Behind The Profits

Virtually alone as a publicist for the “gross margin” fee system for bookmakers, has been offering figures which show that it is much better off than under a turnover fee. There is more to that story but first go to the detail of GRNSW claims.

A recent GRNSW statement says: “In the three and half years that race fields has been in place $2.9 billion has been bet on NSW greyhound races with all operators combined producing a gross margin of $446m”. That turnover figure is equivalent to about $830 million a year but actual betting in 2010/11 was much higher – at $1.16 billion, according to ARB Fact Book figures – with the extra “C” racing in full swing. (Deciphering betting figures in greyhound annual reports is a thankless job as they never gather them up in the one bundle as the ARB does, let alone give you any breakdowns by bet type and so on).

80% of that amount came through the TAB where deductions are fixed by law but the amount assessed as “gross margin” is unknown. The other 20% or, say $232m, would have been generated by various kinds of bookmakers. (They exclude as it refuses to supply turnover data to the ARB or anyone else, saying it is “not relevant”. Really?). However, we don’t know how much each sector contributed to the fees paid to GRNSW. Fees paid on turnover would be clear, but not those on “gross margin”.

So much for the figures. What about the principles? Most racing authorities are now part of a stampede to adopt the turnover fee option, if they had not already done so. These include the big betting thoroughbred jurisdictions in NSW and . So, if the big guys are going that way, and are busy working out how to spend the extra cash, why is it that minnows like NSW dogs are happy with a cut of gross profits?

There could be two reasons for that, or two parts of the same reason. First, that NSW punters are not much good and lose large amounts, leaving lots of surplus cash in the bookies’ bags. Or, second, that bookies are exceptionally good at what they do and heavily outpoint the punters, also enabling them to retain lots of cash.

In either event, if profits are unusually high and turnover is modest, the former might pay more commission than the latter. But, as the comparison with the gallops illustrates, this could occur only in an immature market, or perhaps one dominated by mug gamblers. Is that a good thing and is it likely to continue?

Such a policy would indicate that GRNSW is not interested in promoting better educated and bigger betting punters but is happy to see the mug business growing. That sounds pretty risky, not least because mugs can chop and change at will amongst the myriad of gambling options available these days. They have no allegiance to anybody.

It has secondary effects, too. The more the mugs bet the more artificial the market becomes. Favourites will be over-bet, thereby discouraging good punters from taking part. More Mystery betting will destroy the odds for exotic bets, especially Trifectas (which has already happened), thereby pushing the better punters further away.

While GRNSW has been active in calling for a review of the iniquitous distribution system in NSW, where the dogs subsidise the other two codes, it has been pretty quiet about the need to move towards a betting pool (which even previous Face called for). Such a change would immediately tempt genuine punters to come back into the fold because they could then start making decent bets without destroying the odds – ie buying back their own money. In turn, mug money would become less important and the probability of bookies making windfall profits would decline. Quite a cycle, isn’t it?

(As an aside, a big advantage of dealing with online bookmakers is that your bet has no direct effect on the pool, or not unless the bookie bets some of your money back into the TAB. Both will be true at different times, further impacting the above cycle).

Since small pools are a major deterrent to good punting, a national pool should be number one on the GRNSW hit list. Or on any greyhound authority list, for that matter, as dogs have the most to gain. It’s not just a matter of turnover, either. Had today’s conditions applied at the time, those scams at the and , which took hundreds of thousands of dollars out of bookies’ bags, would have cut back any commission based on gross margin. On the other hand, a turnover fee would have boosted the code’s income.

Whatever comes to pass, gross margin fees will remain uncertain while turnover fees will be entirely predictable. At worst, GRNSW, or any other small authority, should be renegotiating on a “whichever is higher” basis.

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