How the Tote Can Solve All of Racing’s Financial Problems

When writing for the RFO and Sports Advisor in the past I took every opportunity to stress how important it was for the Tote to reduce the percentages that it took from the Pools. I also had a letter published in the Racing Post on 4^th July 2007 on the subject.

The debate in Parliament tomorrow 1^st March could prove crucial as to the course that the future Tote takes. Racing’s finances continue to suffer and a thriving Tote in the right hands could do so much to strengthen the Sport

Imagine that you are going to buy an item on the Internet, say a pen or a book. Identical product and delivery times etc. The three best quotes are £14, £6.50 and £5.

When you buy the £5 item you are also buying knowing that most of the money is going to Charity or a good cause.

It seems pretty logical that the latter would be the preferred choice.

The same scenario would be the case if you applied the same principles to betting on horses.

At the moment the Tote prices itself out of the betting market because it deducts too much from the Race Pools especially via the Internet. A couple of years ago the then Chairman of the Tote – Peter Jones likened the running of the Tote as to running a corner shop on Internet profit margins. My riposte at the time was why wasn’t the Tote running an Internet business on the Internet.

Racing could be completely self financing in my opinion if the Tote were to cut its deductions on the Internet side of its business to 5% from its win and place pools.

The bulk of betting on horseracing in the UK still takes place on the win and place singles market with each market on Betfair matching around £1million meaning that £500,000 is actually staked. That amount is supplemented by bets made in the betting shops, racecourses and the Tote itself. The deductions from SP bets is around 14%. Betfair overrounds are around 102% plus the deductions of say 4.5% average, making 6.5%. The Tote currently deducts 13.5 % from the win pools and 24% from the Place.

If the Tote were to deduct just 5% they would then undercut both the Bookmakers and Betfair. At the moment the Pools are painfully weak but they would soon increase and gather strength once punters realise where the value is. There would then be a snowball effect where the pools would continue to attract the bigger punters as they become large enough to accommodate bigger stakes. Imagine the Pools at Cheltenham where they could be the best option for punters. The pools could easily swell to over a £1million. Once recognised by punters as the preferred option this momentum would carry on for betting on the rest of racing.

I should add at this point that the 5% deduction would apply strictly to the Internet business. The racecourses and betting shops would have to carry a greater take out to cover higher overheads. Perhaps it would have stay at around 15% to break even. The Internet infrastructure is already in place and increased turnover would carry nothing in the way of additional and increased overheads.

The Internet Tote could handle multiple bets and any winnings in a yankee bet from the first winning selection would carry on into the next pool and so on. Pools would thus be strengthened again.

In fact once established, the Internet dividend or price could form the basis of a new Starting Price return. This could be used by Bookmakers when settling bets in the shops. The Tote could then charge the Betting Industry a fee if both parties are agreeable. The Tote could then develop a role as the layer of the last resort where if a punter could not get on anywhere else he could bet into the Tote pool. Bookmakers in turn could hedge into the pools in order to reduce any liabilities.

Betfair would still carry on and may lose some turnover to the Tote but would still offer a wider array of betting options and it is quite probable that the overall market for Horserace betting would increase as a whole. The main reason is that at 5% the deductions would compare favourably with betting on other sports such as football or golf. Racing could then recover some of the turnover lost in the last few years.

The shape of turnover would in turn have an effect on the nature of the racing programme. At the moment most of the racing in the UK takes place on handicaps. The off course bookies who provide the levy and offer racecourses fees to put them on, prefer handicaps as they offer bigger gross profit margins. Betting on Betfair suggests otherwise where condition races attract bigger turnover than handicaps.

Under a 5% regime cards would reflect the bigger turnover races. It is quite possible that claiming races get bigger turnover than handicaps. Racecards would then reflect the true betting market.

Security would improve. In Hong Kong security is much tighter because the bigger punters including Syndicates demand that racing is straight so they can have faith in the form. The same impetus would take place in the UK and as punters have more faith then turnover would grow again.

If Tote turnover were to approach £100k and £40k for the win and place pools per race then gross profits would be around £75Millions per annum. If that turnover were to double to £200k and £80k respectively then the £150Million gross profit would be enough to totally finance British Racing. It need not stop there. If overseas punters were to bet into the Pools then turnover could be garnered from all over the World. British Racing would be number one globally with consequent benefits for the rest of the Industry.

At the moment under the Gross Profits system the Racing Authorities have no incentive for punters to win. In fact owners get more if punters lose. This is a chronic, adversarial and contradictory way of running things. Under a new Tote regime Authorities would have an incentive to get punters to bet more and everyone would be working in the same direction.

So far the Tote has been hindered by a management that has had no incentive to develop the product. Under the current incumbent Trevor Beaumont all the indications are that he is acting in the interest of the Off Course Betting Industry. The bookies have always had considerable sway and there has been little doubt in my mind that the Government has deliberately kept the Tote quiet and ineffectual.

Now that the wraps are off things could undertake a significant shift.

If Betfred or Coral take control and introduce a 5% regime this could benefit punters but not necessarily the owners and racing in general. If the Ruben brothers get it I think this could be the end of racing as we know it and it could go into gradual and permanent decline. If Andy Stewart gets it then potentially this could be the best option as his City and Financial knowledge allied to his love of the game could mean a more positive direction can develop.

Hopefully tomorrow’s debate will take this idea on board.