Governing the Sport of Kings RACING REFORM IN VICTORIA,

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1 Governing the Sport of Kings RACING REFORM IN VICTORIA, Russell Hoye Victoria is the only Australian State to have created an unlisted public company limited by guarantee to govern thoroughbred racing activities. This represents a significant change from Victorian racing being governed by an honorary, elected committee to a corporatised structure with paid appointed directors. This paper explores the issues that have led to this change in the governance of thoroughbred racing in Victoria, the process undertaken to facilitate the change and the benefits that such change is expected to bring to the sport in Victoria. In 2002, the Australian thoroughbred racing industry generated a gross economic impact of nearly $8 billion and employed almost 250,000 people. 1 Wagering turnover on Australian thoroughbred racing is more than $9.6 billion annually. 2 Racing is the second most popular spectator sport in Australia, with over 5 million people attending race meetings every year in Australia. 3 In 2001, there were 21,390 races conducted by 454 thoroughbred race clubs on 379 racecourses in Australia. 4 The racing industry can be divided into two sectors. The first is wagering activities conducted through bookmakers, on-course totalisators and offcourse totalisator agency boards (TABs). 5 Through these wagering activities, the racing industry is a major contributor to State Government revenues. In 2001, the six State and two Territory Governments collected $900 million in taxation revenue from racing activities. 6 The State and Territory Governments have enacted legislation to control and regulate wagering activities such as gaming and betting, bookmakers' taxation, off-course and on-course totalisators, and racing appeals. 7 The wagering activities associated with racing have recently undergone significant changes, most noticeably the privatisation or corporatisation of the majority of TABs. The Victorian (TABCORP) and New South Wales (TAB Ltd) TABs were privatised in 1994 and 1998 respectively. The Queensland TAB (TAB Queensland Ltd) was privatised in 1999 and has since acquired the South Australian (in 2000) and Northern Territory (in 2002) TABs. The Australian Capital Territory and Tasmanian TABs remain government owned. At the time of writing the Western Australian TAB was proposed to become the wagering division of the restructured statutory body, Racing and Wagering Western Australia. Sporting Traditions, vol. 19, no. 2 (May 2003), pp Published by the Australian Society for Sports History.

2 Russell Hoye Governing the Sport of Kings 17 The other half of the racing industry comprises racing activities involving race clubs and members, breeders, owners, trainers and jockeys. Each of the race clubs is non-proprietary and run by honorary committees. Within each State, a Principal Club has traditionally been empowered to control racing activities. The Principal Clubs of each State met regularly as the Australian Conference of Principal Racing Clubs to formulate and adopt the Australian Rules of Racing. This body is now known as the Australian Racing Board. 8 In addition to conducting race meetings at their own racecourses, the Principal Clubs had ultimate responsibility to enforce the Australian Rules of Racing for other clubs in their respective State. Until recently State and Territory governments were content to allow the racing industry to self govern within a framework of government regulation. The governments allowed each of the respective Principal Clubs to administer and supervise racing activities in their State or Territory. In recent years, five of the States have established statutory bodies as the Principal Clubs to discharge the responsibilities that had previously been controlled by the most prominent race club in the State. Victoria is the only State that has created an unlisted public company limited by guarantee to govern thoroughbred racing activities. In effect, this has meant that the governing bodies for racing have changed from an honorary, elected committee structure to a corporatised structure with paid directors usually appointed by a selection process against criteria which include both business acumen and understanding of the industry. 9 These corporatised statutory bodies are usually under some form of control of the relevant Minister for Racing and are required to table an annual report to Parliament. The change in the structure of the wagering activities sector of the racing industry has undoubtedly forced change upon the racing activities sector. The greatest source of revenue for racing activities is the TABs. In 2001, thoroughbred racing wagering turnover in Australia through TABs was $8,207M compared to $1,422M through bookmakers 10 and the three eastern seaboard TABs accounted for 88% of the national wagering market for racing in The privatisation and corporatisation of TABs has called for new forms of contracts with the racing industry in relation to the provision of racing product and the distribution of funds. 12 The following sections explore the issues that have led to this change in the governance of thoroughbred racing in Victoria, the process undertaken to facilitate the change and the benefits that such change are expected to bring to the sport in Victoria. Victorian Racing Since 1994 the Victorian racing industry has out performed the other State and Territories. Between 1994 and 2001, prize money for Victorian races has increased by 76% ($45M) compared with New South Wales (29.6%), Queensland (23.5%) and South Australia (31.5%). Over the same period the

