Racing sends a strong message to Select Committee

by Brian de Lore
Published 21 February 2020

The oral submission hearings held on each of the past two Thursdays have sent a strong and impassioned message to the Transport and Infrastructure Select Committee, and that is: that the racing industry is far from happy with the Racing Bill legislation in its current form.

And the process is far from complete with further
submissions taking place in Auckland this coming Thursday before the Select Committee.
Following that, and no doubt in consultation with Racing Minister Peters, the next
phase of making the necessary alterations with a degree of rewriting to be done
before a second parliamentary reading expected to be scheduled sometime in
April.

All going well, the legislation will then be up for its
third and final reading in June, and hopefully in a narrative much more acceptable
to racing’s participants than the government stranglehold theme of control
currently on offer.

The elephant in the room is now RITA which has continued its
stance with a submission that says 80 to 90 percent of the legislation is okay
by the Agency – a claim overwhelmingly in conflict with industry submissions
which by and large are supportive of the recommendations of the Messara Review.

Interestingly, the debate on the detail of the 123 clauses
of the legislation has taken the heat off racing’s current dire financial
position as we move into the second half of the 2019-20 season with the
half-year result due to be announced in the next few weeks.

The latest information I have is that RITA needs something like a 21 percent increase ($30 million) to meet the budget it forecast in the SOI, and after the first five months of the season was only two percent ahead of last year. And remember, the TAB received a windfall bonus of $17 million when the All Blacks got eliminated at the quarter-final stage of the World Cup.

The failure of this Bill to address the issues of increased revenue streams and cost-cutting was an omission that didn’t go unnoticed by several oral submitters

The failure of this Bill to address the issues of increased revenue
streams and cost-cutting was an omission that didn’t go unnoticed by several oral
submitters and, in particular, RACE Incorporated CEO Alasdair Robertson and
Stan Alexander representing the Manawatu Racehorse Owners.

The oral submission from RACE is reproduced at the bottom of
this blog. Stan Alexander in his statement began by saying he had entered the
racing industry only 15 years ago but obviously having a lengthy corporate
background, he alluded to how much cash and property value the industry had
only 15 years compared to its position today:

He said: “…and now what we have is a betting platform with
no tangible value as it sits there, but $35 million of debt. I am not concerned
about individual clauses in the Bill, but I am concerned about how this Bill
got to this stage.

“When Cabinet approved in principle that the best approach was the Messara Report, and at the same time the Letter of Expectation from the Minister to the RITA board, it said that this Report was providing the best approach to New Zealand Racing to make it financially sustainable, internationally recognised and competitive.

“… how is it we are sitting here now looking at a draft Bill that does not deliver those key factors which said Mr Messara would be the salvation for this industry.” – Stan Alexander

“And as part of this close working relationship,” continued
Alexander, “the Minister understands the DIA will attend the RITA board
meetings as an observer. If that was the guiding principle of what was to
happen, how is it we are sitting here now looking at a draft Bill that does not
deliver those key factors which said Mr Messara would be the salvation for this
industry.”

Stan Alexander went on to quote Judge Clapham’s submission
which also asked why the legislation did not reflect the Messara Review, and then
also quoted a number of the Messara recommendation culminating with the failure
of RITA to begin outsourcing negotiations.

“It comes back to having confidence in what you are doing,”
he continued. “It goes without saying that no industry, business enterprise or
activity succeeds when confidence is eroded, and confidence has been eroded
dramatically with the arrival of the proposed legislation which fails to
deliver the expectations of the Minister and the industry – which has continued
that eroding of confidence.

“Clearly, over time, decisions made by NZRB have led to a massive decline in industry solvency. Mr Chairman, as I sit here today I honestly believe the industry is insolvent. We have no hard assets left, but we have a $35 million debt to a bank. Surely, any business sitting in that position – any director sitting that position in a commercial world – should be thinking pretty hard on what they should be doing and what is happening around them.

“If we as an industry continue to operate without full accountability in a truly commercial environment, the same mistakes and decisions will continue.”

“If we as an industry continue to operate without full
accountability in a truly commercial environment, the same mistakes and
decisions will continue. The proposed legislation does not reflect the truly
commercial, competitive approach that the Messara Review envisaged.

