Analysis: Racing fee hike to force change in Australian bookie strategy

Increased race field fees set by Racing Victoria (RV) and Racing Queensland (RQL) will squeeze margins and is likely to force some operators into reconsidering their pricing strategies, according to many in the Australian wagering industry.

The changes, fixed for a 12-month period from 1 July, will see operators pay 3% of turnover – or 30% of gross profits – to RV on premium race meets, a substantial increase on the previous figure of 2% of turnover.

RV, the body which oversees by far the biggest event in the Australian racing calendar, the Melbourne Cup, said the fee hike will help to grow the industry and therefore protect jobs and sustain the Victorian racing industry in the future.

The racing body has a funding hole to plug after Tabcorp fell short of its year two target of a three-year deal which sees the bookmaking giant pay AU$1bn in fees between now and the end of 2015.

Its fee model now differentiates between traditional pari-mutuel betting and non pari-mutuel betting, including as fixed odds and exchange betting, meaning the likes of Sportsbet, William Hill and Betfair will pay more in race fees than Tabcorp which subject to a 2.5% tax of turnover for premium races.

RQL also announced proposals this week which would make it the most expensive state for corporate bookmarkers to trade in. It has put forward a flat 2.5% fee on standard race meets ““ up from 1.5% ““ and 3.5% of premium meetings.

Operators and punters are now not only concerned about the impact the increased costs will have but that other racing bodies will follow suit.

Reknowned racing punter Kingsley Bartholomew wrote an open letter to the RV this week claiming the new tax model will see an immediate decline in fixed odds turnover due to a less competitive and higher percentage markets being offered by bookmakers.

“Bookmakers will no longer be willing to manage or accommodate low-profit margin or winning clients,” he wrote.

This point could be particularly poignant for smaller operators who will no doubt feel the pain of the extra cost burden of squeezed margins.

However Paddy Power CEO Patrick Kennedy last month hinted that its Australian arm Sportsbet plans to absorb the increased fees rather than passing them onto customers.

And CIMB gaming analyst Killian Murphy believes bigger corporate bookies could hold their current pricing and spin the move as a customer-centric marketing tool.

He also pointed out the increased fees will hit exchange operators particularly hard due to being a high turnover model and the way tax is calculated on a gross revenues basis in the state of Victoria.

Betfred’s Australian MD Luke Brill says that while it is only offering non-racing sports markets right now, it has been forced into remodelling the new rates into all of its future forecasts.

“Clearly adjustments will need to be made in our approach. Commercially we will be investing in racing codes, regions and sports that yield us the best net return,” he says.

Brill agrees that the increased cost in trading created by such fee hikes will ultimately hurt customers the most as bookies will be forced to offer less aggressive prices.

“This could see a trend back to the bad old days where price hungry punters seek out perceived value by betting with illegal, unregulated or offshore bookmakers who do not offer protection to customers or contribute in any way to the growth of Australian Racing which is the point of the product fees,” he says.

One industry source also suggests it’s a short-term play, heavily lobbied on by incumbent bookies like Tabcorp and Tatts, to raise revenues without “due consideration to the long term side effects”.

The source also hints that operators are already considering dumping racing customers with loss margins under 4.7%.

“Ironically, as is the case around the world, I think racing will end up taking a back seat to sports as operators push this front, which will obviously weaken their revenue streams and do the very thing to racing bodies that they are trying to avoid,” he says.