Written evidence submitted by British Horseracing (GA 84)

1. Introduction

1.1 British Horseracing welcomes the opportunity to respond to the Culture, Media and Sport Committee Inquiry into Gambling. This response is submitted jointly by all the constituent parts of the sport and industry, including the British Horseracing Authority as governing and regulatory body, the Racecourse Association, the Horsemen’s Group, which represents owners, breeders, trainers, jockeys and stable staff, and the Jockey Club.

1.2 We believe that this Inquiry, with particular reference to the Gambling Act’s effectiveness and implementation, is long overdue, and that the overarching gambling framework in Britain has a number of severe deficiencies, and is out of balance, now too heavily skewed in favour of betting operators to the detriment of Horseracing, which remains a core betting product.

1.3 Owing to the nature of Horseracing and its specific relationship with the betting industry, we wish to cover both financial and regulatory aspects, many of them overlapping, in our response.

1.4 The Racecourse Association has also sent a shorter response, which the wider industry again supports fully, covering points specific to racecourses and gambling.

1.5 We note also and endorse the responses to the Inquiry by the Sport and Recreation Alliance and Sports Rights Owners Coalition. The British Horseracing Authority is a member of both bodies, and the Racecourse Association is a member of the former.

2. British Horseracing and Gambling - Context

2.1 Horseracing has been a major part of the British sporting and cultural landscape for centuries. The names of races, jockeys and horses, along with much of the sport’s terminology, are part of our national vocabulary.

2.2 Racing and all its aspects are part of the fabric of our communities. It plays a large part in the economic, social and cultural life of the country. Each of our sixty racecourses, urban and rural, plays a vital role in its local economy, providing significant employment and a social hub throughout the year on race days and non race days alike. Trainers, stable staff, jockeys, breeders, farriers, vets and other associated industries are spread right across the country.

The British Horseracing industry

2.3 The histories of horseracing and gambling in Britain are also closely intertwined. Indeed it might be argued that without horseracing off-course betting would not have been legalised when it was in the early 1960s. Our sport represents many things and operates in a number of markets, but chief among them is its status as a betting product. The Rules of Racing enshrine the fact that significant sums of money are staked on race outcomes, and the majority of our fixture list by overall volume, timing and race scheduling within it is determined by the needs of the betting industry.

2.4 Accordingly, we view gambling, conducted responsibly, as a perfectly acceptable social pastime, and also an activity embedded within British culture, from those having an annual ‘flutter’ on the Grand National to regular race goers and weekend punters. We take our corporate social responsibility in this area very seriously, and are proud of our record, including racecourses’ status as safe gambling areas.

2.5 As a result of this symbiotic link, changes to gambling policy in Britain have a significant, and often unintended, effect on British Racing. The Gambling Act, and the betting climate it has created, has arguably had a damaging effect on our sport, which is perhaps best illustrated in reference to the context around its introduction.

Liberalisation of Gambling sector, and Gambling Act 2005, has been detrimental to British Racing

2.6 Overall, at the start of the last decade, British Racing strongly supported the modernisation of the gambling framework in Britain. We made comprehensive and constructive submissions initially to the Gambling Review Body as chaired by Sir Alan Budd, and then during the passage of the Gambling Bill and to the Joint Committee scrutinising the Bill.

2.7 British Racing called for enhanced consumer choice and protection as a result of new arrangements, and was keen to see emphasis on ensuring that gambling was kept crime-free and the vulnerable protected. While supportive of deregulation in terms of the opening of Licensed Betting Offices (LBOS), both in terms of their operating hours and number and location of premises we were concerned about wholesale deregulation without commensurate measures and opportunities to directly benefit Racing and horserace betting, not least through allowing betting in pubs and clubs. We were not afraid of competition, particularly on a level playing field, but sought to widen the distribution of our own product if other, new products were to be permitted in our traditional selling points.

2.8 Most importantly, though, while we continued to make the case for appropriate and robust regulation at the Draft Bill stage, particularly in new forms of betting such as exchanges, the environment created by the Gambling Act was supposed to be a benign one for Racing, as the sport’s financial future was seemingly secured, and a commercial mechanism in place to ensure a value transfer between all betting operators and the sport in recognition of the direct and indirect benefits they derived from use of our product.

2.9 These commercial arrangements, based upon the licensing of pre-race data to betting operators under the existing EU Database Directive, were to replace the Horserace Betting Levy (‘the Levy’), which since the legalisation of off-course betting had ensured there was a mechanism for a financial transfer from the business of betting on races back to horseracing itself. This is a clear economic principle, and long-standing policy objective of UK Government. Entering into a new era of gambling and gambling regulation, the aim was that all those connected with gambling would share in the benefits of the inevitable growth to follow.

2.10 UK Government supported this new commercial mechanism, to the extent that a separate piece of legislation, the Horserace Betting and Olympic Lottery Act, was passed in 2004 to abolish the Levy, and also provide for the passing of the Horserace Totalisator Board (‘the Tote’) to a Racing Trust. This piece of legislation was arguably supposed to be more influential for the future of Racing than the Gambling Act, and should be viewed in tandem with that latter Act in terms of the current grave financial situation now faced by Racing.