“And I, for one, don’t have any confidence when I hear a comment like this. It came from the Chairman of RITA at a public meeting, ‘we are tracking along for the first six months in line with budget.’ Then came the caveat, which was, ‘but the next six months will be challenging.’ End of story, just that. So I say to myself, what does this mean while we are staring down the barrel of $35 million bank debt and no hardcore assets.

“What would be the attitude of the bank when RITA has not commenced the outsourcing which was recommendation number seven – in other words, the bank would be saying to the RITA board, ‘are you exploring all your options.’ The bank won’t be at branch level; it won’t be at credit level, it will be at asset management level, and I’m sure some of you understand what that means.

“RITA want exclusive rights to the I.P. and to delay outsourcing for another five to six years – I ask the question WHY? – Stan Alexander

“RITA want exclusive rights to the I.P. and to delay
outsourcing for another five to six years – I ask the question WHY? Debts
within thoroughbred racing are increasing, the debts in the training sector to
the trainers are increasing – those are symptomatic things of the total financial
position of the total industry. Breeding is in decline, and it’s all reflecting
a decline in confidence.

“Ï say this, why don’t we ask Mr Messara to come back and
discuss and clarify how, when, and why, etcetera. His credentials are such that
we ignore them to our peril.

“Finally, I just want to put up this scenario: We have a new
TAB, it owns all the I.P. We have a banker overlooking them, and if things don’t
improve then we have set up the perfect scenario for the bank to say ‘we are
taking over and we will sell everything you have got’.

“Mr Chairman, I don’t understand the industry, but I have a
little understanding of the commercial reality of this world, and we have a
very serious problem. Thank you.

RACE Incorporated Oral Submission:

Select Committee on Behalf of RACE
Incorporated

Racing Industry Bill No 2

Good morning, my
name is Alasdair Robertson Chief Executive of RACE Incorporated. I am
accompanied by Paul Humphries Chair of RACE Incorporated.

RACE is an organization
that comprises 5 Clubs being Manawatu, Rangitikei, Feilding, Marton and
Wellington Racing Clubs.

Depending on your chosen metric, RACE is NZ’s largest or second-largest club with in excess of 10% of total domestic turnover.

The racing industry in New Zealand is at a watershed/tipping point in terms of its survival and sustainability.

The racing industry
in New Zealand is at a watershed/tipping point in terms of its survival and
sustainability.

The proposed Bill
to go before the Select Committee is the last chance for the industry to be
re-structured for survival and to maintain its economic contribution to
employment of over 14,000 FTE and over $1.6 bn to the NZ economy.

The importance of
getting this right cannot be overstated. We are facing:

• Declining returns in real terms over time. Return to owners in New Zealand 22.9% or expressed another way -77.1%
• Foal crop reduction. In 1995 5,264. In 2017 3,448 (34.5%)
• There has been years of mismanagement and lack of performance from the NZRB
• The proposed Bill facilitates a situation where a business as a usual structure can continue.
• To put that in context and why the Codes need to be empowered to efficiently and economically run their industry as recommended by the Messara Review, in 2016 an analysis was done of the operating cost difference between the NZRB / RITA and its nearest comparison in Western Australia.
• This was found to be in excess of $50 million against a total thoroughbred prize money pool in New Zealand of $50 million at the time.
• We are competing in a global market with our largest competitor, and opportunity,  in Australia exponentially bigger and stronger than we can ever be.
• Australia has 5.4 times the population of NZ but 13.2 times the amount of wagering turnover with an inherent propensity to spend of over 4 times that of New Zealand.
• To enable NZ to survive competition and to access the opportunities that exist, this Bill must empower the Codes and provide them with flexibility to meet the market head-on without bureaucratic constraints and parochial thinking.
• The Messara Review was commissioned at the behest of the Minister of Racing the Hon Winston Peters and was welcomed by the Industry.
• John Messara is the most respected racing administrator in Australian history and has presided over a boom in the racing industry not just within New South Wales but within Australia overall.
• In the last 20 years Australian turnover on thoroughbred racing has climbed from $8.6 billion to $19.5 billion AUD +126%, and prizemoney from $273 million to $603 million +120%.

