Wednesday, December 8, 2010

E = mc2

E = mc2

2005 was not all that long ago, five short years, yet it seems like an age. At Cheltenham that year, Kicking King won the Gold Cup, Hardy Eustace the Champion Hurdle and in Aintree Hedgehunter claimed the Grand National. In all there were nine Irish winners at Cheltenham and eight at Aintree A good year for the Irish then but an even better one for Horse Racing Ireland (HRI).

It was amidst the halcyon days of the Celtic Tiger that long-since-lost phenomenon, when CEO of HRI, Brian Kavanagh reported the attendance at Irish racecourses was 1.43 million; betting was up, the Tote grew and value of horse sales at public auction flared from €113 million to €146 million. In 2005, 16,500 people were employed in the racing industry and the breeding sector alone contributed €330 million to the economy.

Amidst all the back-slapping and cheap money, there were surprisingly striking changes in the taxation structures of the racing industry. The stallion taxation exemption was ended and betting tax was reduced from 2% to 1% and in turn, absorbed by the bookies. Now where are we five years later? Without a palpable need to be rhetoric, we are languishing in the chaos caused by a collapsed countrywide cocoon; as every radio and television station is affirming, the party is well and truly over.
A recent report by UCD based economist, Colm McCarthy stated that c.14,000 people are directly employed in the breeding and horse industries. The most recent figures for Britain are 18,500 employed directly with 52,000 employed in betting, the overall figures are 100,000 full time equivalent jobs being supported, directly or indirectly in racing.

In Ireland, the figure of 14,000 stated in the McCarthy report does not include those people employed in betting, nor should it. Paddy Power stated of late that the majority of their betting revenue does not stem from racing; this is not surprising given their marketing engine and website which has diversified heavily into soccer and sports betting.

The Tallaght-based firm have become Ireland’s eighth largest company, not just in the gambling or online betting market but in a list of every single Irish company. They are exempt from inclusion as they do not shoe horses; they offer 50/1 for Brian Lenihan to pose as Santa Claus when delivering his 2011 Budget.

Novelty aside, there are stark figures to contend with. There has been a cut in Government funding in the region of 22% over the past two years to the industry. As racing and gambling are yin and yang, the minister for finance does not believe he is getting a big enough slice of the betting pie, and he may be right.

In 2002, €68 million in tax was generated from €1 billion of betting turnover in the industry, in 2009 the tax take has more than halved to €31 million despite a 550% increase in betting turnover to €5.5 billion. This is not an anomaly; it is an errant failure in the financial management of betting tax, despite the 1% reduction in 2005.

Simply put, with betting tax generating just €31 million from €5.5 billion of turnover, (that’s a lot of zeroes, €5,500,000,000) that’s a tax return of 0.18% on your turnover. Unsustainable from the Governments perspective and as such, it was addressed in yesterday’s budget.

Before delivering the 2011 budget, the Minister for Finance had already announced that the Government would double the current 1% levy on bookies' turnover. This will net the exchequer €40 million. During the Budget speech, the Minister announced that bets placed on the internet by domestic customers will be subject to same level of betting duty as high street betting shops, meaning a resultant injection of betting tax which can be fed back to HRI.

The racing industry is on-course to face a €28 million gap in its finances and the measures taken by Brian Lenihan will take time to trickle down to actual capital in terms of those employed by the industry. The measures will also no doubt result in calls from within the industry that it will put bookmakers out of business and lead to job losses, but for the sake of the industry as a whole, they must be taken, there will come a time when the seed will sprout.

With the ultimate goal of Horse Racing Ireland to create an industry that is self-funding, any pain that must be felt is to ensure that we maintain our deserved reputation as one of the greatest breeding, training and horse racing countries in the world.

Amidst all this we could all do with some words of encouragement; those that come to mind are that “In the middle of difficulty lies opportunity”. Spoken by an educated man who, when trying to make a career could not find a job as a teacher, he knew a thing or two about enduring hardship before success. He was Albert Einstein.

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