3 18 sportingtraditions VOLUME 19 no 2 MAY 2003 average prize money per race meeting in Victoria increased by 70% to $191,854 compared with New South Wales (62.9%), Queensland (46.8%) and South Australia (36.5%). Similar improvements are found in the average prize money awarded per race and the average prize money per horse. 13 Significantly the returns to owners in the form of prize money, starting subsidies and various rebates and fees have increased by 95% since The racing industry depends on people being willing to purchase and train horses, and these increases are vital for maintaining and developing interest in racehorse ownership. The average earnings by trainers and jockeys have also increased by 79.6% and 77.2% respectively between 1994 and The wagering activities associated with Victorian racing have enjoyed similar levels of improvement between 1994 and Victorian TAB turnover has increased by 19.1% since privatisation in 1994 compared with New South Wales (11.3%), Queensland (0.5%) and South Australia (2.6%). 15 Overall bookmakers' turnover has increased by 18.4% since Victoria's share of the national thoroughbred racing wagering market has increased since 1994 by 1.7% compared with New South Wales (a decline of 6.3%), Queensland (an increase of 0.7%) and South Australia (a decline of 0.2%). 16 However, while these figures indicate an overall improvement in State-wide wagering, country racing wagering turnover has declined due to a combination of factors. These include increased television coverage of metropolitan race meetings across Australia, a decline in the number of people living in country areas, and a decline in the number of country races by almost 19% in the period 1988 to On course TAB and bookmaker turnover for country race meetings has declined since 1994 but the rate of decline has slowed in recent years 18 with an intensive marketing campaign conducted by the Victorian Country Racing Council to attract metropolitan visitors to country race meetings. These figures indicate that the Victorian racing industry has continued to improve in both racing and wagering activities since 1994 while the other major States have either declined or posted relatively modest improvements. This suggests that the decision makers at the helm of Victorian racing over this time - Racing Victoria operating under the governance of the Victoria Racing Club Industry Committee had been doing more than an adequate job in governing the industry. In light of this, why was the governance of Victorian racing transferred in 2001 from the Victorian Racing Club to a new entity called Racing Victoria Limited (RVL), an unlisted public company limited by guarantee? Australian Racing Governance Issues A recent review of the governance of the Western Australian racing industry identified three key issues driving change in the Australian racing industry. 19 These were the frequent changes to the governance of racing and wagering

