E = mc2

MassDeb8r

E = mc2

2005 was not all that long ago, five short years, yet it seems like an age. At Cheltenham that year, Kicking King won the Gold Cup, Hardy Eustace the Champion Hurdle and in Aintree Hedgehunter claimed the Grand National. In all there were nine Irish winners at Cheltenham and eight at Aintree A good year for the Irish then but an even better one for Horse Racing Ireland (HRI).

It was amidst the halcyon days of the Celtic Tiger that long-since-lost phenomenon, when CEO of HRI, Brian Kavanagh reported the attendance at Irish racecourses was 1.43 million; betting was up, the Tote grew and value of horse sales at public auction flared from €113 million to €146 million. In 2005, 16,500 people were employed in the racing industry and the breeding sector alone contributed €330 million to the economy.

Amidst all the back-slapping and cheap money, there were surprisingly striking changes in the taxation structures of the racing industry. The stallion taxation exemption was ended and betting tax was reduced from 2% to 1% and in turn, absorbed by the bookies. Now where are we five years later? Without a palpable need to be rhetoric, we are languishing in the chaos caused by a collapsed countrywide cocoon; as every radio and television station is affirming, the party is well and truly over.

A recent report by UCD based economist, Colm McCarthy stated that c.14,000 people are directly employed in the breeding and horse industries. The most recent figures for Britain are 18,500 employed directly with 52,000 employed in betting, the overall figures are 100,000 full time equivalent jobs being supported, directly or indirectly in racing.

In Ireland, the figure of 14,000 stated in the McCarthy report does not include those people employed in betting, nor should it. Paddy Power stated of late that the majority of their betting revenue does not stem from racing; this is not surprising given their marketing engine and website which has diversified heavily into soccer and sports betting.

The Tallaght-based firm have become Ireland’s eighth largest company, not just in the gambling or online betting market but in a list of every single Irish company. They are exempt from inclusion as they do not shoe horses; they offer 50/1 for Brian Lenihan to pose as Santa Claus when delivering his 2011 Budget.

Novelty aside, there are stark figures to contend with. There has been a cut in Government funding in the region of 22% over the past two years to the industry. As racing and gambling are yin and yang, the minister for finance does not believe he is getting a big enough slice of the betting pie, and he may be right.

In 2002, €68 million in tax was generated from €1 billion of betting turnover in the industry, in 2009 the tax take has more than halved to €31 million despite a 550% increase in betting turnover to €5.5 billion. This is not an anomaly; it is an errant failure in the financial management of betting tax, despite the 1% reduction in 2005.

Simply put, with betting tax generating just €31 million from €5.5 billion of turnover, (that’s a lot of zeroes, €5,500,000,000) that’s a tax return of 0.18% on your turnover. Unsustainable from the Governments perspective and as such, it was addressed in yesterday’s budget.

Before delivering the 2011 budget, the Minister for Finance had already announced that the Government would double the current 1% levy on bookies' turnover. This will net the exchequer €40 million. During the Budget speech, the Minister announced that bets placed on the internet by domestic customers will be subject to same level of betting duty as high street betting shops, meaning a resultant injection of betting tax which can be fed back to HRI.

The racing industry is on-course to face a €28 million gap in its finances and the measures taken by Brian Lenihan will take time to trickle down to actual capital in terms of those employed by the industry. The measures will also no doubt result in calls from within the industry that it will put bookmakers out of business and lead to job losses, but for the sake of the industry as a whole, they must be taken, there will come a time when the seed will sprout.

With the ultimate goal of Horse Racing Ireland to create an industry that is self-funding, any pain that must be felt is to ensure that we maintain our deserved reputation as one of the greatest breeding, training and horse racing countries in the world.

Amidst all this we could all do with some words of encouragement; those that come to mind are that “In the middle of difficulty lies opportunity”. Spoken by an educated man who, when trying to make a career could not find a job as a teacher, he knew a thing or two about enduring hardship before success. He was Albert Einstein.

Nulty

Nice post if only lacking a strong opinion. I know you have the industries interests at heart. Can you offer any solutions yourself? Will the added betting tax on internet gambling result in extra funds directed to the racing industry? Was anything directly detrimental to the racing industry apparent in the budget as far as you could see? Will these betting tax revisions be enough to allow the racing industry to emerge from the current climate of depression?

Its clear that the industry is under a lot of pressure and betting is generally the main source of income for British racing, is it the same here? Are we as reliant on a levy as the British?#

Lots of questions but I'm trying to understand as much as I can. Thanks

MassDeb8r

It's a good question, I really think that the only way to generate revenue quickly is by imposing a higher tax on tax for bookmakers, if the are turning over €5 billion a year they should be taxed on that, or at least on the horse racing section of their profits which should be funnelled back into the industry. What was implemented in the budget will claw back the deficit but it will take a while, I remember the days of a 9% betting tax and people still paid it, it was Mr. Charlie McCreevy that dropped it by so much.

Apart from the betting tax, there really and race sponsorship is dead, the new owners in the game are down by 1/3 and prize money is at 2002 level, we are still producing top quality horses and race winners though and if the bookies pay tax in proportion to their earnings it will be a good solution for all, they can't bite the hand that feed them!!

smartaform

Nice post Mass,

Like some on the forum my life revolves around the industry, without it i can't pay bills blah blah blah..
Putting that to one side, ultimately the industry is being run by fools, both here in Ireland and in the UK.
When the TOTE grew, they had a chance to make racing self funding... A basic tote system which they could have looked to the USA, France, Australia, HK, Singapore (i'll stop now) for advice, guidance and of course HELP....INSTEAD we allowed the bookies to move offshore and give very little back to racing in terms of funding.. The industry fell into the Irish system of backhanders and favors..
I grew up in a system that worked, a system that didnt worry about prizemoney because the funding was there through the tote (and contributions the authorities enforced). Bookies do still pitch their stands at the races, but they pay for the right to make a living of our product which is the races being run in front of them.
The overall question is - WHO RUNS RACING??.... In this country, the bookies do and if that doesnt change we will be in a terrible position in 2 years time.

meriwether

The meagre contribution of the bookmakers and exchanges to the levy is the source of the problem.

Racing needs to fund itself more effectively and take less from a depleted exchequer. The first step is the industry to pay a proper levy.

The bookmakers, in their argument that less and less of the revenue coems from racing have shown themselves to be utterly dishonourable.

I wouldn't weep a single tear if they were nationalised and a state run tot was the monopoly. Andf I say this as a devout capitalist.

It is utterly outrageous in this day and age that stud fees attract ZERO tax, yet minimum wage is cut by a euro.

smartaform

it is sickening isn't it merriweather - there is so much cash floating around the breeding industry tax free - 1% of that would go a long way.

smartaform

Just saw this on the Point to Point website in regards to cutbacks....

Kavanagh continued: "HRI will continue to work to ensure that all types of off-shore betting, including betting exchanges, are captured within the taxation net on an equitable basis. The next step will be to secure an appropriate increase in the taxation rate to ensure that there is no future requirement for any direct exchequer subvention."

"The current rate of betting duty in Ireland is the lowest in the world and a modest increase will safeguard jobs in rural Ireland, ensure continued inward investment from overseas owners and enable the resumption of vital Racecourse Capital Development Programmes as soon as possible, thereby creating significant employment around the country."

Ireland and the UK are about 5% below what any racing authority in the world would deem 'sane' in terms of betting revenue or enforced revenue from bookies.
I have a good mind to make a citizens arrest on Kavanagh if i see him walking down the street..