Politicians are failing the racing industry
The gulf between Irish racing and the betting industry grew wider last week as the two sides squared up in front of the Oireachtas Committee on sport.
John Oxx, Sea The Stars trainer and a respected voice in racing circles, struck the heaviest blows when he accused Paddy Power chief executive Patrick Kennedy of showing "absolute disdain" for the racing industry. "He is not interested in me or my workers, only Paddy Power," Oxx said.
Kennedy told the committee that "Irish breeding is world class but our racing is not" and went further in an interview with the Racing Post, saying that Horse Racing Ireland "hides behind the success of our breeding industry."
The war of words has a serious point. Irish racing survives on government subsidies and the government wants those subsidies to be directly linked to gambling. It was an arrangement that worked smoothly enough when first introduced in 2001 but the pips started to squeak when betting tax receipts started to tumble.
As Brian Kavanagh, HRI's chief executive, told the committee "while betting in Ireland has increased four-fold to more than €4 billion, the tax take to the State has fallen from €68m to €31m" in the past decade.
Reduced betting tax has played its part in the shortfall, but the real impact has come from the dramatic change in the betting industry. There is still a strong, traditional betting shop trade in Ireland, but the real growth has come through internet and telephone betting. That online market is mobile, can be sourced anywhere in the world and has global players and global competitors.
It is a market that defies regulation -- governments that try to ban online gambling tend to fall flat on their faces -- and is similarly difficult to tax. That will not stop governments from trying (the Department of Justice is working on proposals to introduce an Irish tax on online gambling) but the danger, as Kennedy pointed out forcefully last week, is that any tax will fall disproportionately on firms like his who have chosen to locate in Ireland.
They will be the easy targets for the tax collectors, while international competitors duck and dive to avoid their responsibility. In effect, Kennedy said, an ill-judged tax would be a tax on Irish jobs. And the assortment of politicians were left in little doubt as to what would happen next: PaddyPower's growth would be directed away from Ireland and future high-tech, smart-economy jobs would go to the Isle of Man, the UK or further afield.
It is a threat that should not be taken lightly. Oxx (pictured) was right: Kennedy's responsibilities are to his shareholders and his profits, not to the Irish racing industry. He cannot be expected to run a business in Ireland if he could run it more profitably elsewhere: philanthropy does not play well with investors.
The dispute over how the tax to fund racing should be raised has created unnecessary tensions. The government accepts that racing needs to be subsidised -- and has pumped in more half a billion euros over the past 10 years -- and by moving responsibility for the sector back to the Department of Agriculture has recognised that the subsidy is to protect an industry, not a sport.
The horse racing industry supports thousands of rural jobs, many in disadvantaged areas, and it would collapse without state support. The changes in betting behaviour and technology mean that the old, simple, system of matching funding with a betting tax no longer works effectively. The bookmakers suggested a licensing system to replace a tax on turnover, a solution that might plug some of the shortfall, but it is unfortunate that the row about funding has driven such a wedge between bookmakers and the industry.
There are two distinct arguments: how much money does the racing industry need to survive and prosper? And how do we extract tax revenues from the newly mobile online gambling industry for which Irish racing becomes less and less relevant? The answer to the first question cannot depend on a successful answer to the second. Racing's needs have to be met by government because of the industry's importance to rural Ireland: the amount of money that can or cannot be sourced from gambling is irrelevant.
Government's responsibility is to establish how much money to hand over and then ensure that money is spent wisely. Tackling the gambling industry is important (now more than ever, potential revenue sources cannot be ignored) but the two issues need to be broken apart. Instead of pitting the bookmakers against the racing industry in a Leinster House committee room, government needs to deal directly with both: demanding better performance for our cash from racing, and getting more tax from the bookmakers if it can.