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INDUSTRY FUNDING: Time for racing to change its tune?
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INDUSTRY FUNDING: Time for racing to change its tune?
on 12 January 2018
Chartered accountant David Skelly believes the time has come to alter the current HRI funding strategy

AS soon-to-be-retired chairman of Horse Racing Ireland, Joe Keeling, introduced the HRI Awards 2017 in December his frustration with Government and its cabinet became all too clear.

With the Minister for Agriculture, Food and Marine, Michael Creed, in the audience, Mr Keeling announced: “All this – achievements within the thoroughbred racing and bloodstock sector – serves to underline how disappointed I am with the baffling lack of support we [HRI] received from the Government this year when we and others sought to increase betting tax levels in Ireland from their current rate which is one of the lowest in the world.

“It makes no sense for Government to continue to ignore the solution put forward by HRI and virtually everyone in the industry in relation to betting tax. While Minister Creed could not be more encouraging or helpful, it is time that some of the Minister’s colleagues adopted some bravery on this matter.”

As you will know it has been official HRI policy for many years to call for the doubling of betting tax at source from 1% to 2% with a supposition that the total levy would be absorbed within the bookmakers’ margins or paid directly by the punter.

It is estimated that this would effectively double the annual Exchequer funding available to the horse racing and bloodstock industry from €64 million to circa €120 million and this would have major beneficial consequences for prize money levels and, one presumes, a major uplift in investment in bloodstock, infrastructure and employment.

It is also presumed that a favourable response from Government would automatically see a pro rata increase in funding for the racing and bloodstock industry. HRI appears to accept that betting levies will not be strictly ‘ring-fenced’ for racing but insists there is a strong relationship between the two.

INDECON REPORT

Prior to Minister Creed’s appointment in 2016 to his current cabinet role, the previous Minister for Agriculture, Simon Coveney, appointed Indecon International Economic Consultants to conduct a Review of Certain Aspects of the Horse Racing Industry and they reported back in July 2012. This was on the back of certain issues raised by the Minister on his original appointment that covered, inter alia, areas such as funding of the industry, corporate governance and some other matters relating to efficiencies.

In relation to the policy adopted by HRI prior to and since the publication of the Indecon Report it is surely telling that the conclusions of the Minister’s consultants were:

  • The merits of replacing the Horse and Greyhound Racing Fund should be considered
  • At present all revenues from betting duty are allocated to a dedicated fund known as the Horse and Greyhound Racing Fund and 80% of that fund is allocated to HRI.
  • More fundamentally, Indecon does not in general believe that it is appropriate that specific taxes be ring-fenced to specific functions. There is therefore merit in treating this as general tax revenue and making expenditure decisions on standard criteria.
  • Linking the funding of any sector to any particular tax could mean that long-term underinvestment arises because the level of revenue from the specific tax may not be sufficient. Similarly, if revenue from any tax expanded dramatically it could result in overspending compared to relative economic returns. In other sectors (for example tourism, general sport, industrial development etc.), the funding levels are not linked directly to the revenue which happens to be derived from any specific tax.
  • We therefore recommend that the Government consider the merits of replacing the Horse and Greyhound Racing Fund.
  • Rate of duty should initially be set at 1% of turnover.
  • Arguments were made to Indecon by some in the sector, as part of this review, suggesting the need to increase betting duty to 2% or higher. However, taking all of the above factors into account we believe the rate of duty should be set at 1% of turnover.
  • So there you have it. Economic consultants appointed by a Fine Gael minister recommended five years ago that they were neither in favour of a ring-fencing of national taxes for any specific function nor were they in favour of an increase in betting duty from 1% to 2%, or even the 3% proposed by some lobbyists.

    ILLOGICAL POSITION

    In my view there is a fundamental illogicality to the official position held by HRI for the past number of years. A variety of reasons may be advanced for this opinion:

    1. Clearly, a Minister (and a Government that remains in place) operating on an arm’s length basis from any sectoral interest is likely to be obliged to follow the advice of independent experts when reports are commissioned.

    2. The most illogical aspect relates to a belief in an anachronistic betting system that is probably 20 years out of date. There was a time when one could reasonably argue that virtually all betting tax related to gambling on horses. This is clearly not the case today and reports I have read recently put the betting on Irish horse racing content at just 15% of all betting tax revenues. On this basis of reasoning, it is likely the Football Association of Ireland has greater claims on the total Irish betting tax-take than those advanced by the Irish racing industry.

    The racing and bloodstock industry operates within a rarefied environment at times and it is always instructive to read the reaction of the ‘ordinary’ consumers of media (print and online) when racing makes the headlines.

    For example, I studied the reaction of readers to the wonderful Melbourne Cup victory of Rekindling in the international media recently – including, for obvious reasons, Australia – and one cannot but be struck as to how views and comments on animal welfare and the “playground of the elite” are far more common than any enjoyment of the event and result itself.

    Indeed, the Aussies are certainly guilty of sour grapes now that the ‘internationals’ are stealing their thunder.

