Has it been a good week for the racing industry’s number 1 group? The punters…By Bruce Clark

Has it been a good week for the racing industry’s number 1 group? The punters…By Bruce Clark

SAY WHAT! The price is wrong?

Australia’s high end retail icon Myer announced this week a new low priced in-store format to tackle the impending arrival of online giant Amazon.com.

A floor of its Victorian Frankston store south-east of Melbourne is now dedicated to a clearance and low priced (store quality) sales outlet aimed at increasing floor traffic to special deals as part of a defence strategy against the likes of Amazon and the initial take-up in the 25-40 demographic has been seemingly positive.

That’s meeting aggressive competition with competitive pricing and customer engagement.

The department store’s Louise Pearson says it is a case of, “one floor, great brands, great savings, great prices all in one location all year round.

“There has been a big shift in the way we shop with traditional bricks and mortar taking on online, and consumers are the winners,” she said.

Why is this then the introduction of a racing column? Note the last sentence – “customers are the winner.” Liken bricks and mortar to the TAB’s retail monopoly shops but likewise with declining appeal in a modern era marketplace.

Of course, racing is not under siege from Amazon like competition customer (punters) was betting than ever before, just in different ways to suit their shopper preferences in a thoroughbred wagering market worth of $15b of which the split was $9.8b for the totes and $5.9b with corporate bookmakers.

But what is racing doing? Wanting to charge its customers more to engage (bet with it).

The timing of an announcement by wagering operator Betfair this week in response to Racing NSW ramping up the fees charged for betting on their product should be of alarm and concern.

More so should be the “tweeted” explanation by RNSW CEO Peter V’landys with all the usual dumb downed explanations and implied distain for racing’s consumers that engage with the sport via the window of an approved conduit in Betfair.

And that’s not to underestimate the market setting role Betfair plays with on-course bookmakers and savvy trading punters. Why would Principal Racing Authorities have direct links into Betfair’s technology and trading patterns if they weren’t respected as a market and integrity leaders?

But this also comes the week the Australian Competition Tribunal cleared the decks (pending a possible appeal Australian Consumer and Competition Commission) – to merge wagering giants TABCORP and Tatts.

The ACCC, along with Racing Victoria, racing.com and CrownBet opposed that merger.

This can be seen as the first step in the racing industry clearing itself to charge its customers more to bet on it. And ask yourself – who is the winner here?

It was at the ACT hearing that TABCORP’s Doug Freeman submitted that the merged entity could impose an “Uber” like surge charge on punters – or higher take outs – or gouging your customer on the day most people shop (bet) – Saturdays.

Freeman told the tribunal TABCORP’s “strategy was we would increase the take-out rates on certain days, decrease them on other days”. TABCORP is allowed to charge up to 40% betting into international pools.

Uber gets a run in the PVL response to what he calls “Betfair’s mythical argument.”

“That’s like an Uber driver allowing 50 cents a litre for petrol in his business model then expecting the petrol station owner who is selling the petrol for a $1.10 a litre to drop his price to the 50 cents a litre in order to accommodate the Uber driver’s business model. Naturally, the petrol station owner is not going to sell it for less than what it costs him,” V’Landys wrote in a tweet shared to his 837 followers.

(He has only tweeted twice before –once to announce The Everest, the other a retweet from ex TVN’s “Racing Network” tagging Hugh Bowman saying “will buy better deodorant”.) Hardly @RealDonaldTrump like.  (The fake PVL account has about 182 followers but needs to lift its parody if only if it wasn’t so serious).

Betfair, as background, announced to customers they would need to pass on commission charges from eight percent to 10% (its 6% in Victoria and Queensland) with RNSW lifting racefields fees from 1.5% to 2% for all wagers – irrespective of their model.

“If Betfair passes the charge on because of its flawed business model, it will only affect the large scale punters who work on taking a percentage of recreational punters’ losses,” V’landys said.

Then let’s go with this: “(It has) absolutely no effect on the recreational punter who are responsible for over 90% of total betting turnover on all wagering operators’ turnover. Recreational punters as a group on Betfair lose on average 20% of their investments, a percentage of which goes to the large scales punters.”

It’s a little disrespectful of your own customer (who funds prizemoney) to dismiss them as simply “recreational” and asking them to pay a higher price for your product, while ignoring the enormous rebates going to ‘professional punters’ working high turnover low margin operations almost irrespective of results.

Or as if to say your customer is not “price sensitive” – they will bet with us anyway – or to use the RNSW analogy, if petrol is $1.30 a litre at an independent operator, you are still happy to drive up the road and pay $1.35 a litre at BP.

Betfair suggested the new pricing model would see an 18% loss of engagement on NSW racing while making it the most expensive for its customers anywhere in the world.

Or the analogy was given by them that betting (trading) on Warwick Farm mid-weeks was 51% more expensive than trading on the Melbourne Cup. How does that make sense?

Betfair’s chief executive Tim Moore-Barton said “there needs to be a balance between contributions to industry and ensuring that punters receive value for money. If this is not achieved, punters will continue to shift their wagering dollar to offshore betting operators, who pay no race field fees and are an integrity blind spot for racing stewards.”

Betfair indicated themselves and other wagering operators would shift away from the NSW product given the higher prices being charged.

