Beware Monopoly Sell-Offs

Our recent claim that state governments got it wrong when they sold off their TABs to the highest bidder has some direct parallels in the wider world.

Those TAB sales attracted bigger amounts because they offered monopolies for 15 years and included conditions that hampered their competitors (oncourse bookmakers at the time). By simply creating a company with lots of retail investors the capital obtained would have been less, supposedly stopping the states building more hospitals, schools and the like.

Out in the real world, we are seeing a continuing string of sales of state infrastructure – ports, roads and electricity poles and wires, for example. Yet criticism of these ventures is coming thick and fast. The basic idea of increasing efficiency in those industries is not the problem; it’s the fact that offering monopoly rights to private companies involves two unavoidable and dangerous outcomes. First, firms love having a monopoly and therefore pay more than the facilities are really worth in an open market. In turn, that leads to higher user charges down the track – a burden on future customers. Second, the lack of competition discourages innovation and the development of new systems that can improve efficiency

Both those things have occurred in the betting market. TABs are becoming more expensive to use (especially the Fixed Odds sector) and competition is nominal at best. The arrival of corporate bookies and Betfair stirred the pot for a while but it has now descended into an unhealthy mix in which they chase each other’s tails.

The Australian Competition and Consumer Commission is keeping a watchful eye on current moves by NSW Premier Baird to sell off parts of the electricity grid to fund future road and rail developments. Queensland and Victoria also have major sales in the offing. Chairman Rod Sims warns that these could effectively raise prices for the next generation as firms try to recoup their investments and pay off the debt involved in the original purchases. Sims and others argue that what they are doing is “akin to taxing future prosperity” (The Australian, 22 June).

As illustrated by sales of the TABs, state governments have some ability to avoid scrutiny. Commonwealth-state agreements about increasing efficiency via the sale of government owned enterprises always contained get-out clauses.

We now have had 50 years of that experience to show that the racing industry has had mixed outcomes.

The first 30 years were great as TABs steadily increased their product range, their services and their turnover while bookmakers (all oncourse then) at least maintained a level. The introduction of SKY channel in the late 1980s provided another boost to turnover, although it also prompted the steady decline in racecourse attendances and therefore in bookmaker numbers.

In the 1990s and 2000s the rapid growth in online bookmaking provided a buffer against, or caused (take your pick) the start of the decline in TAB takings. Overall, it initiated a pattern of betting operators trying to outdo each other while ignoring customer needs and a changing society. The most obvious outcome is the rise and rise of sports betting, where turnover now exceeds that of the harness code and is moving quickly to bypass greyhound betting. Betting on the gallops has been consistently on the wane for the last 20 years. Greyhounds have gained a little, but only by adding more and more poor quality races.

Just recently, economic experts at IBISworld assessed racing industry growth from 2009 to 2014 at minus 2.9%.

In the background, changes also have included a fall in breeding numbers of both horses and dogs, particularly over the last decade.

Meanwhile, racing authorities are concentrating on good news items. All GRNSW can tell us is that takings for the Easter Egg were terrific, mostly on the back of online bookmaker volumes. That’s nice but it is not the big picture, nor does it reflect its stated need to reform NSW racing or run out of money. Queensland is busy telling us how it will spend money (at the track at Logan) but not how it will revitalise its fading businesses. Victoria is flat, although last year it got lots of help from a re-worked share of state racing commissions.

TattsBet, which may or may not gain an extension on its licence in Queensland (decision due soon), is unpopular with locals while its small pools offer little encouragement for punters who have plenty of other choices these days. The other states in its package – Tasmania, SA and Northern Territory – are similarly affected.

Frankly, racing can no longer afford these risks. If you don’t go ahead, you are going to go backwards. Yet, split up between eight states and territories, each with a different ideas and different sorts of administrative structures dating mostly from the 1950s, and little or no recognition of the trends from state governments, where can the industry go?

Well, for a start, it can demand national betting pools to put some meat on the bones. For greyhounds in particular that would stimulate betting by serious punters. But it also has to look inwards to see why old-time management structures have failed to cut the mustard in a modern world. Our amateur-run raceclubs have been steamrolled by new recreational and betting opportunities while racing authorities are hell-bent on maintaining the status quo and little else.

Yet racing must be the only sport, indeed the only industry, which has failed to move with the times. The bits surrounding it – services like vets, drugs, feeds and medicines – have gone ahead in leaps and bounds yet the conduct of racing, its administration and the quality of its tracks are no different to what they were in the 1950s. It is therefore little wonder that it has been losing traction and that customers have gone elsewhere. In short, racing has failed to sell itself as an attractive option to today’s spectators or punters. It survives now only on a few professional punters and a swathe of passing gamblers – one group keenly analytical and sucked in by discounts, the other without a clue. All are being asked to bet on a product that is getting worse by the day.

TABs were launched specifically as a service to the industry and also as an antidote to illegal street corner SP bookies. Today, mug gamblers are supplying a service to TAB shareholders. What went wrong?