COMMENT: Temperature rising on Australian racing’s Golden Goose

Big prizemoney hikes in New South Wales and Victoria may make good headlines, but it is the wagering landscape which will determine the future prosperity of Australian racing.

The Australian prizemoney race has been on in earnest for some time (Photo by Mark Evans/Getty Images)

The respective $30 million prizemoney announcements of New South Wales and Victoria this week have garnered plenty of headlines, but arguably the most significant news when it comes to the future commercial prosperity of Australian racing came out of Queensland on Monday.

The prizemoney wars between the two major states have been fodder for the media masses ever since Racing New South Wales upended the spring status quo by announcing the formation of The Everest. Parochialism and self-interest has reigned thereafter.

But as influential a figure as Racing NSW supremo Peter V’landys is, the future of thoroughbred racing relies on much more than one man, and the loyalty, or spite, he generates.

Australian prizemoney levels have more than doubled in the past decade, providing a level of return to owners the envy of the world, and while the high-quality product put on by the racing bodies has played its role, the major driver is the favourable commercial environment when it comes to the deals with wagering operators.

Racing NSW fought and won the key race fields legal battle a decade ago and the rest of Australia’s jurisdictions have reaped the rewards, with the decade-long boom in corporate wagering driving increasing returns, and in turn powering prizemoney.

The one casualty of this boom has been the role of the TAB, and the parimutuel funding model which has previously commercially powered the racing industry for 50 years. Put simply, the joint venture agreements struck between the various state bodies and Tabcorp have become much less valuable.

To put that in context, in 2010/11, Victoria’s industry received 80 per cent of its revenue, $202 million, from the Tabcorp joint venture. In 2020/21, that contribution has plummeted to 38.3 per cent, or around $150 million.

Corporate wagering behemoths such as Sportsbet and Entain have grown out of this landscape and become a major source of funding for all the state racing bodies. It would be a case of everybody wins, if it wasn’t for the state governments, who found the Northern Territory registered corporate bookmakers were beyond their tax reach.

Enter the Point Of Consumption Tax. Introduced gradually across all Australian states and territories in the past five years, it is designed to tax corporate bookmakers based on where their customer is based. It has proven a very useful way for state governments to retrieve control of the money which had previously been flowing directly to racing bodies through race fields fees.

While the initial indications were that the new POC tax, levied on the bookmakers at between 10 and 15 per cent of revenue, was stymieing betting turnover, COVID proved an unexpected windfall.

With most leisure activities on hold, interest in horse racing boomed, as did wagering turnover, delivering a much-needed injection into state coffers during a period of overall economic downturn. The value of the Point Of Consumption Tax was made very clear.

Corporate bookmakers were understandably unhappy with POC being another hand in their pocket, but the COVID boom has made it an easier cross to bear.

However Tabcorp, undergoing its own upheaval through the past five years, with a merger with Tatts and then a recent demerger which separated its lottery and wagering arms, was a different case.

It was still committed to joint venture-like agreements in several states, while it was still liable for race fields payments and also subject to the new POC tax. It claimed it was subject to twice the fees of other wagering operators.

So what of Queensland’s Monday announcement? The Palaszczuk state government will raise its POC tax to 20 per cent, from 15 per cent, but it also confirmed that it has reached an agreement with Tabcorp over a $150 million legal dispute over what was owed for previous POC tax.

The upshot is that Tabcorp and the Queensland government have agreed that the $150 million will be put into the broader racing industry.

Cash splashes of that magnitude can blind anybody, but more significant from a long-term perspective is that Tabcorp no longer has to pay the product agreement fee which gives it retail exclusivity in Queensland.

What does that actually mean? It means that for the first time in the corporate bookmaker era, Tabcorp is on a level playing field with the other corporate bookmakers when it comes to fees and taxes.

What does it mean to Tabcorp’s bottom line? Well, its share price jumped five per cent on the news. That tells us plenty, especially in the context of the possible private sale of Tabcorp in the coming years.

Understandably, Tabcorp will seek similar agreements with the other major states, looking to leverage their position in order to do a much better deal. With the Racing Victoria/Tabcorp joint venture due to end in 2024, it shapes as a very interesting time.

A 20 per cent POC tax in Queensland, which includes a larger share distributed back to racing, proves a better deal for Tabcorp on two accounts, as it simultaneously impacts their competition. The tax has also been extended to free bets and other gratuities, making it harder for bookmakers to attract new customers.

Queensland’s dalliance with a 20 per cent POC tax will be no doubt closely scrutinised by other state governments, who will see the obvious advantages of increased revenue.

But in an era of the biggest cost of living and inflation increases in a generation, can wagering be reasonably expected to continually increase?

Put into a context of higher POC taxes, which logically will lead to punters suffering when it comes to ‘prices on the bookies board’, the rivers of gold that have flowed through to the racing industry in the past decade are no guarantee to continue.

Will these big banner prizemoney announcements become a thing of the past?

Prizemoney boosts speak to past prosperity, but the future financial health of the Australian racing industry relies on commercial strength of deals struck in the wagering space.

In such a fluid environment, and with several prospective major new investors, including News Corp, looking to tap into the wagering dollar, there are critical decisions about the future of the industry to be made in the next few years.

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