Is horse racing entering the final furlong?
Bookies’ cash helps to support racing, but betting on the horses is becoming less popular, according to Ladbrokes and Gala Coral
Bookmakers complain of falling profit margins on horse racing but the industry says spectator numbers are in rude health, in particular for big events such as the Royal Ascot Gold Cup (above) Photo: PA
8:30PM BST 23 Aug 2014
There was an unseasonable chill in the air as racegoers made their way to the Knavesmire, the marshy, green area of York where the infamous highwayman Dick Turpin met his death by public hanging in 1739.
The Knavesmire is now home to the city’s racecourse. Long coats and hats usually reserved for jump-racing fixtures such as the Cheltenham Festival had to be dusted off for the Ebor Festival, one of Yorkshire’s most prestigious racing events, which came to a close on Saturday afternoon. But the changeable weather was not the only thing to be sending a chill through the horse-racing industry.
Ladbrokes recently issued a stark warning to courses, trainers and breeders: betting on horse racing is fast becoming “unsustainable”.
Younger gamblers are more interested in having a flutter on other sports, especially football, according to Britain’s second biggest bookmaker. Gaming machines are also competing for the pounds in punters’ pockets.
In the Seventies, betting fans queued up to back legendary horses such as Red Rum. But nowadays online poker and roulette, and figuring out who will open the scoring for Chelsea, are competing for attention.
“It’s football and these other sports which are helping to counter the ongoing decline in attractiveness the industry is seeing in the dog and, in particular, horse-racing markets,” Ladbrokes’ chief executive, Richard Glynn, warned at the bookie’s half-year results earlier this month.
“If turnover trends do not improve and if the current cost structures are maintained for horse betting in particular, it may rapidly reach the point where it becomes unsustainable as a product.”
Ladbrokes is not alone in its fears. On Friday, Gala Coral warned that the profitability of horse racing in its shops has halved over the past five years “and the trend shows no signs of abating”.
Ladbrokes has produced some alarming numbers to support its claim. The bookie believes that next year racing will only account for a fifth of winnings at its betting shops — down from 40pc in 2005 — unless “drastic action” is taken to reinvigorate interest in Britain’s second biggest spectator sport. Over that nine-year period, the bookie says, the costs of racing to the betting industry have doubled. The two main costs are the horse-racing levy, a statutory duty on bets placed “off course”, plus media rights. Traditional bookmakers have to pay for the rights to broadcast races in their shops. They agree deals with one of two broadcasters – SiS or Turf TV, a joint venture between Britain’s top racecourses and Joe Lewis, the billionaire owner of Tottenham Hotspur Football Club. Bookies claim media costs jumped 20pc between 2008 and 2013.
Statistics from the Gambling Commission appear to back up the argument that horse racing is becoming less profitable, while the appeal of football betting is on the rise. Between 2008 and 2013, turnover from “off course” betting on horse racing fell 11pc from £5.7bn to less than £5.1bn. During the same period, gross gambling yield — the total value of stakes minus customer winnings — has dropped from £843.79m to £697.05m. Meanwhile, football betting turnover has jumped by more than a fifth to £1.2bn, while the gross gambling yield has also improved from £224.94m in 2008-09 to £293.41m in 2012-13.
Income from bookies accounts for around a fifth of the horse racing industry’s total income.
Sources within the industry admit that it would be disastrous if a major bookie withdrew its support. So is there a danger that horse racing is entering the final furlong?
“Reports of our demise have been greatly exaggerated,” insists Simon Bazalgette, chief executive of The Jockey Club, the largest racecourse group by turnover in the UK and the owner of 15 tracks, including Aintree, Cheltenham and Epsom Downs. In April, The Jockey Club posted its fifth consecutive year of record operating profits and Bazalgette says the sport’s appeal to spectators is as strong as ever.
“As far as racing and its customer and audience are concerned, it’s in good shape. There are about 6m people who go racing every year, that’s the second biggest spectator sport,” he says.
“Over the last five years people who say they have got some interest in racing has gone up from one in 10 to one in five. Our TV reach still remains very high — 40pc of people during the course of the year watch some horse racing on television. That is a very significant number, [which] is not declining.” Bazalgette argues that the sport has also worked hard to ensure the younger generations are engaged with racing. Many courses allow
under-18s to attend for free. Race nights finishing with music concerts are also extremely popular.
“The 16 to 34 age range represents about 52pc of our customers,” says Bazalgette.
A recent report by the British Horseracing Authority and Deloitte also painted an encouraging picture. In 2013, 5.6m people attended 1,369 fixtures, helping to provide direct and indirect employment for 85,000.
The healthy headline figures do mask problems, however. Few on the racecourse side of the industry will dispute the fact that gambling on horse racing in betting shops is losing its allure.
Many breeders are also in dire financial straits. The Thoroughbred Breeders’ Association warns that many breeders, particularly smaller businesses, are generating losses. UK breeders are failing to provide enough foals to meet demand. Racecourses are now heavily reliant on foreign runners and foals bred abroad to fill their fixture lists.
There has long been a stand-off between bookies, racecourses and breeders over costs in the industry. The Government has frequently had to step in and mediate in the annual negotiations over the Horserace Betting levy.
On the one hand, the bookies claim the UK racing industry has never been wealthier. They produce figures showing that total income has increased by 44pc since
2004-05. Meanwhile, betting shops are coming under increasing pressure because of taxes. Ladbrokes estimates that taxes now equate to close to 70pc of profits in its retail business. From December bookies will also be hit with a 15pc online betting tax while duty on gaming machines will rise next year. The top three biggest bookies in the UK are all closing shops.
On the other hand, the racing industry argues that income from the levy has declined from a peak of £110m in 2007-08 to just £80m, and betting companies in this country make a lower contribution to the sport than their counterparts in other countries.
Bets placed online are also a point of contention. Many of the major bookies such as William Hill and Ladbrokes have relocated their online businesses offshore. Bets placed through their fast-growing digital divisions are, therefore, not captured by the Horserace Betting Levy.
Chancellor George Osborne announced in this year’s Budget that the Government will seek to change that. A consultation on the future of the levy is also expected to be launched next week, looking at longer-term funding solutions for the industry.
While British horse racing may not have run its course, fears over rising costs suggest the going won’t be smooth over the next few years.
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