Barry Lichter's A to Z bit of a laugh if it wasn't all so serious

[Hesi]

What happened to the TAB’s halcyon days? - an A to Z of what brought racing to its knees

By Barry Lichter • 9 May 2020

Crucial week for industry

The TAB has not been in such a perilous position since it was formed in 1951.

Today its staff will learn more details about the 30% cuts signalled last week.

And Thursday’s budget will be crucial for the industry when it is hoped Racing Minister Winston Peters will announce a bail-out package.

Racing was on a roll in the 1990s. Televised racing was launched in 1992 with Action TV, novices could make easybets, we began exporting our racing product overseas and internet betting started in 1998.

In 2001, the TAB introduced form guides in the three major metropolitan newspapers, with up to 20 pages of coverage on Fridays, boosting punter numbers and betting volume.

A year later, on June 27, 2002, TAB president Rick Bettle celebrated the makeover of its ageing 1982 Jetbet system, which was delivered on time and under its $8 million budget and its new website won a prestigious business award. Final field win betting started on racing and multis were introduced.

Punters watched 16,077 races on TAB Trackside.

Fast forward to 2019 and the total number of races exploded to 99,298 - 10,958 at home and 88,340 imported.

But with the explosion of races has come an implosion of the TAB.

So what happened?

It’s not just the impact of COVID-19 that’s made the TAB effectively insolvent and forced it to go cap in hand to the Government. The rot had set in long before that.

The Racing Act 2003 marked a seachange, when the industry’s most powerful body, the Racing Industry Board, was replaced with a statutory body, the New Zealand Racing Board. Its mandate was to promote the racing industry, facilitate betting and maximise profits for the benefit of the racing industry.

Here, in a brief A to Z, we examine some of the things they have and haven’t done in the ensuing years and factors that have led to the demise of the industry’s betting arm, the machine that tens of thousands of people rely on to make a living. At last count we had 27,385 trainers, 614 jockeys and drivers, 6612 breeders, 12,745 industry staff and 10,810 volunteers, a total of 58,166. And that’s without the vets, feed merchants, saddleries, farriers and transport companies that service the industry.

A

John Allen … political appointment with zero knowledge of racing who embarked on a $90 million spending spree..ALLEN

Political appointee to the board, John Allen had no racing experience when he took over as CEO in 2015, bringing his cronies with him, including Stephen Henry from the Ministry of Foreign Affairs and Trade and Gary Woodham from NZ Post.

Intent on investing in the future, the team went all out splurging $42 million on the much maligned fixed odds betting platform and $20 million upgrading broadcast technology to HD.

The TAB had to borrow heavily to fund the work and between 2015 and 2019 it spent more than $90 million on its key strategic initiatives, driving down its equity from $71 million to $23 million.

B

Chris Bayliss … spent millions on new buildings and set pie-in-the-sky budgets.BAYLISS

In less than two years at the helm, silver-tongued former banker Chris Bayliss, on a near $1 million salary, went on a spending spree to update the TAB’s systems which he likened to a 20-year-old car.

He sold the Ellerslie building which he disliked and spent a reported $10 million on a glass palace in Parnell, then a third building in Stanley St, which became the new base for Trackside.

After setting pie-in-the sky profit budgets, which impacted on distributions to the codes, Bayliss left suddenly under a cloud in July, 2014, the reasons for his departure closely guarded.

Bayliss had been appointed by then New Zealand Racing Board chairman Dr Alan Jackson, whose own stewardship was cut short when the High Cost ruled, as a former representative of the thoroughbred code, he was not an independent.

C

The TAB was already on a ventilator in ICU long before the coronavirus struck.COVID-19

With nearly all sports betting and domestic racing shut down by the coronavirus, the TAB’s vulnerability was exposed as its income dried up, but its huge staff expenses continued.

Revenue last month was 47 percent below forecast and customer numbers down more than 35 percent.

Eventually, at the start of May, RITA made the decision to cut its staff by 30%. But this was just the final nail in the coffin for an already effectively insolvent business.

D

DEBT

For an industry once rich in reserves, it now finds itself owing $45 million to the bank.

Ten years ago, the board had $81.5 million in reserves. Last year’s annual report listed current liabilities at $71.2 million and current assets at $49 million, making it technically insolvent.

Equity fell from $73.8 million in 2015-16 to $24.9 million in 2018-19.

Its net loss after distributions was $28.3 million. The six monthly report for this season would make far worse reading but it is now a month overdue.

E

EASYBETS

A staple on the previous website, and one which made it easy for newcomers to bet, Easybet sales for all racing dropped by $500,000 per week on the new Australian-designed platform. Incredibly, the “would you like fries with that” option of the old website, which asked if you also wanted a quinella or joker bet, disappeared. Why would you turn off an option that was turning over so much a week?

