Over recent months there have been a number of articles and letters to the editor dealing with racing industry distributions in The Informant.
One claim made by your columnist Brian de Lore was that greyhound racing, he understood, was being subsidized by the thoroughbred code to the tune of $5m per annum.
It has been a common thread in letters to the editor that thoroughbred racing does not receive the full benefit of earnings from the export of its product. Further it is being stated that Section 16 of the Racing Act is unfair on the thoroughbred code as it focuses industry distributions on domestic turnover share.
FACT OR FALLACY?
Over the past few weeks I have trawled through publicly available information and also made the odd enquiry to try and ascertain the true position.
Publicly available information includes:
A 2017 Court decision in the case of the NZ Greyhound Racing Association v the NZ Racing Board. NZHC 1771. (You can locate this decision by way of a Google search linking you to the judicial decisions on line site.)
The annual financial reports of the NZ Racing Board, NZ Greyhound Racing Assoc., Harness Racing NZ and NZ Thoroughbred Racing. (These reports are available on the respective entities website or via a search of the Incorporated Societies website.)
The Racing Act 2003 (this is available via Google).
Section 16(3) reads:
“Unless a majority of the racing codes otherwise agrees in writing, the amount referred to in subsection (1) must be distributed among the racing codes in the same proportions that the Board considers are the proportions to which the codes contributed to the New Zealand turnover of the Board for that racing year.”
Section 16(4) defines the NZ turnover as meaning the total gross amount received by the Board from racing betting placed in NZ on races run in NZ.
Effectively if two out of the three codes agree in writing the distribution model can be based on any factors they so desire.
Reference to turnover levels recorded in the NZ Racing Board 2017 annual report establishes the domestic turnover of each code as a percentage was
Thoroughbred 53%
Harness 28%
Greyhound 19%
100%
Distributions made did not reflect the above. The annual report showed that the following distribution for each as a percentage was
Thoroughbred 54.3%
Harness 29.6%
Greyhound 16.1%
100.0%
It appears based on the Court judgement that the three codes agreed in 2011 to amend the basis of distribution to one agreed by all three. The Court decision outlines the basis of the agreement.
The three code agreement seems to have expired in 2015. On expiry a dispute arose on how industry profits should be distributed and as a result the NZ Greyhound Racing Assoc took action via the Court system against the NZ Racing Board. Based on what I have read and also been told it seems the NZ Racing Board and NZ Thoroughbred Racing agreed a policy and then got Harness Racing NZ to sign off on it and then told the NZ Greyhound Racing Assoc this was now the policy in force. One hopes this was not actually the procedure followed.
It is clear since 2011 the level of domestic turnover of each code has not been the policy applied in establishing each codes share of the funds available for distribution.
Interestingly, looking further into the information provided in the NZ Racing Board annual report for the season ending 31 July 2017 it is possible to calculate with some accuracy the actual code breakdown of the total turnover of the NZ TAB. Why the NZ Racing Board’s annual report does not actually specify the code breakdown is a bit of a mystery. By combining the tables outlining the respective code share of domestic turnover on NZ racing and overseas racing it would appear each codes turnover percentage would be as follows:
Thoroughbred 59.4%
Harness 20.6%
Greyhound 20.0%
100.0%
The above table is subject to rounding which at a maximum would be 0.96%.
The NZ Racing Board’s annual report also calculates the gross betting margin generated by each code. Using the same formula as above it would appear the gross betting margin on domestic and overseas racing for each code would be as follows:
Thoroughbred 59.6%
Harness 19.4%
Greyhound 21.0%
100.0%
Helpfully the Harness Racing NZ annual report that states it gross betting margin in 2017 was 19.8%. This is within the rounding factor identified above.
Also interestingly the NZ Racing Board report does not specify each codes export turnover or the resultant commission earnt. Helpfully both the NZ Thoroughbred Racing and Harness Racing NZ annual reports do specify export turnover levels (Thoroughbreds $307,180m; Harness $133,210m).
The Greyhound Racing NZ annual report on the other hand specifies commission earnt on export turnover in relation to the greyhound’s code was $6,387m. The NZ Racing Board’s report does state that export turnover commission received was $20,616m which indicates the greyhound code share was 31%.
On enquiry Greyhound Racing NZ advised its export turnover in the 2017 turnover was A$222,264m.
My rough calculation is that each codes export turnover share was:
Thoroughbred 46%
Harness 20%
Greyhound 34%
100.0%
I understand commission rates received vary from 1.5% to 3.0%. This may explain the variance in the percentage of commission earnt calculation versus the calculation of turnover.
I will leave it up to your readers to decide who is subsidizing who. However I will state my calculation is that if each code received the distribution based on its gross betting margin on NZ turnover and its share of export commission the greyhound industry would benefit by an increased payout exceeding $8m. This is based on removing the export turnover commission from the $138,127m payments to the codes and re-allocating the resultant funds available for distribution based on the gross betting margin on NZ turnover both domestic and overseas which would result in the greyhound code receiving a payment of $24,677m. Adding the actual export turnover commission earned of $6,387m to this would mean the greyhound code would have received $31,064m against the $22,263m actually received.
The greyhound share of racing industry distribution in the 2018 year may actually be further reduced by a change of policy. Reference to the 2018 NZ Racing Board’s interim financial statements shows the distribution of $2.275m was made to an entity called The Races Partnership Limited. A search of the Companies Register shows no such entity exists. I do note in the small print at the bottom an entity labelled The Races Limited Partnership was identified. If the distribution was made to a partnership this would explain why a Companies Register search proved fruitless. The small print also identifies an entity labelled The Races Limited. Again a search of the Companies Register does not locate any such entity.
One would hope an organization such as the NZ Racing Board could correctly identify the entity that received $2,275m in funding. It appears the funding was actually made to an entity under the control of NZ Thoroughbred Racing and Harness Racing NZ. As an above the line distribution this dilutes any distribution to the NZ Greyhound Racing Association.
I asked the CEO of NZ Greyhound Racing what this change was all about. He refused to comment for commercial sensitivity reasons.
I have filed an official Information Act request with the NZ Racing Board to try and establish why such a change was made.
The answer to my opening question Fact or Fallacy is clearly part fact, as the thoroughbred share of turnover was 59.4 % but it received a distribution of only 54.3%. However, it has become clear that it is mainly Fallacy as the greyhound code did not get a subsidy from the thoroughbred code. Also, seeing as thoroughbred’s export turnover percentage was only 46% the lack of a non-code specific distribution was actually to its advantage.
T L Rodewald
Chartered Accountant
Accredited Insolvency Practitioner