Sun Setting on Oz Racing Industry's Gentleman's Agreement

Recent changes in Australian thoroughbred racing product-fee systems have put an end to the so-called gentleman's agreement that, for several decades, governed race-field levies between the country's states and territories.

The Australian racing industry's agreement allowed each state to keep the money bet on interstate horseracing rather than pay a fee for using another state's products. For example, TAB, the New South Wales bookmaker, has never paid anything to the Victorian racing industry despite its coverage of the Melbourne Cup, which is a Victorian event.

On Sept. 1, 2008, however, thoroughbred racing bodies in New South Wales instigated the erosion of the years-long system by instituting a fee of 1.5 percent of bookies' turnover.

In October, Betfair Australia, an international betting exchange licensed in Tasmania, initiated proceedings at the Federal Court of Australia challenging the validity of decisions by Harness Racing New South Wales and Racing New South Wales to impose the fee, which Betfair said is "highly discriminatory."

"Our overarching view is that a gross profits-based product fee-tax regime is the only model that is capable of fairly applying across all types of wagering operators," Andrew Twaits, chief executive of Betfair Australia, told IGN in an e-mail. "A turnover-based fee -- like the one imposed by Racing NSW -- would have the effect of severely restricting competition, fixing prices at the maximum levels allowed by legislation, and stifling innovation."

And while Queensland has introduced legislation identical to New South Wales', Victoria has instituted a product fee based on gross profits, which many bookmakers agree makes the most sense financially.

Racing Victoria on Nov. 19 announced new product-fee arrangements with corporate bookmakers and betting exchanges like Betfair, whereby they will pay 10 percent of gross profit.

That fee will increase to 15 percent in October and November, during the Spring Carnival, which is the most profitable time for the Victorian racing industry.

"The (Victorian) decision to impose a gross profits-based product fee -- with all operators paying at the same rate and with no credits for what operators pay to their 'home' jurisdiction -- is the right model for the long-term funding and sustainability of the racing industry," Mr. Twaits said.

Sportingbet Australia, licensed in the Northern Territory, is part of a coalition of corporate bookmakers that, last month, launched a court challenge against the 1.5 percent rate proposed by New South Wales.

"This decision shows just why Victoria is the most powerful state in the country," Michael Sullivan, chief executive of Sportingbet Australia, told the Herald Sun. "While we are happily paying a fee to Racing Victoria, we will be fighting Racing NSW in court."