    There is also an underlying common theme that the industry encourages gambling and has little or no interest with the inevitable victims of addiction.

    The industry must be cognisant of projecting an image of entitlement and this is relevant even if there was an increase in betting tax at some point in the future. It is clear that certain left-leaning politicians have recently identified the industry as one ripe for (unjust) criticism and one must, again, avoid providing more ammunition for this sector.

    Also, a recent interview with one of Ireland’s leading businessmen, John Boyle, stated that his business of betting was all about “people (come) in with their friends, have a cup of coffee and do a bet on the football or their lucky numbers. That is what we want. That is the game we are in.”

    An article in a Sunday national newspaper granting front-page prominence to a member of the bookmaking fraternity did not once mention horseracing and this is what modern bookmaking is all about and something that racing in Ireland seems in denial about.

    LOST ARGUMENT

    Documents released by the Department of Finance before Christmas indicated that racing again lost the argument on betting tax increases discussed during Budget 2018 debates quite comprehensively and it must now be wearisome for those in authority in HRI to believe this particular drum must be banged incessantly with the annual rejection of the main plank of HRI policy.

    I believe that linking the fortunes of horse racing in Ireland to betting is a boat that sailed many, many years ago and the industry was not on board.

    Tote Ireland, established many decades ago, does not, and perhaps never did, the job for which it was intended and its main contribution today is providing jobs for its workforce and small dividends to racing via commissions and racecourse sponsorship.

    Reconfiguring the Tote to become an income-earning model for racing probably needs such new thinking and innovation that it would become a major investment risk in its own right.

    I daresay that this innovation would probably come from the private sector, if at all.

    We must somehow convince Government that profits generated from gambling on racing in Ireland, allied to other sources of exchequer returns, should be directed towards an industry that supports a vibrant, rural economy and can ably demonstrate that it is worth the investment as happens in jurisdictions such as France and Hong Kong.

    We need new, innovative proposals to broaden the current strategy to try to carry the day.

    If one accepts that the current HRI policy of betting tax/racing fund has simply failed or must at least await a change in Government before progress can be made – by returning to current policy of encouraging retail betting tax increases – it seems to me that it may be a long wait and that new thinking on the funding of the industry is required.

    MY SUGGESTIONS

    In light of the recent (internally-commissioned) Deloitte report that did not address future funding of the industry nor attempt to debunk the conclusions of the earlier Indecon report, I would put forward a number of suggestions that could help the industry to be seen in a more positive light within the hallowed portals of Kildare Street and also with the general public:

    1. Quantify the contribution made by the industry at large to the Exchequer in terms of income, corporate and payroll taxes, VAT, stamp duty and other sources of tax revenue. This figure should be the primary driver in lobbying for funds back into the industry. The industry must prove it can deliver return on Government investment. Recent increases in VAT on yearling purchases and racehorses, and the stallion tax of 12.5% will have swelled the coffers in recent times, easily justifying increased support.

    2. Outline how much in increased funding is required from Government, how this money would be spent and list the expected benefits from such an investment, particularly in terms of new employment. I have not seen any analysis along these lines in any recent report.

    3. Rather than increase betting tax, consider increasing corporation tax for all betting companies and providing part of the additional funding to assisting those with gambling addictions and funding the horse racing industry.

    Try as I might, I fail to see how a 12.5% corporation tax rate on profits derived from gambling rank as equivalent to profits earned in more ‘productive’ sectors. One is therefore taxing profit only and charges of threats to employment levels by vested interests can be avoided.

    A minimum rate of 25% should be applied to profits derived from gambling to bring the tax rate in line with other corporation tax rates on passive income.

    Ireland may have missed the boat in terms of State betting monopolies but this progressive tax policy could bring our industry into line with international competitors in a single Finance Act with racing as a major beneficiary.

    4. HRI to introduce minimum sponsorship standards for all racecourses so that there can be a dividend to racing from media rights that is completely consumed by racecourses at present. Racecourses should be compelled to earn their crust and justify taxpayers’ money being awarded to their tracks.

    5. Consider a range of other tax-driven measures including lobbying for an increase in the Farmers’ Flat Rate Addition that could be exclusively directed towards racing’s benefit.

    6. I also believe that the industry, as a whole, needs to be far, far more united and targeted in policies that concentrate on the ultimate racing product. This should be top of every racing agenda and discussion when members of the industry congregate.

    Readers may think I have lost the run of myself with some of the above suggestions but I believe some new thinking is needed in the area, and quickly. It is better to quantify and justify additional Government support rather than repeat, ad nauseum, present policy.

    Incidentally, the Minister was very positive in his speech that followed the Keeling criticisms and, with the pending appointment of a new HRI chairman to bring us to 2022, it could be an opportune time to introduce some new thinking in how the industry can be financed into the future.

    David Skelly is a practising, self-employed chartered accountant, based in Co Tipperary, who has many clients within the racing and bloodstock sectors.

    Tel: 086 2398655

    Email: dskelly@davidskelly.ie

    Web: theturfaccountant.com

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