotiations under which on-course bookmakers gain access to racecourses,
as this will result in a more equitable, flexible pricing structure,
and we note that most bookmakers accept the end of the five times
rule. On-course bookmakers are an important part of the race day
experience and, as a result, racecourses have an incentive to
ensure that a range of bookmakers remain on-course. We do not
therefore accept the arguments that racecourses would price smaller
bookmakers out of the market. We also note that the removal of
the five times rule may decrease the price some bookmakers pay
to enter a racecourse.
(Paragraph 24)
Like the Committee, the Government supports the move
to a modern commercial relationship between racecourses and on-course
bookmakers. We believe the removal of the five times rule and
its replacement with commercial agreements covering bookmaker
entry to racecourses will ultimately mean a fairer system for
all.
Both the racing and betting industries recognise
that on-course bookmakers have a role in enhancing race-goers'
enjoyment of horseracing. Given this, we agree with the Committee
that racecourses are unlikely to seek commercial arrangements
which would significantly disadvantage smaller bookmakers, as
that would risk reducing the variety of betting opportunities
available, making race-going a less attractive experience for
the public. The Gambling Act 2005 allows racecourses and bookmakers
greater flexibility than before in how they operate, provided
that the core objectives of the Act are promoted. This should
mean increased opportunities for them to work together and provide
services that best fit the needs of race-goers.
Conclusion/recommendation 2
2. We
note that by abolishing certification, the Gambling Act 2005 removed
the mechanism which ensured that racecourses observed the National
Pitch Rules and bookmakers' list positions. While we accept that
the list position system was never codified in statute, it is
unclear whether the Government appreciated the consequences of
the Gambling Act's removal of the enforcement mechanism for the
National Pitch Rules and list positions. The Government told us
that it saw no reason why a list position system would be incompatible
with the new licensing system introduced by the Gambling Act.
We believe that the Government was naïve if it assumed that
a list position system would continue in the absence of an enforcement
mechanism, given the historically difficult relationship between
racecourses and bookmakers. If it was aware of the risk to the
list position system, it should have done far more to highlight
this. Its failure to do so helped to reinforce the impression
given to bookmakers that the Gambling Act would not affect the
operation of the list position system. We note the efforts of
bookmakers and racecourses to agree new arrangements for the administration
and regulation of on-course betting and we welcome the establishment
of the new working party to consider the issue of pitch positions
which lies at the heart of the dispute. (Paragraph 29)
We note that the Committee considered the Government
naïve in believing that a pitch list position system could
continue within the new licensing system introduced by the Gambling
Act 2005, and in the absence of an enforcement mechanism. However,
I am clear that the Gambling Act brings about a better, more consistent
system of premises licensing; and we were well aware of its likely
consequences. It remains our view that a pitch list system is
not incompatible with a commercial framework governing bookmakers'
entry into betting areas. It appears from the conclusions of the
Working Party that we are correct in this.
I also do not accept that the Government failed to
sufficiently highlight any risk to the list position system. Both
racecourses and bookmakers were made fully aware of the implications
of the Gambling Act during the consultation phase.
Conclusion/recommendation 3
3. We are very disappointed with the manner in
which the Racecourse Association (RCA) has approached the transition
to commercial arrangements—negotiations would have progressed
much more smoothly if the RCA had taken a less confrontational
approach to discussing pitch allocation after 2012. We welcome
the RCA's stated willingness to enter into negotiations with bookmakers'
representative bodies to try to find a way forward and note that
the RCA has indicated it is prepared to set aside its statement
that racecourses will not recognise lists after 2012 provided
that the Federation of Racecourse Bookmakers (FRB) is prepared
to consider that list positions would not continue in perpetuity.
(Paragraph 33)
This relates to the action of the RCA and it would
not be appropriate for the Government to comment on this matter.
Conclusion/recommendation 4
4. We heard conflicting views on whether or not
any indications about security of tenure were given to those buying
positions on bookmakers' lists. We did not see any evidence to
suggest that definitive indications were given stating either
that list positions were bought in perpetuity or that list positions
were bought for a limited time period. However, we are convinced
that those purchasing list positions in auctions administered
by the National Joint Pitch Council (NJPC) did so in the firm
belief that these were purchased in perpetuity and that buyers
were encouraged in this belief. It was also reasonable for buyers
to believe that this was accepted by the Racecourse Association
(RCA) given the RCA's representation on the NJPC. (Paragraph 43)
The Government notes that the Committee considered
the evidence before it inconclusive about whether or not definitive
indications were given on security of tenure. However, we accept
that it is probable that those acquiring list positions at least
believed they were doing so "in perpetuity", despite
the lack of any definitive indications, and that a number made
significant investments.
