Racing NSW will be on tenterhooks right now, waiting to hear the verdict in the Tom Waterhouse case heard this week.

Barely 10 days after coming into force, its race fields legislation has already been challenged in court on the basis that Waterhouse does not publish a race field and is therefore not liable to pay the fee of 1.5% of turnover.

If Waterhouse is successful, not only will he be exempt from paying the fee, but arguably so will all wagering operators who take telephone bets.

This drives a huge hole through the revenue assumptions of the race fields legislation, making it all but impossible to achieve the revenue levels predicted by Racing NSW.

To our knowledge, there are at least 6 other challenges to the legislation under way, with arguments ranging from breaches of the Trade Practices Act to the legality of a state legislating over copyright issues, which are a Federal government responsibility.

There can be little doubt that the strategy being followed by Racing NSW has as its broad purpose to drive up the cost of wagering to the punter. The desired outcomes are :-

For all this to work,any extra money that Racing NSW receives must come out of the punters pockets.

Unfortunately, research commissioned by Racing NSW itself shows that the desired outcomes are flaky at best.

A briefing paper on TabCorp released by Credit Suisse this week calls the NSW Race Fields exercise "a flawed strategy".

Credit Suisse points out that the report that Racing NSW received from Boston Consulting Group attributed a loss of revenue to TabCorp of $29 million from bookmaker competition in 2007.

TabCorp itself, in a submission to the Cameron inquiry into NSW wagering, put the lost revenue level at $77 million.

The difference is accounted by Credit Suisse as assumptions about "price inelasticity" which basically means how important is price in determining consumer behaviour.

TabCorp's submission assumed that price was not important, whereas the Boston Consulting Group report supplied to Racing NSW said otherwise.

As Credit Suisse summarised :

"Our conclusion is that corporate bookmakers are actually tapping into a market that only exists at the low take-out rates of 4-6% and would not exist at the ~16% take-out pricing of totalisators. Therefore, Tabcorp ' s strategy of promoting legislation that increases bookmaker cost will actually shrink market volume dramatically. Volume will not migrate to Tabcorp's totalisator pools, in our view."

The crazy thing about the race fields legislation is that the greater bulk of what Racing NSW could possibly hope to achieve financially from the corporate bookmakers and Betfair is already on the table.

A figure around the 10-15% of gross profits is quite a tidy sum and could be combined with joint promotional opportunities between the wagering sector and Racing NSW to make racing more popular.

Trying to charge 1.5% of turnover when a better product like Victorian racing is priced at half that level does not seem all that clever.

By forcing punters to pay a premium price for what is a sub-standard product, Racing NSW is kidding itself.

Even at TabCorp's much vaunted 5% of turnover figure as a racing distribution, it still takes $400 of betting to provide $20 of industry income.

Wouldn't it be easier to get one more person to pay $20 at the gate?

Cyberhorse 2020 Bill Saunders Published 12/09/08