F

Who remembers the old website? The one which actually worked and was easy to navigate around.FIXED ODDS BETTING PLATFORM

Launched in January, 2019 five months late and $1 million over budget, the TAB’s $42 million betting platform was promoted as one which would transform the customer experience, according to Allen.

Betting manager Glen Saville’s baby certainly did, frustrating punters everywhere with its poor functionality and it quickly led to a significant drop in turnover.

Forced to spend millions more with a “backlog of fixes and improvements” the new website - with an estimated useful life of only three to seven years - did little for racing punters.

And typical of its secrecy, the board wasn’t forthcoming about the fact that it had locked itself into ongoing annual licence fees of $17.3 million. Allen trumpeted the new website would increase profit by $17 million to $19 million after one year. It didnt. (see P)

G

The TAB’s gaming machines turned over a mind boggling $513 million.GAMING MACHINES

A note of warning in the performance and efficiency audit of September, 2019 came when it observed the TAB’s performance in the last few years was becoming increasingly dependent on its anti-social gaming revenue.

The TAB has held a class 4 gaming licence since 2011 and now has pokie machines in 44 of its 67 TAB board venues. Last season they turned over $513 million, resulting in $29 million in net revenue.

A total of $15 million of its profits were distributed to racing, including $6.68 million to fund the Racing Integrity Unit, $1.38 million to the Judicial Control Authority and $1.89 million to the Racing Laboratory.

Thirty four national sporting organisations got $10 million and community sports $4.1 million.

H

HORSE OWNERSHIP

Racing dwarfs sports betting so without owners and their horses, we’re in trouble. So wouldn’t it make sense to urgently do something about it and improve stakemoney without raiding the coffers?

In unveiling the Messara report into the state of the industry on August 30, 2018, Racing Minister Winston Peters said returns to owners in New Zealand were among the worst in the world - in New South Wales owners get back 48% of their expenses compared with 23% in New Zealand.

“I know a dead horse when I see one,” Peters said of the industry, which he believed was being killed by inertia.

Efficiencies in the report were designed to double ownership returns. We’re nearly two years down the track and what’s changed?

And why hasn’t the board if not generated, at least had some oversight into programmes to promote ownership?

Only more recently have Trackside producers recognised the benefits of showing ecstatic owners after races, the kind of vision that would have far more long term benefits than showing the next from the Townsville dogs.

I

INTEGRITY AND INCA

Questions have been asked in many quarters whether racing’s ruling body should have been more proactive in getting the message out to punters that racing in New Zealand is a lot cleaner than the rank and file might now think. The long-running police Operation Inca, which has wrongly given the impression that race fixing is widespread, has undoubtedly soiled racing’s reputation.

J

Jackpot fever reached its peak on July 29, 1972 when an estimated 33,000 punters converged on Te Awamutu racecourse.JACKPOTS

Despite the rampant success of jackpots in the late 1960s and early 1970s, when cars were queued for kilometres and punters trampled down fences to get on course, the TAB never managed to find a replacement to offer a life-changing bet like Lotto.

TAB bosses couldn’t bring themselves to share in the profits when leading breeder Sir Patrick Hogan and top trainer Dave Multi bets depleted Pick6 pools.O’Sullivan got behind Berri Schroder’s RaceO, even though it stood to earn the industry tens of millions of dollars.

Its only real attempt was the Triple Trio, which was introduced in January, 2014. But, while it was a runaway success in Hong Kong, Kiwi punters found it too difficult and it was put to bed.

The once popular Pick6 was decimated when the hugely popular multis were introduced and percentage betting saw the pot struck too often to build.

K

KPIs

The TAB’s obsession with meeting key performance indicators saw it grow its number of account holders by 49% to 230,000 between 2015 and 2019, mainly through offering free and bonus bets. But the majority of those new customers bet small amounts on sports, fixed odds bets generating lower revenue, and figures have never been released on how many new account-holders continued to bet after getting their free $10. In March a series of errors surrounding its bonus bets saw the TAB admit its returns to the industry would be $3.8 million lower than it expected. Chief financial officer Shaun Brooks quietly disappeared.

L

LIVING BEYOND ITS MEANS

In the last two seasons the board decided to increase its distributions to the codes on top of what they were due - $12 million was added in 2018 and another $12 million in 2019.

While in practice that’s a good idea, and the codes certainly need it, was it a good idea to further drain the coffers part way through investing more than $90 million on its strategic initiatives and spending another $8 million on compliance issues, including anti money laundering?