A number of key elements
were critical to turning around the NZ industry in the Messara Review:

• Change the Governance structure such that NZRB is to become Wagering NZ with racing responsibilities devolved to the individual codes.
• Establish Racing NZ as a consultative forum to agree on issues
• Amend section 16 to a more equitable basis for fixed 10-year terms
• Begin negotiations for outsourcing of the TAB’s commercial activities
• Confirm the assignment of Intellectual Property by the clubs to the codes
• Introduce Racefields and Point Of Consumption legislation
• Repeal the betting levy
• Clarify vesting of club assets in the codes for the benefit of the industry
• Reduction in venues without the closure of any club
• Unfortunately, the proposed Bill does not honour the intent or detail of the Messara Review.
• The Bill is also significantly at odds with the Minister’s letter of expectation sent to RITA.
• It is important that the Committee realizes that the industry is struggling to survive and we need real dollars and not just a re-arranging of the deck chairs.

So to turn to the Bill. I have confined my presentation to three key items.                           a. Industry Governance and appointment of Directors to the TAB

1. The intention of the Messara Review was to confer broader powers on the codes to govern and administer their industry.
2. Consistent with the Messara Review, Racing NZ was proposed as a consultative forum to agree all internal issues that needed group resolution. This would include outsourcing negotiations.
3. The Messara Review proposed the devolution of Governance responsibilities to the Codes.
4. The current Bill, however, proposes the dilution of control from the codes to the Minister and to Wagering NZ/TAB NZ.
5. This is seen in:i. The governing body of TAB NZ consisting of up to 7 members appointed by the Minister (46)
   ii. TAB NZ is to determine the Racing Calendar for each betting year and issue betting licences (48)
   iii. TAB has exclusive rights within NZ and Australia to all intellectual property associated with all betting information etc (81)

• It is recommended that the Bill be amended to have a code body representative or adopt the nominations advisory panel mechanism used in the Racing Act 2003 (Pre Amendment) for the appointment of independent Directors.

b. Intellectual Property

1. Clubs and Codes have never surrendered their Intellectual Property2. The MAC Report acknowledges ownership of IP in the Club.

   3. Intellectual property can never be surrendered by the clubs and the codes.

   4. To do so will disenfranchise and emasculate the clubs and codes permanently and empower a 3^rd party to conduct themselves in any way they see fit.

   5. The Codes and TAB NZ must collectively be able to negotiate all outsourcing and related matters that requires IP by having it assigned to the respective negotiating team.

   6. The mechanism is that the Clubs vest their IP in the Codes who Licence the joint negotiating team of the Codes and TAB / Wagering NZ.

   7. We have a supportive person in our Minister. However, that may not be the case in future and the loss of IP from the clubs and codes endangers our very existence and the potential sale or Joint Venturing of the TAB.

It is recommended that Clause 81 be deleted to preserve the status quo in relation to the use of Racing’s intellectual property.

c. Outsourcing structure or more accurately joint venture or partnership structure

This Bill has been drafted by people who appear to crave control and do not understand the global wagering market.

i. There needs to be a separation between TAB NZ and Government. An outsourcing decision is a commercial decision in the best interest of the industry.

ii. This Bill has been drafted by people who appear to crave control and do not understand the global wagering market.

iii. The codes and the TAB must have the ability to make a commercial decision regarding joint venture outsourcing. If there were any Government concerns over inappropriate periods or similar, a Ministerial caveat could be included for any decision relating to sale or contractual commitment beyond a specified term eg: 15 years etc.

iv. Australia is forging ahead because the Codes operate as commercial negotiating entities with independence of Government.

v. It is interesting that Tabcorp has been used as an example by RITA to say it follows the same commercial model as has been proposed in the Bill, and has professional Directors on its Board.

vi. Nothing could be further from the truth in terms of the commercial model and demonstrates the lack of understanding within RITA and within the Bill.

vii. Tabcorp is a commercial entity BUT is accountable to the Codes and the contractual agreement and licence negotiated by the codes.

viii. This commercial tension is enabled by the retention of IP within the codes which is 180 degrees different from what is proposed.
ix. What is proposed is to insert a 3^rd independent party into the process that has no checks and balances on its direction or philosophy and has exclusive control over the Codes intellectual property.

Most people do not understand the implications of this Bill. It threatens the Messara Review and could be likened to a monopoly without any of the suppliers having shares or any representation.

Summary:

Most people do
not understand the implications of this Bill. It threatens the Messara Review and
could be likened to a monopoly without any of the suppliers having shares or
any representation.

Thank you for the
opportunity to present.

P Humphries, Chairman                                                       A Robertson, Chief Executive

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