by Brian de Lore
Published 15 May 2020
Tuesday’s announcement by Racing Minister Winston Peters contained some very interesting messages, but none more so than his delivery of $72.5 million which is a feat only Winston Peters could do for an industry about to go bankrupt.
Peters has to be given credit for his ability to pull a rabbit from the hat at the eleventh hour but will the participants of racing receive any tangible benefits from this windfall, or is it too late?
COVID-19 took the blame for racing’s state of affairs,but anyone following this racing industry closely for the past few years will know about this lengthy spiral of decline, which has continued unabated.
In his speech on Tuesday, he said, “Our response is driven by an attitude that with the right investment it can be a fast recovery. Today’s Pre-Budget announcement is the initial response – not only critical to racing but critical to our national interests.”
The problem I have with that statement is that this is not an investment; it’s a bailout. And it’s not a bailout of the racing industry; it’s a bailout for RITA, which has failed to produce any decisive decision-making since it came into being on July 1st, last year.
Winston Peters: RITA’s lenders advised they could no longer extend credit. It means RITA has faced the risk of defaulting on supplier commitments by this Friday.”
RITA’s Executive Chair Dean McKenzie’s recent denial that RITA was insolvent was shattered by the Minister’s admission, “RITA’s lenders advised they could no longer extend credit. It means RITA has faced the risk of defaulting on supplier commitments by this Friday.”
No one should be surprised the ASB was refusing to extend credit on the debt now reputed to be $47 million, or that RITA hasn’t been able to settle supplier commitments which have mounted up to a staggering $26 million.
McKenzie’s blaming of COVID-19 and the Minister backing that up by saying, “RITA, was partway through a reform programme and then COVID-19 arrived and created the perfect storm,” isn’t going to wash with a racing industry that’s been listening to excuses and hearing unfulfilled promises of better times ahead for the past decade.
It’s common knowledge that RITA inherited a hospital pass from NZRB when they took control last July, but RITA has delivered no tangible benefits since that time and McKenzie’s leadership has been indecisive and far less communicative to the industry than was promised when they began as MAC 17 months ago.
promise of ‘clarity and certainty to the racing industry,’ – RITA
The Minister appointed RITA and will defend the Agency until the end. But taking the helicopter assessment of RITA reveals increased debt, poorly conceived budgeting, failing to deliver on their Interim Report promise of ‘clarity and certainty to the racing industry,’ non-inclusiveness with the codes and diverting from the original brief to operationalise the Messara Report.
The writing was on the wall when RITA failed to clean-out the executive team of NZRB. Here was the team which advised CEO John Allen and Chair Glenda Hughes to make decisions that were not only poor but have ultimately cost the industry above $200 million – wasted. Yet, RITA, in its wisdom, kept this same team on to advise McKenzie.
A former industry leader and well-retired octogenarian with a lifetime of experience in bloodstock recently told The Optimist that in his long experience, the best leader he ever encountered during his career was Sir Woolf Fisher of Fisher and Paykel fame. Fisher started the company with partner Maurice Paykel and managed a vast team of staff, and also founded Ra Ora Stud and stood Champion Sire Sovereign Edition.
In a book named ‘Defying Gravity, ’ which gives a detailed account of the complete history of Fisher and Paykel, an excerpt relevant to the leadership skills of Sir Woolf Fisher is worth repeating here.
‘Where there are problems, the last person you get rid of is the little guy; you start at the top.’ – Sir Woolf Fisher
In the book it states: “Woolf Fisher may have ruled with an iron rod, but recognised the contribution from the bottom up, insisting: ‘Where there are problems, the last person you get rid of is the little guy; you start at the top.’”
RITA has done the opposite by getting rid of the little guys and keeping that seemingly bulletproof team of high rollers at the top. The strange thing is the redundancies include people who are the conduit between the TAB and the punters – the voices that directly encourage betting.
Tuesday’s announcement by the Minister was for $72.5 million which included a $2.5 million allocation for DIA to work on drafting some new betting options to come into play which allegedly will increase TAB turnover. Apparently, RITA had hoped to bring these options in by February and allowed for increased profit margins when budgeting this season for $165.8 million profit, but which now could realistically result in a figure as low as $100 million. That equates to a new season total stakes money decline of about 40 percent.
This pie-in-the-sky, crystal ball gazing belief that new ways of betting will increase the TAB betting revenue and provide higher profits flies in the face of the conservative and more believable industry view that Kiwi punters don’t bet as much as Aussies, and have only so much discretionary cash with which to place their bets after payday has arrived.
The contention that exotic betting options at the TAB would increase revenue to the extent they could budget for increased profits is very John Allenesque.