4 Russell Hoye Governing the Sport of Kings 19 activities in Australia since 1994 (discussed earlier), the ability of racing to compete for consumer's leisure dollars, and the provision of race vision by the pay television operator SkyChannel. The proliferation of leisure opportunities in Australia has had a significant impact on the numbers of people choosing to attend race day meetings. Consumers have a wide range of options on which to spend their discretionary income on activities such as casinos, clubs, hotels, and other gaming activities such as lotto. Pay television, including race day vision, is more accessible for consumers, which together with telephone and internet betting, negates the need to attend racecourses. This decline in on-course patronage has led to a decline in the number of oncourse bookmakers and an increased difficulty for race clubs in attracting corporate sponsorship, a traditionally significant portion of race club revenues. SkyChannel, owned by the NSW TAB Ltd, has a monopoly over the provision of race day vision across Australia to individual pay television subscribers and commercial outlets such as TAB retail outlets, clubs and hotels. Maximising the wagering turnover for race clubs in Australia depends on their ability to transmit race day vision to as many outlets as possible. SkyChannel has almost total influence over the scheduling of race meeting dates and times for all codes of racing (Thoroughbred, Harness and Greyhounds) in all States. 20 Ensuring that the racing governing bodies are able to negotiate with SkyChannel for reasonable scheduling, coverage and fees is a key challenge for each respective State governing body. Victorian Racing Governance Issues Disputes between Victorian PubTAB operators, TABCORP and SkyChannel in late 2002 illustrate the need for a strong governing body to balance the interests within the racing industry. The privatised TABCORP that owns the licence to operate off course TAB services in Victoria had embarked on a strategy of cost cutting by closing down many TAB retail outlets and expanding the number of licensed hotels that could operate a TAB outlet a PubTAB. The rationale was to shift the retail costs of the existing TAB retail network to publicans who could capitalise on increased food and beverage turnover from punters attending their hotels. In late 2002 there were 484 PubTABs and 110 TAB retail outlets in Victoria. Publicans who invested in installing a PubTAB in their premises soon found that the fees charged by SkyChannel for the provision of racing vision were unsustainable compared to increased revenues, and that commissions from TABCORP were too low. The inability of the PubTAB operators, represented by the Australian Hoteliers Association (AHA), to renegotiate their fee structures with SkyChannel in September 2002 led to many PubTAB operators threatening to close down over the lucrative Spring Racing Carnival. 21 To compound the issue, SkyChannel threatened to withdraw its pictures from Victorian TAB

5 20 sportingtraditions VOLUME 19 no 2 MAY 2003 outlets three days before the 2002 Caulfield Cup because TABCORP was refusing to pay $10M to SkyChannel for the provision of race day vision. 22 The role of Racing Victoria Limited in these disputes was to find a balance between the stakeholders involved in the wagering activities of racing. RVL proposed that country PubTABs that did not have gambling facilities (poker machines) would receive subsidies to supplement their income. In addition, all PubTABs would receive bonuses for wagering turnover growth that could be used to pay the increased SkyChannel fees. 23 TABCORP was obligated to pay the $10M and eventually agreement was reached that the contract would be honoured. 24 These disputes highlighted the need for a racing governing body to have the ability to negotiate with the stakeholders of the wagering activities in their State, in particular the monopolistic SkyChannel. In addition to these national issues, the Victorian racing industry had grappled with the impact of the privatisation of the Victorian TAB in 1994 and the subsequent deregulation of the racing industry. In many ways, Victoria has been a leader in the Australian racing industry. It was the first State to introduce a TAB in 1960 and the first to privatise it in The majority of States have followed suit. Painter provides a history of the introduction of TABs and outlines how a process of policy learning is evident in Australian States that led to uniformity and administrative effectiveness in the operation of Australian TABs. 25 The privatisation of the Victorian TAB occurred under the Kennett Liberal Government amidst a climate of selling off public assets to retire public debt. The TAB was one of the first public sector agencies targeted for sale and exceeded expectations with a $675M market capitalisation in TABCORP's major asset is a refundable $597 million, 18 year wagering and gaming licence. Within Victoria, this permits TABCORP to exclusively sell pari-mutuel bets on thoroughbred, harness and greyhound racing and fixed odds betting on sporting events. TABCORP also holds one of two licences, apart from the Crown Casino, to operate gaming machines in hotels and licensed clubs throughout Victoria. The company also owns the Star City casino in Sydney. 27 An issue for the racing industry in Victoria is that TABCORP is answerable to its shareholders, not to the racing industry. Racing is just one component of TABCORP's business, a business dependent on a strategy of growth to increase shareholder value. The Victorian racing industry is however, able to capitalise on the other aspects of TABCORP's operations through a profit sharing arrangement. In April 1994, during the second reading of the Gaming and Betting Bill 1994, the then Treasurer of Victoria, Alan Stockdale, noted that the privatisation of the Victorian TAB and allied legislative measures would 'deregulate the racing industry to give it the freedom and flexibility while at the same time strengthening probity requirements across the Victorian

