Taxing times on the cards for racing
THE jumps season in Ireland and the UK is gathering pace, but across the water the increasingly bitter row over the composition of the next racing levy -- which last week descended into a very public slanging match -- has so far overshadowed matters on the track.
Stakeholders -- essentially the British Horseracing Authority and the bookmakers -- had been given until October 31 to agree a new levy for 2011-12 but they failed to do this and so the government will now impose it, probably some time in the new year.
The UK levy is collected from bookmakers as a percentage of their gross profits. Crucially, though, it is confined to the portion of their betting business derived from British horseracing and the figure is based on the bookmakers' forecast of the gross profit likely to be achieved in the levy year (which begins on April 1). The most recent full-year figure -- to March 31 last -- saw a levy yield of £75.4m, down nearly £15m on the previous 12 months.
Both sides were quick to apportion blame publicly over the failure to reach agreement but the truth is that the scale of the gap between them was so enormous that compromise scarcely seemed achievable. The racing industry sought a commitment in the region of £130m, the bookmakers offered about half of that.
The crux of the matter is simple: how is horse racing going to be funded; the solution to it is anything but simple. And the issue is as relevant in Ireland now as it is in the UK. A similar, and probably equally acrimonious, dispute is bubbling away under the surface here, especially with the Budget just around the corner.
As in the UK, there is a general acceptance among bookmakers that they should make a contribution to the sport, which in Ireland is administered out of the Horse and Greyhound Racing Fund. It is the nature of this contribution that is under issue. In the past, the yield from betting tax was sufficient to prop up the Fund, but the anomaly with the tax (which is currently at one per cent) is that it applies only to bets made in a bookmaker's shop, and not to any other form of gambling, including internet gambling and betting exchanges.
However, the explosion in online gambling has had a hugely detrimental effect on betting tax returns (currently €31m) which means the Department of Finance has been propping up the fund, most recently to the tune of over €30m. This is not now an option in the current climate -- even though revenue from the tax will continue to decline. According to the Irish Bookmakers Association (IBA), betting shop turnover declined by €570m (or 15.5 per cent) last year and a further fall is anticipated in 2010 given the prevailing economic conditions and the industry's reliance on disposable income.
As in the UK, the racing industry believes bookmakers are not paying their fair share. Earlier this year, Horse Racing Ireland (HRI) chief executive Brian Kavanagh told a Dáil committee that the Government needed to get serious about maximising revenue from the level of betting in Ireland, which he estimated at over €4bn. "We want the State to obtain a fair rate of return from all betting activity," he said, "including telephone and internet betting." He continued: "It is our belief that there is more than enough funding available in a properly regulated and taxed betting market to meet the needs of horse and greyhound racing and have a surplus left over for use by the Government."
This appears reasonable but HRI -- and their UK counterparts the BHA -- have contrived to appear a lot more intransigent on the matter than the bookmakers. Perceptions can be important, and decisions by HRI -- like the rejection of donations and race sponsorship from Betfair and its stance on effectively keeping the new all-weather track at Dundalk closed for the winter months -- do not help its cause. HRI has also been under pressure over the continued high level of prize money it pays out in comparison to the UK.
At that same Dáil committee hearing, Paddy Power chief executive Patrick Kennedy said his firm loses money on Irish racing, and that a blanket tax on internet gambling in Ireland is fraught with difficulty -- especially as it would by its nature target home-based businesses like Paddy Power and Boylesports, putting them at a disadvantage against their offshore competitors.
The IBA has now made a submission to government which challenges traditional thinking on collecting revenue from the industry to fund racing, while at the same time reaffirming its acceptance that it must shoulder some of the burden. The central plank of its proposal is the abolition of the one per cent tax. There had been speculation that this tax would be doubled but it is understood that is not on the table at the moment. Bookmakers argue that a doubling of the tax would wipe out many of the smaller shop owners.
Instead, the IBA proposes that betting tax reform should encompass all forms of gambling. This can be achieved, it says, by replacing the current tax with a licensing system for all of the gambling/betting sectors and a 0.15% tax on gross wins in all sectors.
Under this proposal, four categories of licence would be created to cover betting shops, casinos, private members' clubs, slot machines, bingo operations, online gambling, telephone betting and betting exchanges. The IBA says its proposal would increase revenue to the Exchequer, create 3,000 additional jobs and help protect existing jobs in the betting and racing industries.
The IBA's stance would appear to be a progressive one but it is just one of several stakeholders in this impasse and there is still plenty of ground to be covered. And, at the end of the day, what really needs to be addressed is how much is required to fund horseracing, and who should pay for it.