The board was banking on benefits flowing from its strategic initiatives and a legislation change to allow offshore charges, which have not materialised yet. In its annual report of 2018, the board estimated it would earn $1 million a month by introducing a Betting Information User Charge and Point of Consumption Charge to be paid by offshore competitors taking bets on New Zealand racing.

Last season its net profit of $136.7 million was down $9.2 million or 6.3%. This was $36.8 million below the budgeted $173.5 million.

In spite of this the board held its distribution to the codes at $151.5 million, also taking a further $3.6 million out of its industry enhancement fund, sourced from gaming profits.

M

MARKETING FOCUS ON SPORT

The promotion of racing took another backward step in 2017 when one of the myriad of consultants which cost the TAB $1.2 million a year told it to put all its marketing budget into sport.

As soon as you log into the new website you are offered a myriad of sports betting options almost down to whether Rafa Nadal had a shave before the French Open.

But the returns to the industry from sports betting are comparatively poor - sports fixed odds betting produces a lower margin than racing fixed odds betting or racing tote betting.

While racing turnover decreased from 70% of total turnover to 59% between 2015 and 2019, it remains the predominant contributor to RITA revenues.

In the last five years race betting turnover decreased by $17 million to $1,651 million, while its betting margin increased 0.5% to 17.6%. Sports betting turnover increased by 56% to $634 million, growing from 19.5% of total betting turnover to 27.7%. But the sports betting margin decreased by 0.3% to 9.3%. Sports betting margins are also volatile due to the impact of on-field results.

In the performance and efficiency audit of September, 2019, recommended in the Messara report, RITA was advised that moving as many customers as possible into racing betting was critical for its long term viability. In the six months pre-COVID-19 there were no obvious moves to follow this advice.

N

NO MORE FREE-TO-AIR TV

In April, 2014 the TAB moved its racing channels Trackside and TAB TV off Freeview to Sky Television, alienating thousands of punters who could not afford its subscription fees.

O

ODDS

Many punters, especially the big ones, have been lost to overseas operators, lured by better fixed odds and more attractive loyalty schemes.

Elite customers here make up only 1% of the total customer base but represent more than 30% of turnover and 23% of revenue.

Last year’s annual report revealed the loss of elite customers after the introduction of the bug-ridden betting platform saw a drop in revenue of $4.1 million.

For years, lobbying for competition in the form of licensed bookmakers has been rebuffed.

P

The cost of providing phone betting eventually saw it canned, alienating many, mostly older, punters.PHONE BETTING

August 1, 2016 was a black day for many, especially older punters when the TAB called time on ringing your bets through to a telephone operator.

Touchtone betting remained but many who were not able to get to a TAB or use a computer were lost.

Three years earlier the TAB lifted the minimum phone bet to $10 in the face of increasing costs.

Q

What will we be betting on next? Camel racing?QUESTIONABLE WALL-TO-WALL RACING

We all know the TAB needs more turnover to make a profit but promotion of the local product has never been a high priority.

The TAB has continued to squeeze in more and more meetings from the most obscure of places - we now bet on nearly 100,000 races in a year - many of which are called by embarrassing commentators and attract only a few hundred dollars.

Trackside’s skewed priorities were never illustrated better than the year when it switched coverage away from the Auckland Trotting Cup the second the winner crossed the line to focus on a dog in Australia squatting for a poo.

Even given the race started eight minutes late, it was a terrible judgement call by the producer.

Coverage of feature races continues to be short-changed by the all over-riding priority to show dividends for the next race.

R

RACING INTEGRITY UNIT

Created by an Act of Parliament in February, 2011 its role was to enforce the rules of racing on the three codes’ behalf with a more efficient pooling of resources and sharing of best practices. In its first year it cost the industry $4.1 million. Last season, with 34 full time staff and 95 casual swabbing officials and typists, the cost was $6.68 million. Add in the $1.89 million running costs for the Racing Laboratory and the total last season was $8.57 million. While we need to police integrity, even the Messara report saw ways to reduce its costs by bringing the RIU and JCA under one administrative arm.

S

STAFF AND SALARIES

In 10 years TAB staff expenses mushroomed from $37.2 million in 2008-09 to $61.5 million in 2018-19.

Last year’s annual report listed 630 full time employees but when RITA claimed the Government’s recent 12-week COVID-19 subsidy it was for 595 staff.

Incredibly, 136 people earned more than $100,000 - up 43 in just five years. Ten people were paid between $250,000 and $700,000, several taking home more than the Prime Minister.

Staff costs here make up 18% of total costs. A comparison with key Australian operators shows that while they don’t all have responsibility for the same functions, the Tatts staff ratio is 6%, Tabcorp 8% and Racing and Wagering West Australia 12%.