Conclusion/recommendation 5
5. We support the Government's wider objective
of withdrawing from the administration and regulation of horseracing
and agree that the racing and betting industries should be given
the opportunity to manage their own affairs wherever possible.
We note, however, that the Government, despite its objective of
decreasing its involvement in horseracing, has elected to continue
intervention after 2012 by making it a mandatory condition of
racecourse premises licences that areas must be provided for on-course
bookmakers to carry on their business. (Paragraph 49)
I am pleased that the Committee supports the Government's
objective of withdrawing from the administration and regulation
of horseracing. This objective continues; for instance, we recently
transferred the assets and ownership of the National Stud from
the Crown to the Jockey Club. As the report states, however, this
should be 'wherever possible' and in that respect I do not accept
that the mandatory condition on racecourse premises licences that
areas must be provided for on-course bookmakers to carry on their
business can be regarded as undue interference. We believe that
this condition is important and necessary because, as we have
stated above, on-course bookmaking is an integral part of the
public's experience of horseracing. We are nonetheless committed
to working with the Gambling Commission to monitor the impact
of the Gambling Act.
Conclusion/recommendation 6
6. We note the view that commercial arrangements
for the admission price charged to on-course bookmakers should
be completely separate from discussion of the method of allocation
of pitch positions. While it does make sense to discuss at the
same time the product in question—the pitch position—and
the price of that product—the payment by the bookmaker—it
is the case that the two issues are not inextricably linked and
could be negotiated separately. (Paragraph 54)
We continue to believe that satisfactory conclusions
can be reached on both access charges for on-course bookmakers
to enter the racecourse and the method for allocating pitch positions,
whether or not they are linked. While it is for racecourses and
bookmakers now to decide how best to continue negotiations about
the detailed arrangements, they were encouraged through the Working
Party to seek innovative solutions, and solutions began to emerge
which addressed both access to betting rings and pitch allocation
(although it was apparent that detailed proposals can only be
developed when the issue of length of term is resolved).
Conclusion/recommendation 7
7. If one was starting with a clean sheet of paper,
as the Racecourse Association (RCA) suggest, then we agree that
commercial negotiation between bookmakers and racecourses would
be the right way to determine the allocation and pricing of pitch
positions. However, considerable amounts have been invested by
those who have bought list positions under the existing system
in good faith and this cannot simply be ignored. If the racecourses
wish to end the present system and move to fully commercial arrangements
then account must be taken of the financial losses which will
result to the present holders of list positions. (Paragraph 61)
Those of the Committee's conclusions which were directed
at racecourses or the RCA, such as whether or not racecourses
should take account of any financial losses which may result from
new commercial arrangements, are not a matter for the Government.
Conclusion/recommendation 8
8. The value of list positions undeniably fell
after the Racecourse Association (RCA) announced that racecourses
would not recognise bookmakers' lists from 2012 onwards. If racecourses
wish to move to a fully commercial relationship for the allocation
and pricing of pitch positions, we believe that they should compensate
list position holders for their losses resulting from the difference
in the value of a list position held in perpetuity and one with
a tenure lasting only until 2012. If racecourses decide to continue
to honour existing list positions however, compensation would
not be necessary. We hope that racecourses and bookmakers can
negotiate mutually satisfactory commercial arrangements but, should
this not be possible, we believe that the Government should stand
ready to reimpose the condition previously required under the
certificate of approval system that racecourses should observe
bookmakers' lists. (Paragraph 66)
The Committee is correct that it is open to the Government
to consider introducing a licensing condition requiring racecourses
to recognise pitch lists. However, we note the Committee's encouragement
for the development of a suitable commercial framework which takes
some account of the issue of list positions. As long as there
is any possibility of a commercial framework being agreed which
is acceptable to both sides, the Government's clear preference
is not to proceed down a potentially inflexible legislative route.
Following the Working Party I remain hopeful that
such a framework can be agreed, and as detailed above I am now
encouraging both sides to move the deliberations away from the
meeting room to local negotiations at individual racecourses,
where the remaining issues which the Working Party could not solve
can be addressed in a real commercial environment.
I hope that this response has been helpful and once
again thank the Committee for its considerable contribution to
the debate.
2 Not printed. Back
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