6 Russell Hoye Governing the Sport of Kings 21 wagering industry'. 28 Deregulation was in many forms including 'the removal of excessive and prescriptive regulation which even dictated the time on which individual races must start'. 29 Before 1994, many of the business planning powers for racing were controlled by the government under the Racing Act 1958, including the distribution of TAB profits to race clubs, the allocation of capital expenditure for infrastructure, racecourse development and investment and research programs. 30 The deregulation process effectively transferred responsibility for racing from the government to the industry itself. In addition to the national issues and the privatisation and deregulation of the Victorian racing industry, there were a number of concerns that stakeholders in the Victorian racing industry had with the governance of the sport. In July 2000, Racing Victoria stated that while 'the functions of Racing Victoria have been separated from the Victoria Racing Club to the extent practically possible, legal constraints have made that separation less than is necessary to provide the independent, transparent and efficient governance arrangements essential for further development and growth of the industry'. 31 Racing Victoria highlighted five reasons driving change in the governance of Victorian racing: (a) Enhanced Independence: At present responsibility for industry matters primarily rests with the Racing Victoria Industry Committee, which is perceived as being controlled by the VRC Committee which is focused principally on Flemington. Under the proposed new structure, Racing Victoria Limited will be established with a clear charter to focus exclusively on matters of industry-wide importance and its decision making process will be independent of the VRC and any other single club or body. (b) Addresses Conflicts of Interest: The current industry governance model provides the VRC with dual responsibility for industry matters and VRC Club matters. Under the proposed new model, any perception of conflict or bias will be eliminated by ensuring that Racing Victoria Limited's decision making processes function separately from those of the VRC or any other club or body. (c) Improved Accountability: The perceived primacy of the VRC under the current industry governance structure arguably has the effect that the industry's peak decision making body is most directly accountable to members of the VRC, rather than to racing generally. Under the proposed new governance model, Racing Victoria Limited will have an independent board of directors, accountable to all of the metropolitan racing clubs and the Victorian Country Racing Council (on behalf of all country racing clubs) and representing the interests of the entire Victorian thoroughbred racing industry.

7 22 sportingtraditions VOLUME 19 no 2 MAY 2003 (d) (e) Improved Use of Skills and Competencies: The formal separation of VRC Club and Racing Victoria industry responsibilities will assist in ensuring that board/committee members and executives can more readily apply their talents to their particular areas of competence. Racing Victoria Limited directors and staff will inevitably require a stronger aptitude for industry planning and development issues, whereas at the club level the requisite skills include a greater aptitude for identifying and responding to the particular interests of club members. Business Continuity: The implementation of the new Racing Victoria structure must ensure that there is a smooth and seamless transition to the new governance structure. The competitive environment in which the thoroughbred Racing Industry operates means that it cannot afford distracting or debilitating interruption or delay in pursuing its business objectives for the benefit of the Victorian thoroughbred racing industry and its stakeholders. 32 Creation of Racing Victoria Limited The issue of industry governance initially came under review by Racing Victoria in 1998 and was identified as a key task in the industry's annual review of its Leadership 2000 Business Plan. Racing Victoria established a Governance Review Group consisting of representatives from the three metropolitan racing clubs and the Victorian Country Racing Council before arriving at its preferred model that was presented to the Minister for Racing, Rob Hulls, MP in May Racing Victoria subsequently submitted a proposal to the Victorian Government in July 2000 outlining the details of their preferred governance model. 33 The catalyst for change in this instance was the Chairman of the Victoria Racing Club, Andrew Ramsden. Ramsden is widely acknowledged as the individual who worked with industry stakeholders to develop the new governance model and championed the industry position with government. 34 In response to the Racing Victoria proposal the Minister announced the formation of an Advisory Panel to provide recommendations on a new governance structure for the thoroughbred racing industry. The Panel's terms of reference required it to examine the model proposed by Racing Victoria as well as alternative governance structures. Following a review of alternative governance models for racing industries in other States of Australia, the Panel concluded that the model for prime consideration for advancing the Victorian racing industry was the model proposed by Racing Victoria. However, based on the views expressed in the submissions and recognising fundamental issues such as the high public interest in racing, the