2.11 This planned commercial mechanism was brought down by an unexpected European Court of Justice judgment in a case linked with other EU Governments’ desires to operate football pools monopolies and use the English leagues’ and other football data at little or no charge. The main result was that the Levy was not abolished and remains in place to this day, as its replacement was no longer robust and sustainable. Separately and more recently, the Tote and an exclusive horserace betting pool licence have passed not to Racing, but into private hands. The impact and effectiveness of the Gambling Act in terms of Racing’s finances should be viewed against this backdrop.

3. Impact on the Levy and Racing’s finances

3.1 As above, the Levy has remained Racing’s central and key income stream, based on a percentage of betting operators profits on the sport being paid back to the sport. The Levy averaged over £100m in the years 2004-2008, a significant increase on the previous years as a result of a number of factors including a significant expansion of the fixture list so that Racing and betting operators could share in the benefits of the new gambling regime.

3.2 The Levy has declined rapidly and alarmingly over the last three years though, to £91.6m in 2009, £76.5m in 2010, and £59.5m in 2011, as it has proved unable to cope with the modern betting environment as in part precipitated by the Gambling Act. With the Levy being spent on prize money-for all participants including not just owners but professional trainers, jockeys and stable staff-integrity services (not least for the betting industry and its customers), veterinary research and education and training initiatives, the impact of this decline has been severely felt, right across the industry.

3.3 In short, and as emphasised by the Minister for Tourism and Heritage with responsibility for Horseracing and Gambling, in a recent pre-consultation letter to the two wider industries, the Levy is no longer fit for purpose in its current form.

3.4 The causes for this decline are various, but three at the heart of the problem are inextricably linked with the gambling framework and the Inquiry in question’s terms of reference.

Betting Operators have exploited current legislative framework to relocate overseas and avoid paying Horseracing levy

3.5 Firstly, the proliferation of off-shore online gambling operators has had a deleterious impact on Racing’s finances. This proliferation, which includes the remote (telephone, internet and other application-based betting) platforms of the vast majority of major and minor betting operators advertising to and transacting with British consumers, has been permitted, or arguably encouraged, by the Gambling Act. Its Section 331 allows for this advertising to British consumers by offshore businesses, and these businesses in turn are able to avoid paying the Levy, and indeed tax.

3.6 This is perhaps the starkest evidence in the failure of the Gambling Act, which sought from the outset to cement the UK’s status as a global hub for gambling and to attract companies here. Our assessment is that just 3 of the leading 20 remote operators offering bets on Racing are based in Britain, and this number is likely to fall rather than rise in the short term. It is notable that the Exchequer’s receipts from General Betting Duty were lower in 2010/11 than before the introduction of the Gambling Act.

3.7 Long-overdue proposals from DCMS have just been announced to address this issue through licensing at the point of consumption rather than transaction, but it is vital that this legislative process is expedited, and that Levy payments are a condition of this new licence, which should be underpinned by robust enforcement measures.

Gambling legislation, and the Levy, fails to address new betting models that have evolved

3.8 We cover the integrity and regulatory impact of the Gambling Act, and the specific lacuna brought about by this issue, below, but remaining on the financial aspects, we are clear that betting exchanges – on which we made numerous representations to the scrutiny committee – are not subjected to a level playing field, and have a sizable customer base that is also operating professionally, with individuals trading and making upwards of 1,000 transactions an hour and making 20 data requests per second on the leading exchange, Betfair.

3.9 We, and betting exchanges themselves for much of the time, are clear that they represent a completely new and different form of betting that has turned the traditional market on its head. Our problem is that exchanges are not treated as such by our funding mechanism, which being based on an operator’s gross profits cannot cope with an alternative, high volume-low margin and peer-to-peer business model. The wider impact of betting exchanges on this market in general has not been assessed adequately, as they have again transformed the traditional landscape with far-reaching consequences.

Removal of the ‘demand test’ and LBO clustering

3.10 Further, the removal of the ‘demand test’ in respect of the new opening of LBOs has allowed for proliferation and clustering in many British towns: over a dozen on particular small high streets is not unheard of. We will again refer below to one root cause of this development, the permitting of four category B2 gaming machines in each LBO. However our issue now is that the Levy had historically provided for abated rates of payments for smaller LBO operators and this still exists and is being exploited by operators of major chains, who now have many smaller shops and benefit from unnecessary relief, which cost Racing some £10m in the 2010/11 Levy Scheme.

3.11 We are clear on the solution, and believe it vital that immediate legislative steps are taken to correct the numerous deficiencies within our current funding framework. Racing has recently made strong and collective submissions to DCMS [1] on this subject, and wishes to move to far more commercial arrangements with the betting industry so that we can again share in the benefits the Gambling Act has brought to the betting sector, and ensure that the highly liberal gambling regime in Britain is again underpinned by a recognition that horseracing receives a fair return from all forms of betting on its product.

