Im doing well, Jack” – iGB
British wagering firms were in a difficult position prior to the offshore wagering tax announcement in February. However, the administration is in a predicament because they granted the horse racing industry authority over the tax funds. This creates a precarious imbalance, writes Regulus Partners’ Paul Leyland.
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I’m doing well, Jack
Everything has altered, and nothing has altered. But this time might be different. The government intends to broaden the tax net to offshore operators by April 2017 and grant the horse racing industry control over the funds. This is a more forceful statement than most horse racing policies. We might learn more in the budget, but this tax reform appears likely to occur.
Prior to this, wagering firms were in a poor situation. The tax was considered antiquated, and the wagering companies’ influence on horse racing was disregarded. The cost of watching live horse racing in betting shops has been increasing, while revenue has been declining. Customers are still using pen and paper to place bets. Companies have been acquiring each other, relying on gaming machines for money, which has been heavily criticized. It’s even made the industry’s own minister ashamed.
Societal duty objectives have also been integrated.
In the meantime, equestrian racing centers on its other partners (equine proprietors; rivals, typically not for wagering), while overlooking wagering offerings (competitive races, with a considerable quantity of participants) (almost certainly unintentionally). Who is harmed by this? Not the racetracks, whose earnings have been expanding, but the British land-based wagering enterprises, which have experienced a “structural” (self-inflicted) decrease in wagering income over the past decade. Management might be safer remaining inactive.
Around eighteen months ago, at least wagering (referring to those who manage the aforementioned) believed it might finally have prevailed over equestrian racing. Most online operators had relocated abroad, partly to avoid taxation, and continued to boost equestrian racing revenue (except for Bet365 and Betfair, which continue to pay voluntarily and happen to be the largest and most prosperous equestrian racing wagering operators in the market). Land-based operators saw growth from offerings other than equestrian racing, which eased the decline in equestrian racing economically and provided a tool politically. Attempts to introduce taxation on overseas operators appear to have been thwarted by the threat of state assistance lawsuits (the government must now be confident in overcoming these threats).
Wagering enterprises could likely resolve the complicated matter of picture copyright, as financial factors will speak for themselves.
The safeguarding of equestrian racing has become a worry in West Suffolk, so the current Exchequer, Matthew Hancock, has been in contact with the previous Exchequer, George Osborne. Equestrian racing entitlements were declared in last year’s financial plan, much to the satisfaction of the equestrian racing group, after three quick consultations, the administration absorbed the details with surprising swiftness. Wagering appears to have completely failed, unless it can further refine its national assistance program and appeal to Europe (Brexit, anybody?).
Despite the strong language surrounding equestrian racing entitlements, there is little immediate action in the coming years (or even longer). Meanwhile, leveraged buyouts are facing increasing financial and regulatory pressure, while equestrian racing income continues to migrate online at a rate of about 5% per year. Waiting for entitlements isn’t so appealing for equestrian racing. So what to do? The equestrian racing group realizes that they possess something that is very important to wagering enterprises, even online wagering enterprises.
Sponsorship and advertising, perhaps, streaming certainly. Here’s a carrot: make it less expensive; or (here comes the stick) more expensive/none at all. Most large wagering enterprises spend about 25% of their income on marketing, and perhaps another 5% on content. Tax it at a statutory rate of 10%.
As a result, a seventy-five percent tax rate would be unpalatable and likely generate excessive opposition. But what about a reduced tax rate? This could make the “incentive” more appealing. Consequently, the Authorized Betting Partner (ABP) program was established. Although offshore taxes are now expected to be imposed at least twelve months sooner than anticipated, this still provides the ABP with a year or more of operational time.
From a horse racing standpoint, this ABP bridge makes perfect sense: It’s a temporary measure to transfer funds/channels before rights are decided, utilizing its commercial influence to “convince” online betting companies to pay.