About 40% of staff are involved in customer facing functions, the majority of which relate to the retail network, 26% with broadcasting, 11% with betting operations and 12% with technology.

T

The Typhoon betting system was a flop and never saw the light of day, unlike this 1946 vacuum tube computer.TYPHOON BETTING SYSTEM

Needing to update the 1984 Jetbet system, CEO Graeme Hansen and the board put out “an exhaustive international tender process” and identified a new software platform – the Typhoon system, provided by Australian company Media & Gaming Limited – as the best system.

But when it realised it needed a risk manager to implement fixed odds the TAB made the disastrous mistake of asking the Typhoon developers to build it on the side. With no experience on fixed odds, it was like asking the plumber to do your electrical work as well.

In July, 2011, the project was canned with a reported $14.3 million down the drain. The loss was later corrected to $11.1 million.

U

Andrew Brown … departed suddenly in 2011.UNDER-PERFORMING LEADERS

In the last 10 years a succession of extremely highly paid CEOs have come and gone, some in surprising haste, most with little or no experience in racing.

In February, 2011, British appointee Andrew Brown, on a huge salary approaching $1 million, resigned suddenly less than two years into the job, citing “family reasons,” amid allegations parts of his CV were inaccurate.

International banker Chris Bayliss, appointed in 2012, came with board chairman Michael Stiassny’s “exceptional” rap but he also left in a hurry under a cloud of secrecy in July, 2104, giving eight days notice.

His successor John Allen had zero knowledge of racing, coming from the job of CEO at the Ministry of Foreign Affairs and Trade and before that the top job at New Zealand Post.

V

VENUES

The Messara report recommended the number of galloping racetracks be reduced from 48 to 28.In its response to the Messara report in October, 2018, which recommended reducing the number of thoroughbred racetracks from 48 to 28, the board agreed there was a need for fewer racing venues. But it said any change should to be progressed through the already established joint-industry Future Venue Plan.

Legally centralising ownership of club assets - the contentious “land grab” - was a step too far and clubs needed to be properly consulted.

It took until January of this year for RITA to come up with a process, posting a flow chart on its website.

The Racing Minster made it clear what he expected of RITA in his letter of July 25, 2019, and according to the New Zealand Thoroughbred Racehorse Owners’ Federation, which is demanding answers through the Official Information Act, too few of the issues have been progressed in the last nine months.

W

WINDOW TO THE INDUSTRY CLOSING

When a second TV channel TAB TV was launched in December, 2009, it was designed to be the wall-to-wall racing channel for punters.

It was intended that this would give the flexibility to focus Trackside “on promoting all aspects of the racing industry, not just wagering.

“This encourages greater participation in the industry through more news and information on such areas as horse ownership, industry developments of general interest and more detailed reviews and previews of racing.” Those words of CEO Andrew Brown bear little resemblance to what is now dished up on both channels.

Racing’s shop window has all but closed in the digital and print media as well, after years of neglecting a vital driver of interest and betting for the industry.

X

XPENSES

The TAB’s operating expenses continued to be very high last season at $142.2 million, a whopping 40.8% of its total income. Its distribution to the codes and the Racing Integrity Unit amounted to $166.5 million. The TAB’s operating expenses rose $50 million in the last nine years - in 2010 it was just $92.5 million, 34.5% of its total income.

Y

This Boys Get Paid group virtually took over a grandstand at Ellerslie and turned over huge money.YOUTH

For too long, the future of betting - young people - has been ignored. People watching racing on TV have a median age in their sixties. So, without strategies to attract younger people, the outlook is poor.

Key research identifies that more than 40% of online gamblers are millennials between the ages of 21 and 34. If the TAB customer base is to be sustained then obtaining and growing the number of millennials should be the No. 1 priority for the TAB, according to last year’s performance and efficiency audit.

The mammoth punting Boys Get Paid group, which has more than 17,000 members, is one example of what the TAB should be trying to foster.

Z

ZERO TRANSPARENCY

Throughout the COVID-19 disruption, the common complaint among industry groups has been a lack of information from the top.

People making decisions about their livelihoods have been left in the dark or fobbed off when seeking answers to questions they are entitled to.

But the tight-lipped culture has been around for years, with very little consultation about far-reaching decisions that have financially wiped out the industry.

 

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GALLOPS

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[mardigras]

Certainly many valid points. Many of which relate to costs. 

Wall to wall racing was a stupid idea. The whole view that more racing meant more income is nuts.  

A number of the points have underlying problems that have caused the issue. Some of the points wouldn't be a problem if the reasons behind those things happening had foundation. But they didn't. Staff costs increasing at the rates they did is not a problem If the supposed need for that was in relation to a valid view in relation to revenue.