What if no one pays?

The various reforms announced by the New South Wales racing industry this week have generally been given a quiet run in the media. So much so that Racing NSW and its wagering partner TabCorp have been reduced to issuing self congratulatory press releases in an attempt to generate some positive PR.

The centrepiece of the announcements is the proclamation after a 2 year delay of the so called Race Fields legislation, mooted to produce an extra $20 million a year for the NSW industry.

Sadly the two years since the legislation was first tabled has seen a dramatic change in the wagering landscape which quite likely will lead to a reduction in funding for New South Wales racing, rather than the suggested large increase.

The big issue is will anybody pay?
A little bit of history is worth exploring at this point.

The Victorian race fields legislation was actually drafted by Racing Victoria and submitted to the government at the height of the anti-Betfair hysteria. Its intention was ostensibly to recover fees from so called "parasites", but given equal weight at the time was the intention to secure "integrity" by banning the use of race fields by any operator lacking integrity - otherwise known as Betfair.

Ex Commonwealth Attorney General and now Racing Victoria Chairman, Michael Duffy, argued that such a ban would be blatantly in breach of the Trade Practices Act and the Constitution and eventually Racing Victoria had to agree to let Betfair use Victorian race fields.

Betfair, obviously considering High Court action, decided that it would observe a self imposed ban on using the Victorian race fields until the matter was decided in its favour. At that point it remitted well over $1 million it had accrued as a product fee when it had been betting on Victorian racing.

Racing NSW, having seen Betfair apparently cave in to avoid breaching the legislation, seems to believe that the same situation will occur again with its own race fields laws now enacted.

However there has to be serious possibility that no one will observe the new law, or even worse that it will be challenged in court.

There has already been a wide ranging challenge to the Victorian law lodged in the Darwin Federal Court by Matthew Tripp's Sportsbet.

Arguments raised in Sportsbet's statement of claim, as well as others raised elsewhere suggest that the NSW legislation is already dead in the water.

Sportsbet argue that the imposition of a fee payable to a private body (Racing Victoria) enforced by a law making non-payment a criminal act, is "ex colore officio" - literally "with the colour of officialdom". They suggest that such a law is in excess of a government's powers and is thus invalid.
Another argument is that the imposition of variable fees decided by among other things, the wagering operator agreeing not to sue Racing Victoria, is an improper use of a government imposed fee.
While it charges for the supposed use of Victorian race fields, Racing Victoria never actually delivers them to the wagering operators paying the fees. They have to get them out of the papers or off the Racing Victoria web site where of course they are free for anyone to enjoy.
In the absence of a law making non-payment a criminal offence, Racing Victoria could only charge the reasonable commercial value of the race fields. Since they are more or less given away by Racing Victoria elsewhere, it is hard to make an argument that they are hugely valuable. In the British Horseracing Board vs William Hill case, the High Court in the UK held that BHB's fees were extortionate and that William Hill only used a tiny portion of the BHB database which in any event was in the public domain.
There has to be considerable doubt about the ability of the Victorian or NSW government to prosecute a bookmaker in Darwin for an activity which takes place entirely outside their home state.
A considerable portion of bookmaker turnover is via phone betting. Arguably the bookmaker concerned does not publish race fields when a punter places a phone bet, so Sportsbet argue that no fee is payable.
When Racing NSW bought back the rights to its own data from RISA, wherein it resided prior to Peter V'Landys appointment, the consideration was under $2 million. The settlement included a stake in RISA itself. The $2 million was for the rights to all NSW race data in perpetuity, so it is a bit rich to say that they are now worth $20 million a year to just one part of the wagering industry.
Race fields data consists purely of numbers and horse names. Numbers cannot be owned by anyone and a horse's name is owned by its owners, who have never given permission to Racing Victoria or Racing NSW to sell it to anyone, let alone for $20 million a year.
The elephant in the room, which has not actually been mentioned by any of the government, Racing NSW or Tabcorp spokesmen gushing over their achievement is the High Court win by Betfair over the Western Australian government a few months ago.
Decided over Section 92 of the Constitution, guaranteeing freedom of trade between the States, this landmark case sent a signal that the High Court will not tolerate states imposing artificial barriers to protect their own industries.


Most importantly, it showed all wagering operators that they could win against the previously impregnable combination of state governments protecting local TAB's against interstate competition.

The implications of Section 92 of the Constitution are glaringly obvious when considering the NSW Race Fields legislation.

It is specifically referred to in the regulations accompanying the Act which suggests that the NSW government is fully aware of the importance of even handed administration by Racing NSW.


It means for instance that Racing NSW cannot use the race field fee structure to treat wagering operators differently. In fact unlike in Victoria where current TabCorp wagering CEO Robert Nason specifically exempted interstate TAB's from paying the race fields fee, Racing NSW intends to charge the same fee to all operators, TAB's included.

That will undoubtedly not go down well in Victoria, which currently receives no revenue from the TAB in New South Wales, but will be expected to bear a reduction in its income when Victorian punters bet on NSW races.

One has to ask how long that situation will be tolerated in Victoria, especially when NSW punters prefer to bet on the Victorian racing product rather than their own.

The outcome can only be that NSW will lose more than it can possibly gain from product fees when Victoria changes its regulations.

There is one other possibility which has not yet been announced but explains the apparent equinimity with which TabCorp has welcomed the race fields announcement.

That is that TabCorp may in fact reduce its local payment to the NSW racing industry from its current 5% or so to the same 1.5% expected to be paid by all operators under the Race Fields legislation.

It will of course now contribute additional funds from Victorians betting on NSW racing and has promised to pay the levy from its new Northern Territory "aNTi-TAB" operation.

Bet backs from the Northern Territory will be funneled into the NSW TAB pool. It has even been mooted that TabCorp will use its control over Sky Channel to increase coverage of NSW racing at the expense of racing in other states.

Having been badly treated by the Victorian government over the poker machine licensing issue, senior TabCorp executives have seen their options packages shredded, so they have no incentive to support Victoria.

Similarly, setting up their aNTi-TAB bookmaking firm is just about TabCorp's only chance of capturing the 1000 customers a week they are currently losing.

The wagering monolith's best chances of restoring its shattered fortunes are twofold :-

Reduce its own operating costs, which it can do by reducing its local payment to NSW, making up the difference to NSW by reducing payments to Victoria.
Meet its competitors head on, aided by the imposition of a 1.5% turnover tax by NSW combined with its own low cost aNTi-TAB competitor.
All of this is very clever, but it falls over at the first hurdle if the non-NSW wagering operators refuse to pay.

V'Landys is on record as saying that they wouldn't risk a criminal conviction. However its not a conviction until all appeals are exhausted. At the very least no prosecution can be launched while the Federal Court is considering the "ex colore officio" argument in the Sportsbet case.

If that argument gets up all race fields legislation is invalid.

And in the meantime TabCorp has dug a huge hole for itself by stating that it will pay. By the time all this plays out in 3 or 4 years, TabCorp's competitors could well have stolen many hundreds of thousands more of its clients.

© Cyberhorse 2008 Bill Saunders Published 27/06/08