Horse racing industry faces a future full of uncertainty

ANALYSIS: Industry insiders fear horseracing's 'wealthy' image could hurt efforts to secure its future

LAST WEEKEND, while the rest of the racing world focused on the Grand National, the sport’s administrators in Ireland were more occupied with what the emergency Budget might hold for it.

In last October’s budget, Minister for Finance Brian Lenihan announced he was cutting the State-administered Horse and Greyhound Fund by 9 per cent to €55 million this year. He also said he intended doubling the turnover tax imposed on high-street bookmakers to 2 per cent, a move designed to bring in €40 million.

The sport’s administrative body, Horse Racing Ireland (HRI), reacted by cutting prize money and postponing funding for the proposed €100 million revamp of the Curragh racecourse, flat racing’s Irish headquarters.

This time around, Lenihan spared the axe. But the sport, its connected industries and an estimated 16,000 jobs still face a future that’s harder to predict than the outcome of many of the races taking place at Fairyhouse and Cork this weekend.

The Horse and Greyhound Fund lies at the heart of the uncertainty. It is a means of using betting to fund horse and dog racing, and dates back to 2001, when HRI was set up. Under the system, the exchequer collects tax from bookmakers and pays it over to racing. In 2002, its first full year of operation, HRI received €54.453 million. Under the system as it was introduced, the State committed to increasing the fund in line with inflation or the take from the bookies, whichever was greater.

However, as this was happening, online betting also took off, which meant turnover began moving out of the tax net. Then, during his time in finance, Taoiseach Brian Cowen cut the betting tax from 2 per cent to 1 per cent.

So the fund shrank. HRI chief executive Brian Kavanagh said that in 2001 the total betting pool was €1.3 billion, generating €68 million for the fund. In the intervening period, betting has mushroomed to over €5.4 billion, but last year the amount available for the fund was €34 million.

This meant the State had to make up a shortfall in the fund for several years. It is no longer doing this, and in fact, the longer term future of the current funding system is up for discussion with the Government.

Kavanagh says the main priority is to secure the fund’s long-term future. “Racing is making a genuine economic contribution,” he argues. “If you look at it from one point of view, if the industry were not there, we would be going out seeking investment to create it.

“It’s the equivalent of a number of US multinationals employing hundreds of people, and much of it is in rural areas that do not generally benefit from outside investment.”

It has been several years since there was an attempt to quantify the racing and thoroughbred breeding industries’ contribution to the economy. One study, commissioned in 2004 by HRI, found that they employed about 16,000 people and contributed €350 million to the exchequer. There is no indication that those numbers have fallen since then.

Whatever the numbers, they partly depend on foreign-based owners investing in Irish racing.

John Oxx, a trainer who has sent out high-class horses such as dual Derby winner, Sinndar, and Ascot group one victor, Alamshar, from his base on the Curragh, says that 90 per cent of the income there comes from foreign owners.

The Aga Khan is one of his key patrons, but he also has owners in Britain and the US. Good prize money is a key incentive for them.

“Owners tend to lose money on racing because the majority of horses lose,” he acknowledges, “but when they do win, they want to see that they are getting something back.

“If it’s peanuts, they are going to turn around and go somewhere else, because people are only prepared to lose so much.”

He argues that the approach is no different from offering incentives to multinational investors.

Around 50 per cent of the Horse and Greyhound Fund goes back to owners in the form of prize money, and a share of that goes to trainers and jockeys, who get a percentage of the purse.

However, Oxx points out that it can cost €20,000 a year to keep a horse in training, and that owners also have to pay a series of entry fees every time one of their horses is entered, even if it does not run.

Oxx has 90 horses in his yard and employs more than 40 people. While not every handler has a ratio of one person for every two horses, he says the business is very labour-intensive, meaning it creates jobs.

His owners may be wealthy, but Oxx said that most of the people working in racing, at whatever level, are not, and says the image of the sport as the preserve of the rich is at odds with reality.

This is a recurring, and justified, complaint from people in racing and breeding. They say that in recent years, various politicians and commentators chose to characterise the business in this way, largely for their own ends.

Vet and breeder John Osborne dismisses the image, but fears it could affect the industry’s efforts to make what he believes is a justified case.

“What we’ve got to recognise is that this is an indigenous industry, and it’s something Irish people are good at,” he says.

“We’re in danger of losing a lot of indigenous industries; we’ve already lost Waterford Crystal and if we’re not careful, we’ll have nothing left at all.”

Osborne, Oxx and Kavanagh are at pains to point out that the Horse and Greyhound Fund comes from betting, not the general tax take, and stress that betting has always funded racing, because the sport generates much of the turnover.

However, the people who are contributing that money, the bookmakers, say the budget increase, due to be imposed on May 1st, will cost their industry jobs and investment.

An estimated 45 shops have gone since October, 14 of them owned by British chain William Hill, and the industry estimates that the final figure will be 300, which will cost the exchequer €22 million a year in lost revenue.

Their internet and telephone businesses are not taxed, and the Government is said to be eyeing the latter, as it is easier to get a handle on than the internet.

However, bookmakers say this is not as lucrative as it looks. Much of the business comes from outside Ireland, and taxing the locally generated turnover raises just €5 million extra.

They are adamant that a tax on both the internet and telephone channels will not work, and could force the jobs in these areas overseas. The two biggest players, Paddy Power and Boylesports, employ 750 staff in these areas, indicating that overall numbers could be over 1,000.

Bookmakers believe that funding to HRI should be cut, but they have suggested another solution as well, which is to look for ways to boost the Republic’s betting and gaming industries.

This is not a million miles from a proposal contained in a report compiled by DKM Economic Consultants and AL Goodbody Solicitors, which was submitted to the Government-appointed body which reported last year on reforming gambling laws here.

That document points out that given a clear licensing environment, internet betting businesses would be keen to set up shop here. The system could include a charge over and above corporation tax, some of which could be diverted to the Horse and Greyhound Fund.

Joe Kelly of AL Goodbody recently told The Irish Times the firm had had inquiries from multinational players in the industry about setting up in the Republic.

However, it looks as if change in the State’s gambling laws is a long way off, while difficulties faced by both racing and the bookies look a lot more immediate.