8 Russell Hoye Governing the Sport of Kings 23 Panel identified the need for a series of important changes to the Racing Victoria model. 35 The changes addressed the risks and costs associated with the new form of governance, such as ensuring key industry stakeholder involvement in the decision making processes to be utilised by the new governing entity, ensuring appropriately skilled and competent people were appointed, and protecting stakeholder interests in future changes that may occur in the governance of the racing industry. The Panel recommended changes to the structure of the board of directors, the process for appointing directors, safeguards for any future change of the governance body's constitution and the adoption of a mechanism for consultation between the governance body and key industry stakeholders. 36 The key components of the final governance structure of the new entity Racing Victoria Limited, which took over the governance of thoroughbred racing in Victoria in December 2001, included: Racing Victoria Limited was incorporated as a company limited by guarantee with four equal shareholders: Victoria Racing Club, Victoria Amateur Turf Club, Moonee Valley Racing Club and the Victorian Country Racing Council. RVL acquired all the powers and functions as Principal Club previously held by the Victoria Racing Club. RVL acquired all the powers and functions to manage the business of Victorian racing previously held by Racing Victoria. RVL's Board comprises 11 Directors, five appointed by an initial Appointment Panel, one each nominated by the Victoria Racing Club, the Victoria Amateur Turf Club, and the Moonee Valley Racing Club, two Directors nominated by the Victorian Country Racing Council, and a Chief Executive appointed by the Board of RVL. Directors must not hold any office in any racing club, either as a committee member or employee, or otherwise have any perceived conflict of interest. The use of specific criteria for the selection of directors. 37 Conclusion A significant benefit of the new governance structure for Victorian thoroughbred racing as argued by RVL is that it 'removes completely perceptions of conflict of interest and Club domination of the decision making process'. 38 In other words, RVL will represent the race clubs and all other stakeholders in key commercial areas such as distribution of profits from TABCORP operations and negotiations of commercial contracts with SkyChannel. Any previous perceptions that Racing Victoria may not have operated with the best interests of the entire racing industry at heart have

9 24 sportingtraditions VOLUME 19 no 2 MAY 2003 been removed with the creation of a new independent board of directors. The new RVL Chief Executive, Neville Fielke, cited the new governance structure as one of the key strategies for enhancing the future of Victorian racing: RVL is about building the end-to-end linkages in the chain and value in the racing business the value of our product from the breeding studs to the racetrack, from the TAB agency to the bookmaker on the rails, the picture on the free-to-air partner to the picture on your mobile phone, the race watched in downtown Kyneton to the race watched in Kentucky the scope is endless. RVL is now charged with the responsibility to make racing more inclusive to lift it above sectional interests and look to the growth, value and sustainability of our sport in the long-term. This is what will be the challenge for the broader racing industry over the next few years how to ensure that racing capitalises on our recent growth and ensures that the industry looks forward to the long term and looks less at the old, short-term sectional interests. 39 With any review of structure comes the inevitable suspicion that the creation of a new entity will simply result in another layer of complexity and bureaucracy. The Advisory Panel reviewed governance structures operating in all other Australian states as well as overseas and 'were confident that the most appropriate structure for Victoria was that of a Public Company operating under the Corporations Law'. 40 Not only did the Advisory Panel come to this conclusion but the initial proposal from Racing Victoria was even more candid in its assessment of alternative governance models, specifically the option of establishing a statutory body as had occurred in other States of Australia: A statutory body will not meet the fundamental requirement for good governance that is, accountability to the racing industry Statutory bodies are inevitably perceived as being accountable to the Government of the day, whose political objectives may not be in the best interests of the thoroughbred racing industry'. 41 The proposal from Racing Victoria further went on to say that a statutory body is unsuited to the conduct of a business, and that the history of the performance of statutory bodies and the experience of good governance in business enterprises strongly militate against the establishment of a statutory board. 42 The views of Racing Victoria reflect the business backgrounds of the board members of Racing Victoria, and the underlying scepticism of the merits of public sector control of a business operation. They also argued that Racing Victoria had 'successfully led the Victorian thoroughbred racing industry to pre-eminence in Australia, and internationally and that success

