Few aspects of the global sports business are more curious than the cozy relationship between horseracing and the betting industry. In Britain, one of the sport's biggest markets, bookmakers have huge sway over the frequency and timing of race meetings. Racing officials, meanwhile, devote much of their rule book to reassuring gamblers the pastime is fair. As a thank you for putting business its way, the betting industry pays the racing fraternity handsomely through the Horserace Betting Levy an annual payment that amounts to 10% of bookies' gross profits from racing that funds everything from prize money to investment in race courses to veterinary research. And for much of the time since the levy was introduced in 1961, both sides have been happy to work together.
Not anymore. Shifts in the ways the betting industry operates and how its customers gamble reduced the levy to just $119 million this year, a third less than in 2008. That's left neither side happy. Britain's racing industry says it deserves more for providing the action: it pits some of the world's best horses, trainers and jockeys against each other and organizes some of the globe's oldest and most prestigious races. For their part, betting companies argue that they're already paying over the odds and want to cut the levy by roughly $13.5 million next year. Ahead of a government-imposed deadline of Oct. 31 for an agreement, neither side looks likely to budge. Paul Struthers, spokesman for the British Horseracing Authority (BHA), insists that the proposed cut would risk "widespread job losses in the rural economy and the potential closure of racecourses." The levy, he says, "is massively important."
That may be true. But horseracing now makes up a smaller slice of bookmakers' overall business. Younger betters are turning more and more to rival sports like soccer, or slot machines. So while racing accounted for around 70% of a U.K. betting shop's revenue a decade ago, it now brings in as little as 40%, says Patrick Nixon, chief executive of the Association of British Bookmakers (ABB). That's squeezed racing's share of betting companies' "gross win" the amount customers lose on bets from 45% in 2004 to less than 30% today. Combined with rules obliging betting shops to pay the 10% levy only after they've pocketed a certain amount from racing, and with the online businesses of many of Britain's bookmakers now based offshore (where the tariff doesn't apply), it's not difficult to account for the slump in the levy's value.
Aware of the trend, the racing industry is buttressing itself against the fall. Close to a billion dollars worth of investment in racecourse facilities in the five years to 2008 has helped lift attendance by 4% so far this year, making racing the second most attended sport in the U.K. after soccer. Racetracks, meanwhile, have started mining new sources of income. At Epsom Downs, home to the famous Derby since 1780, non-racing events from conferences to catwalk shows to Christmas parties now account for about a third of its profits, and their contributions will only grow larger, says Rupert Trevelyan, the course's managing director, standing amid Epsom's gleaming new $47 million stand.
Without a rise in the levy, though, the industry insists other courses will suffer. Away from the sport's blue-ribbon events, "a large part of the program we put on is to provide content for the betting industry," says Simon Bazalgette, chief executive of the Jockey Club, which owns and runs 14 of the country's courses, including Epsom and Aintree. "If the funds coming back aren't paying for it, should we really be putting on that program?" Dropped fixtures could force the closure of smaller courses, Bazalgette laments. And because the levy provides about 40% of annual prize money key to luring top horses and guaranteeing the livelihoods of jockeys, trainers and stable hands British racing risks "falling behind."
In one respect, at least, it already trails. The current value of the U.K. levy equates to less than 1% of the revenue from betting on British racing, according to consulting firm Deloitte. In Hong Kong, gambling proceeds put back into the sport in 2007 were worth more than double that. And in France and the U.S. betting industry contributions amounted to 8%. Eager to boost its share, the BHA wants the levy applied to the offshore Internet businesses that currently dodge the charge. It's also demanding the rules limiting the payment of the 10% levy to profits over a certain level be scrapped. Conditions like these "are easily costing us £50 million ($79 million) in levy," says Struthers. "We're just asking for what we should be getting anyway."
Betting companies are unmoved. In fact, they want to raise the profit threshold above which the 10% levy applies. Stuart McInroy, general secretary of the Bookmakers' Committee, which advocates on behalf of the betting industry, says that's only fair given that it's paid "a punitive rate" over the past couple of years for TV coverage of racing broadcast in its betting shops. Moreover, he says extending the tariff to offshore operations established "purely to maintain competitive survival" would be "totally unreasonable."
For anyone wagering on a deal before the Oct. 31 deadline after which the government will be forced to intervene the odds, then, are likely to be long. "There'll have to be some horse-trading," admits the ABB's Nixon. Experience, you'd hope, might at least count for something.