A lower tax rate might also be appealing to some betting companies. Betfair and Bet365 are already paying, so a decrease is welcome. 32Red concurs. BetVictor might experience a significant disruption to key betting product sponsorships and advertising; if their motivation (in part) is opportunistic, then they are justified. But for online betting companies, is it sensible to participate in the face of a substantial cost? That’s difficult to answer. The returns they receive are far less tangible than the cost. For multi-channel betting companies, is it logical to accept? Certainly, if costs across all channels are reduced to offset (how much money does horse racing need to raise?), but Coral’s (risky logic) proposal was rejected by horse racing.
Irrespective of the acronym, what does the sport of horse racing truly desire? Recent actions indicate it seeks financial contributions from overseas operators without diminishing funding (or fees) for land-based operators. In essence, it desires more financial resources. How will horse racing utilize these funds? Past experiences suggest a small portion will be allocated towards enhancing racecourses. This is a positive indication, but if the primary objective is to enhance the comfort of celebrities (if they grace the event), it should not be financed by wagering companies.
The majority of the funds will be directed towards prize money. This could be a positive sign, but recent history demonstrates a limited correlation between prize money and what betting patrons prefer: substantial fields, competitive races. Prize money also fails to effectively reach the foundation of horse racing, which provides the numbers, the participants, and consequently the necessary field sizes. Therefore, if horse racing primarily utilizes these funds to augment prize money, benefiting a select group of owners, while disregarding bettors and the foundation, is it a positive sign? I do not believe so. Is it advantageous for wagering companies? Quite the opposite, as it increases the probability of uncompetitive odds-on favorites (i.e., losses).
At this juncture, horse racing might assert that it is endeavoring to increase field sizes and is indeed heeding the requests of wagering companies: the BHA is undoubtedly sending the appropriate signals. Perhaps. But is it imperative? No. Is providing more financial resources to a system lacking proper governance a prudent decision? No.
Is there truly a wagering enterprise devoted to making equestrian racing a flourishing betting commodity, as opposed to merely becoming entangled in political disputes? The response is negative. Over the last ten years, has equestrian racing provided a consistently enhancing or even consistently satisfactory betting commodity? The response is once again negative. This is a hazardous narrative, and the administration appears to be reinforcing it by granting equestrian racing special privileges to exploit tax revenue.
I believe that wagering enterprises have a valid argument in questioning the ABP/offshore tax, but their present actions are entirely driven by the incorrect motives. Wagering enterprises rely on sporting commodities. No other sport (except canine racing, but if equestrian racing advocates wish to assert they are at a disadvantage, they should visit the canine track) offers races as frequently as equestrian racing, nearly every afternoon and evening, every 10 minutes. Moreover, no other sport can guarantee that the top competitors do not necessarily triumph, or invest as much in integrity as equestrian racing. These two points are what wagering enterprises should be compensating for, because they are designed and provided for them. More significantly, they should embrace this commodity, shape it, and ensure that this mutually beneficial relationship is positive and expanding.
In other words, wagering enterprises should not oppose it on the grounds of finances, but on the grounds of administration. So why is this disagreement so distinct? Wagering enterprises, particularly land-based wagering enterprises, are politically disadvantaged and facing challenging economic times; they may be inclined to accept offshore tax (depending on the conditions), even if they do not accept the ABP.
Internet wagering firms are presently profiting from these pressures, but the administration is eager to make the competition fair, at least in horse racing.
Physical betting establishments can oppose, but they have no allies: they are battling alone, and they have never fought alone before. Digital wagering firms might view battling the government as a long-term danger, but they don’t have the same history of stakeholder relationships (no matter how poorly handled). They might seek a challenge, and in doing so, completely infuriate a government already struggling with the sector.
Horse racing requires wagering firms, and wagering firms need horse racing. Arguing over funds not only misses the point, but also endangers the increasingly delicate environment of both sides. Wagering firms should be willing to pay for horse racing (collectively, no free riders) for high-quality wagering products; horse racing should be willing to let wagering firms formally shape their product in return. This would be a fair value transfer; it wouldn’t be government assistance – and it would save both industries.
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