4. Gaming Machines

4.1 In terms of the effectiveness of the classification and regulation of gaming machines under the Act, it is not for Racing to comment on the claims from many quarters that category B2 machines are highly addictive. They have however had a significant effect on British Racing’s market share and finances.

4.2 We are certainly not opposed to competition, but believe it should take place on a level playing field, and also with respect to the prevailing licensing regime and indeed the wider social good and benefits of a healthy and sustainable Racing industry in terms of community and social cohesion, employment-particularly in rural areas-and wider economic impact.

4.3 The proliferation of gaming machines within LBOs, and the fact that the British betting industry now makes more money from such machines than on British Racing and indeed they now often provide well over 50% of an LBO’s gross profit, does raise many questions as to the primary purpose or primary gambling activity of LBOs, which has most recently been defined under general betting licenses as the genuine availability of facilities for betting on real or virtual events, with accompanying detail, and the provision of odds and results etc. Category B2 machines provide gaming, not betting, and the type of activity and stakes that had traditionally been restricted to casinos or other similarly licensed venues. We have strong reason to believe that Racing, through the provision of its product in LBOs-it remains far and away the largest supplier of content-legitimises the presence of gaming machines in such premises, yet receives no direct or indirect benefit.

5. Integrity and Regulatory Aspects

5.1 The Inquiry seeks views and evidence on the effectiveness of the Gambling Act in achieving its core objectives and the effectiveness of the Gambling Commission since its establishment.

5.2 British Racing is most concerned with the Act’s first objective, to ensure that gambling is maintained crime-free and conducted in an open and fair manner. Our response to this must be combined with our views on the Gambling Commission, as this is the forum through which Racing addresses integrity and potential crime issues.

5.3 There has been significant investment within Racing since the middle of the last decade, and a complete overhaul of our own processes and systems, to ensure that the sport is fair and clean, and seen to be so. We have codified definitions of Inside Information and its misuse and have robust disciplinary structures in place. But a partnership approach between statutory regulators, the police and sports bodies is vital in the area of sports corruption. While this partnership was further engendered by the Gambling Act and the establishment of the Gambling Commission, we believe that there has been a limited impact on ensuring that crime, including organized crime, is kept out of gambling and that gambling is conducted fairly.

5.4 Although the new criminal offence of cheating was much lauded as the Gambling Act was being drafted and passed through Parliament, and heralded as the answer to sports’ problems in tackling known and serious offenders of sports betting corruption, to date there has not been a significant conviction under this offence. This is not least because it only carries a maximum of two years’ imprisonment (when set against, say, shop-lifting which can carry a penalty of ten years’ imprisonment).

5.5 In reality, Police forces do not tend to involve themselves in sports-related corruption, and the Gambling Commission will generally also leave the handling of such issues to sports governing bodies and regulators themselves. Little has actually changed in the way Racing has to deal with cheats in the sport, with a reliance on our own Rules, naturally limited in their scope and sanction. We have still not seen the successful conclusion of an investigation into corruption carried out by the Gambling Commission, and their expertise and resourcing-along with that of the Police-to deal with such matters is limited.

5.6 In 2010, the Parry Review of Integrity in Sports Betting under the auspices of DCMS and the Gambling Commission gave Racing reason to believe that the workings of the Gambling Commission would be modernised and, in particular, be more supportive of sports bodies in dealing with betting-related corruption. Its recommendations [footnote] were clear-as indeed were the eminently sensible ones contained in the report of the All Party Betting and Gaming Group’s report back in February 2005, which remain required reading-but we have not seen the anticipated progress and the Sports Betting Intelligence Unit set up as a result of the Parry Review does not represent the required sea change.

5.7 We would note, however, that there are a number of positives from the regime as brought in by the Gambling Act. Licence Condition 15.1 requiring bookmakers under the Act to supply details of suspicious betting on sports was undoubtedly a significant development, but its impact has been negated by the overwhelming majority of remote operators being based outside of Britain and being outside our regulatory framework, as outlined above.

5.8 There are real and live integrity and consumer protection implications to this loophole, which we again call on to be closed as quickly as is practical following the recent announcement from the Minister for Tourism and Heritage. It is, frankly, farcical that the regulator in Gibraltar sees fit to opine and disagree with the British Horseracing Authority in the interpretation of our own rules, and that punters betting with the same company are treated markedly differently according to the platform through which they placed bets. Without going into further detail, we have had specific issues with operators in Gibraltar and elsewhere not being willing-and of course-not being compelled to co-operate with betting related corruption investigations, and we do not view it as a healthy situation that many of the companies being overseen by the Gibraltar Regulatory Authority are based in the same building as that body.

5.9 From a customer’s perspective, we have also been made aware the Act also has practical limitations. Section 336 for example, which provides the Gambling Commission with the power to void bets, is limited to a 6 month period. The practicalities of dealing with incidents that may lead to bets being void under this section cannot be satisfied within this 6 month period.

July 2011


Prepared 12th September 2011