Levy up to £75m but 'gentle decline' expected
17 Jul 2012 | Four years of falling income for British racing from betting-industry contributions through the levy have been reversed by a combination of new terms set by the government and a hefty, upfront voluntary payment from Betfair.
However, Levy Board chief executive Douglas Erskine-Crum warned on Wednesday, when the organisation’s report and accounts for 2011-12 were published, that continued increases were unlikely under present conditions.
He said: “The Levy Board has turned the ship around and things are looking more healthy, because the situation is more balanced and structured.
“But we expect a gradual, gentle decline on the latest income figure of around £75 million, because people are not betting on UK horseracing in leviable outlets as much as they once did.
“There was an increase of nearly 25 per cent last year, but given current assumptions, we predict a small, gradual decline year on year, if nothing changes.”
Erskine-Crum also warned that even including income from a tax on bets placed with overseas-based online betting operators, which is the intention of those lobbying government to take action, would not return the levy to the average yield of £100m a year that the levy generally achieved between 2003 and 2009.
The annual report notes that the steady migration of online betting operations to overseas jurisdictions, where they are out of range of the levy legislation, propelled the proportion of income generated by betting shops from 75 per cent in 2010-11 to more than 83 per cent last year.
The 2011-12 levy scheme, the 50th since British horseracing was first given a direct payment from bookmakers, raised £74.874m, up 24.3 per cent from the previous year.
The final amount, which represents the second lowest yield since 2000-01, was in the range envisaged by DCMS secretary of state Jeremy Hunt, when he was called in to make a determination after the Levy Board and betting industry failed to reach agreement before the statutory witching hour of midnight on October 31, 2010.
The government’s decision to lift the headline rate of levy by 0.75 per cent to 10.75 per cent, while lowering payment thresholds for small bookmakers from £88,740 to £50,000, resulted in the amount collected under statute going up from £59.53m, which included the Tote’s contribution of £6.76m, to £67.71m, which incorporates an undisclosed sum for Tote activities under new private owner Betfred.
The final tally of £74.874m was achieved largely through Betfair’s £6.7m voluntary contribution, which Levy Board chairman Paul Lee said was “especially important both as to its size and the fact that the majority of the payment was made at the beginning of the year, thereby transforming our finances and ability to plan.”
The extra money did not come through in time to affect the Levy Board’s new cautious approach, first taken in 2010, towards expenditure.
As a result total expenditure fell by almost 30 per cent in the financial year 2011-12, to £59.216m, and by 44 per cent on 2009-10, when racing’s representatives persuaded the Levy Board to use considerable reserves to prop up prize-money.
However, reserves, which were down to £15.3m last year, have been replenished, being more than doubled to almost £32m in March and due to rise to around £40m this year.
Lee said: “This gives us much greater confidence and a measure of stability for the future.”
Erskine-Crum added: “Last year’s reserves figure was very uncomfortable, because we have to make an expenditure budget 18 months before we get the money.
“We use sophisticated risk registers in setting our budget, and, in case things go wrong, we ideally need minimum reserves of around £30m and a maximum of £40m.”
Lee revealed that one of the consequences of having an acceptable level of reserves was that the board could consider re-introducing loans for racecourse projects, which have been frozen for two years.
However, the previous system of interest-free loans is likely to be a thing of the past.
Lee added: “This time we will charge a small arrangement fee to cover our costs and an interest rate beneficial to racecourses on our loans.”