Of course the Betfair model is unique to the Australian (world) wagering landscape as an exchange matching back and lay bets between racing’s customers. The NSW version of racefields effectively charges the exchange twice. Or worse has no understanding of their model and hoe racing’s customer’s arbitrage their investments in the sport.

As V’landys was quoted in the Sydney Morning Herald: “We treat every wagering operator the same no matter their business model, whether it’s a low margin or high margin.”

Maybe let’s talk as the same level as the PVL argument.  Betfair is a hybrid car achieving better mileage for its driver(s) on the same road but being charged the same fees as that of a V8 guzzler.

It would be worth noting some of Justice John Middleton’s ruling in the ACT case as background for proper discussion rather than rampant ranting in creating divides rather than engagement across the industry.

“The Tribunal accepts the general proposition that there has been an imbalance between the contributions of State TABs and the corporate bookmakers to the racing industry, but does not agree that it is appropriate to characterise this as a ‘free-rider’ problem in the conventional sense,” he said.

“The growth of corporate bookmakers has come, at least in part, at the expense of forms of wagering that were tied closely to funding of the racing industry. At least since Betfair, corporate bookmakers were able to attract market share from TABCORP and Tatts because they had cost advantages by not carrying the burden of the pari-mutuel operators’ required contributions to the racing industry.

“Left unaddressed and taken to extremes, it is easy to envisage that corporate bookmakers could have grown to the point where funding from TABCORP and Tatts to the racing industry declined significantly, threatening the viability of the industry.

“Nevertheless, and although corporate bookmakers still have significantly smaller tax and industry support obligations than TABCORP and Tatts, they do now make contributions to the industry through race field fees. The bigger question is whether the racing industry will inevitably decline without other alternative sources of funding if the support associated with existing pari-mutuel and retail exclusivity arrangements are further undermined by the trend towards fixed-odds and online wagering.”

But the customer is obviously not rushing back to the declining pari-mutuel (Tote) pools to have their investments, preferring Fixed Odds.

Take TABCORP’s Annual Report 2015/16, the Fixed odds market grew to $500.1m turnover (up 16.4%), pari-mutuel up 4.4% to $1.182b while Trackside grew more (4.5% to a $95.5m base). It also revealed a 6% growth in customers to 430,000 accounts.

The FY2017 update indicated turnover growth at only 1.6% with the TAB but digitally it was at 14.2% with revenue growth at 0.9%, the fixed odds component of 21.3% offsetting the decline in tote revenue.

You’d like to think the customers servicing these numbers were the priority of the operator and the industry partners but of course the TABCORP shareholder will always come first before the punter.

And for those wishing a national tote pool as a saviour for punters – firstly be careful what you wish for – and TABCORP themselves were hardly as enthusiastic. After all they have not been able to merge their NSW and Victorian SuperTAB pools.

As the ACT findings reported: “For its part, TABCORP did not press the point, and never attempted to model costs or revenue benefits arising from a single national pool. Mr Attenborough stated that:

“Assuming that we are merged, even if we wanted to pool them then, we would still have to get racing industry approvals in each state, regulatory approvals in each state, there are tax exemptions we would have to get from the state bodies that – so there’s no double taxation.

“So there’s – there’s quite a train there of different approvals. There’s systems works to be done; quite a bit of education of the customer. So to pool one state with another is quite a big task, it requires quite a – it takes some time and then you have got to get your systems talking as well.”

Thus the Tribunal found: “Because of lingering doubts regarding the ability of TABCORP to further merge the pools, the Tribunal has concluded that combined pooling arising as a result of the merger is too uncertain to constitute a public benefit.”

So how is racing’s customer – you the punter being cared for? Risk management? Higher yielding product? Higher prices? Because you are being treated as recreational irrespective of how you assess price.

But that’s ok, you are looking after owners and breeders and beneficiaries of Australia’s booming and growing wagering pie and returns to owners.

Which makes the added analysis of PVL a little tedious if not insulting? (Is it worth mentioning the 99-year exclusive deal RNSW has with TABCORP. It comes at the same time the next round of the Victorian licence (due 2024) was centre of the state’s racing industry’s opposition to the merger but ultimately dismissed by the ACT.

“Racing NSW will distribute record prizemoney of $230 million in the 2018 financial year,” he writes. This of course is contributed by the punter, the customer, recreational or otherwise.

“However, when you take out the trainers, jockeys, strappers and animal welfare percentages of 18%, owners will receive approximately $189 million. Owners as a group in NSW pay in excess of $350 million annually in costs just to sustain the horse to compete costs. Accordingly, those owners still sustain losses of over $161 million per annum,” he said.

As yearling prices rocket and colts are rushed to studs at exorbitant fees, to assess the owners as subsiding racing and asking punters to pay more to do so is another “flat earth society” analogy.

“Without owners, there are no horses and we would not be having this debate. Racing NSW needs to ensure that the NSW thoroughbred racing industry stays viable and that the income levels of participants, which in the vast majority are modest, are not reduced by giving wagering operators unduly favourable treatment,” he said.

It begets that there is no compulsion to buy a share in a horse, but it beggar’s belief that the disrespect for the customer to suggest that they are required to pay more themselves to clearly help them earn reward from their “recreational investment” is palpably nonsense.

Myer at least have moved to address that and re-engage with their “punters” based on price sensitivity and to meet genuine aggressive competition head-on with a customer focussed strategy.

It’s about time racing grew up commercially and maturely and did the same.