10 Russell Hoye Governing the Sport of Kings 25 must not be put at risk by the imposition of a statutory body which will involve a fundamentally different governance structure'. 43 The final compelling argument for the adoption of a public company as the governance model was that: During the last decade restructured racing industry governance models have been imposed by state governments in New South Wales, South Australia, Queensland and Tasmania. These models have been characterised by instability, uncertainty and on-going changes, and it is notable that throughout this period the Victorian racing industry has led the way as measured by a wide variety of performance benchmarks. The Victorian industry's self management model continues to deliver superior perform-ance to governmentimposed statutory models in other states. 44 The evidence provided earlier in this paper regarding the performance of the Victorian racing industry over the last eight years certainly supports these arguments for continued self governance. It remains to be seen if the new governing body will deliver continued improvements in the Victorian racing industry. Notes Australian Racing Board, Australian Racing Fact Book , Australian Racing Board, Sydney, 2001, p. 3. Australian Racing Board, Australian Racing Fact Book, p. 48. Racing Victoria, Racing Industry Facts and Figures, Racing Victoria, Melbourne, Australian Racing Board, Australian Racing Fact Book, p. 13. Western Australian Racing Industry Review Committee, Future Governance of the Western Australian Racing Industry, Perth, 2001, p accessed 6 December accessed 6 December Western Australian Racing Industry Review Committee, Future Governance, p. 6. Western Australian Racing Industry Review Committee, Future Governance, p. 12. Australian Racing Board, Australian Racing Fact Book, p. 48. Western Australian Racing Industry Review Committee, Future Governance, p. 12. Western Australian Racing Industry Review Committee, Future Governance, p. 13.

11 26 VOLUME 19 no 2 MAY 2003 sportingtraditions Racing Victoria, Annual Review 2001, Melbourne, 2001, pp Racing Victoria, Annual Review 2001, pp Racing Victoria, Annual Review 2001, p. 30. Racing Victoria, Annual Review 2001, p. 31. Australian Racing Board, Australian Racing Fact Book, p. 42. Racing Victoria, Annual Review 2001, pp Western Australian Racing Industry Review Committee, Future Governance. Western Australian Racing Industry Review Committee, Future Governance, p. 12. 'Punters stand to lose most from PubTAB mess', Age, 28 September TABs facing blackout of TV racing pictures', Age, 3 October The punters have come out ahead', Age, 26 October The punters have come out ahead', Age, 26 October Australian Institute for Gambling Research, Australian Gambling Comparative History and Analysis Project Report, Sydney, See M. Painter, 'Policy diversity and policy learning in a federation: the case of Australian state betting laws', Publius: The Journal of Federalism, 21, 1991, pp , for a detailed history of the development of TABs in Australia. Australian Institute for Gambling Research, Australian Gambling, p accessed 6 December Alan Stockdale, VICHANSARD, 28 April 1994, p Stockdale, VICHANSARD, 28 April 1994, p Racing Victoria, Racing Victoria Proposal for the Establishment of a New Peak Body for Victorian Thoroughbred Racing, Melbourne, 2000, p. 2. Racing Victoria, Racing Victoria Proposal, p. 4. Racing Victoria, Racing Victoria Proposal, p. 4. Report of the Advisory Panel for Reviewing the Governance Structure of Thoroughbred Racing in Victoria, Melbourne, 2001, p. 1. 'Onwards and upwards for Victorian racing', Inside Racing, November Report of the Advisory Panel, p. 5. Report of the Advisory Panel, p. 5. Report of the Advisory Panel. 'Industry appoints new board of governance', Inside Racing, November Neville Fielke, The Sport of Kings... The New King of Sports', Speech to the Melbourne Media Club, 31 October 'Industry appoints new board of governance', Inside Racing, November Racing Victoria, Racing Victoria Proposal, p. 6. Racing Victoria, Racing Victoria Proposal, p. 6. Racing Victoria, Racing Victoria Proposal, p. 6. Racing Victoria, Racing Victoria Proposal, p. 6.