Things are changing so rapidly in the world of gambling, thanks to the boom in the Internet, that all the "old ways" of doing things need to be thrown out the window.

Though whether the people who run racing in Australia have got the message is debatable. Maybe they think they can avoid the changing world. Some hope.

Here's what bookmaker Mark Read has to say about the state of affairs at the moment.

"Australia's unique wagering model, which served the racing industry, government, betting operators and punters well for 25 years has been under considerable stress in the past decade and may not be sustainable in the future.

"Totalisator betting is becoming too expensive for the average punter because of the massive deductions taken out by TABS. Market share of racing, which is already in decline overseas at the expense of sports betting, will diminish dramatically in Australia unless urgent steps are implemented to give the consumer a better return."

Read, who has 30 years' experience as a rails and corporate bookmaker, says that while racing had a virtual monopoly for decades as a gambling medium, the proliferation of gaming machines in Australia in the 1990s resulted in stagnant race wagering growth despite a high-growth gambling market.

This was brought about by factors including high TAB commissions, limited introduction of appealing betting products, lack of initiatives to attract younger players and an explosion in head-to-head sports betting which attracted minuscule deduction rates compared with that of race betting.

Read says that while Australian TABs posted increases in turnover and revenue last year after a long period of stagnation, if governments and racing authorities placed unreasonable constraints on a particular type of betting product or betting provider, this would simply drive the betting offshore and diminish the opportunities for Australian racing.

"With globalisation and the rapidly expanding Internet wagering medium, any punter is able to access service providers worldwide. It is necessary for the whole industry (racing and wagering) to address its approach to the new technologies, new market conditions, and new forms of competition to position itself as a growth industry for the future," he says.

"The industry needs to be internationally competitive and be prepared for the incursion of offshore-based wagering providers. The world has changed from the '80s and even the '90s. The Australian wagering model is redundant."

Read points out that Britain has recognised the global opportunity. It began restructuring the industry in October 2001 by dropping a 35-year-old taxation regime imposed on consumers. In its place a negotiated 15 per cent tax was introduced and applied to bookmakers' gross revenue.

Part of this negotiation was an undertaking by major English bookmaking companies to repatriate their operations from offshore jurisdictions like Gibraltar, Malta, the Channel Islands and the Caribbean. The outcome was an increase in turnover and income of 50 per cent across the board and a net increase for government revenue.

"Instead of putting their heads in the sand and signalling alarm as is the current situation within certain quarters of this country's racing industry, Australian racing and government regulators should embrace and become a host to the fastest growing global commodity market - sports wagering," says Read.

"Like Britain, Australia has a heritage of legal wagering best practice with the world's biggest market place in our time zone. The question must be asked: Why would State and Territory governments turn their backs on such a great export and development opportunity?"

Read says that this lack of foresight does not ensure the longterm viability of the racing and wagering industries in this country. The solution is to licence Australian service providers and expand the market through competition ... and do it immediately!

Read warns that betting exchanges, now turning over billions of dollars worldwide, attract a different customer profile to that experienced by other users of gambling websites.

Attracted by the low commissions associated with betting exchanges, characteristics of these users are:

  1. They invest larger amounts per transaction.
  2. An interest in trading including the taking of opposing positions in relation to the outcome of betting events - to guarantee themselves a small marginal profit, regardless of the outcome of the betting event.
  3. They are not concerned by the object they are betting on.

Read says that, in effect, these traders were arbitrageurs who mop up excess liquidity in a global marketplace in exactly the same manner as their counterparts in the financial, stock market and futures exchanges.

"Many traders are price and margin motivated and trade successfully without knowledge of the sport, financial market, race or whatever the subject of the bet exchange might be," he adds. "It is especially this last factor that makes them a new class of player on the betting scene and one that has the capacity to radically grow the global betting market in volume without cannibalising the revenues generated by the better known and currently more
popular forms of online gaming and wagering.

"This will invariably increase the interest in Australian racing on a global scale. Customers of bet exchanges are not in the main recreational punters."

An example of how people are attracted to such exchanges can be gauged by the phenomenal growth of the UK-licensed company, which although only three years old has a projected turnover this year of seven billion pounds.

Says Read: "The Betfair model obviously satisfies consumer needs. Every professional punter, if not already, will be a player. Betfair are not only operating on Australian racing but are also offering markets on every AFL match this season. Australian companies have lost first-mover advantage and Betfair are reaping the rewards of what is driven by consumer demand.

Betfair are taking the proceeds back to the United Kingdom."

Another view of the current situation comes from Tony Bourke, racing editor of the Melbourne Age. In a recent editorial, Bourke - one of the shrewdest critics in racing's media in Australia - wrote:

"There have been some warning signs in recent weeks for the Australian racing industry that, while they are unrelated, confirm the continuing erosion of racing's share of the gambling dollar, not only here but also overseas.

"First came the decision by Bill Hurley, one of Sydney's biggest bookmakers for more than 30 years, to give away operating on racing, other than his feature race doubles, at the end of June to concentrate on his sports betting business.

"Hurley said he wanted to ease back a bit but the truth is that he, like many other bookmakers, is no longer finding it profitable to man a stand at the races week in and week out, particularly with the proliferation of interactive wagering on the Internet.

"Another of Australia's most prominent bookmakers, Mark Read, last week revealed that sports betting, mainly on international soccer, had overtaken racing as his main business as a bookmaker, although his company IAS bet was a major player on the TABs around Australia.

"Then came news that the Hong Kong Jockey Club, envied worldwide as the most successful and profitable racing centre in the world, was recording alarming downturns in its tote turnover. Over the past two seasons, tote betting in Hong Kong is down 25 per cent despite every attempt by the authorities to prevent the drain of money from racing as local punters seek other outlets such as wagering on the Internet.

"It was Hong Kong that led the call to ban betting exchanges such as Betfair at the recent Asian Racing Conference in New Zealand. Yet, in a classic example of 'If you can't beat them, join them', the HKJC has now got into the Internet sports betting in a bid to siphon off some of the hundreds of millions of dollars now being bet by Asian punters on soccer through the Internet or with illegal bookmakers.

"In the meantime, the HKJC has asked trainers and jockeys to take 10 per cent pay cuts in the new season. The trainer's percentage of prizemoney will drop from 10 to 9 per cent and for jockeys, it will drop from 10 to 9 per cent for a win and from 5 per cent to 4.5 per cent for minor placings.

"Considering an ordinary race in Hong Kong is worth $100,000 and the club also covers all other expenses for trainers, the cuts will hardly cause a mass walkout, but it is a sign of the times and the Australian authorities should take note.

"There are currently two inquiries on a national level into interactive betting and betting exchanges. The discussions also involve cross border betting.

"As Andrew Harding, chief executive of the Australian Racing Board, said yesterday, the board is not proposing a ban on these operations but they should not be allowed to 'take a free ride on the back of Australian racing'."

By Martin Dowling