The contention that exotic betting options at the TAB would increase revenue to the extent they could budget for increased profits is very John Allenesque. It’s also unproven and likely born out of a complicated non-gambling brain that possesses a brilliant and never previously used algorithm.
The $20 million allocated for the two synthetic tracks at Awapuni and Riccarton Park poses new problems for both Race Incorporated and the Canterbury Jockey Club. Like all race clubs throughout New Zealand, the cupboards are bare, but each will have to front up with approximately $6 million to complete these projects and get the tracks in place.
In a phone call to CJC CEO Tim Mills to inquire as to the possible whereabouts of this potential deal-clinching windfall, Tim Mills admitted the Club did not have the money available, but the committee would soon be meeting to discuss all available fund-raising options.
In referencing the allocation for the synthetic tracks during his speech, the Minister stated: “The Messara review into our racing industry urged greater use of synthetic tracks.”
…of a suite of 17 recommendations and all had to be adopted to make it work… – The Messara Review
He indeed did. But it’s also true the Review said it only worked as one of a suite of 17 recommendations and all had to be adopted to make it work to see a revival of the industry. Messara was doubtless not recommending the building of synthetic tracks without all the revenue-driving streams in place such as outsourcing, racefields, and the point of consumption tax.
The Messara Review is a book of 82 pages, and the probability is that very few people have bothered to read every word of it and digest it properly. In the frontispiece letter to the Minister in the Review dated 31st July, 2018, it says at the start of the second last paragraph on page 10, “I emphasise the integrated nature of the recommendations.”
Many times I have heard John Messara himself say, if New Zealand does not adopt recommendation seven, then you may as well bin the other 16 because seven is pivotal. Number seven says, “Begin negotiations for the outsourcing of the TAB’s commercial activities to be an international wagering operator to gain the significant advantages of scale.”
In the Terms of Reference given to MAC (Ministerial Advisory Committee), the committee was asked specifically to operationalise the Messara Review. Seventeen months hence, they have never looked like taking that instruction seriously, and that lack of action should have embarrassed the Minister, albeit he doesn’t appear to embarrass easily.
It should also be remembered that Cabinet approved and signed off on the Messara Report. Their approval did not occur without due consideration so RITA’s ambivalence towards it is more than mysterious.
The point is this; John Messara did his Review in record time on a pro bono basis. To commission such a review on a professional basis from someone of his track record and standing, would have cost our industry in excess of $500,000. The fact that he did for free, and has continued to offer free advice, says something about the string-pullers currently ignoring Cabinet and the codes and claiming they are following the Messara Review, but only cherry-picking it to the tune of 25 percent.
The $50 million allocated to RITA is nothing more than a RITA bailout and nothing for participants to get excited about. Racing people, owners, at the coalface of the industry who are back working with horses won’t benefit by a cent. The fact that RITA owes $26 million to square up with suppliers adds credence to the claim I made in the middle of last year that RITA would be insolvent by Christmas. They were and had been accruing debt ever since.
The $26 million to square up will leave only $24 million.
The $26 million to square up will leave only $24 million. But what do you do with that when you owe $47 million to the bank and have no more credit, leaving the industry only in a less sharp corner than it was previously.
Turnover related expenses in last year’s annual report amounted to $69 million. Add those to the total operating costs of $142 million, and total expenses amount to $211 million. Redundancies just done will save $10 million in year one, but in the current financial year it will cost $3.5 million to pay out those redundancies.
The bailout will keep RITA going who otherwise would have gone in administration today. But will that bailout be followed by the Minister declaring an extended life for RITA, which on its current performance is no more than delaying the inevitable?
One puzzling comment from the Minister was, “…more New Zealanders are turning to online gambling through offshore platforms.
“It is our intention to regulate the offshore online gambling sector and reset the on-shore online gambling sector.” – Minister Peters
“For that reason, the Government is fast-tracking a programme of work to identify how we can mitigate these concerns. It is our intention to regulate the offshore online gambling sector and reset the on-shore online gambling sector.”
Does the Minister mean the Government will block New Zealanders from betting with overseas-based betting operators as Australia did about three years ago, and allow Kiwis only the monopoly of the NZ TAB, thereby ruling out any question of outsourcing?
He added: “If there is going to be gambling by New Zealanders, then it is our country that will benefit, not another.”
On RITA, the question is this: We have the same executive team running racing. We have the same business model. The five-year shift in equity has gone from plus $75 million to minus $23 million, even with the $72.5 million bailout. Where are we heading with outsourcing and a major change in structure and cost-cutting?
The old idiom of ‘throwing good money after bad,’ which simply means spending money on something problematic in the futile hope of fixing it, seems relevant to racing’s current dilemma.
The loss of venues announced today and the legislation getting ready for its second reading, are all irrelevant if the quicksand is already up to neck level.
END
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