Subsidies Are Seldom Good Business

How do you know if spending money is a good idea? Well, GWA has just conducted a participants survey which included a question about keeping or changing its current subsidies for locally-bred dogs.

Amazingly, 93% said Yes, they would like more money, please. A few years ago surveyed breeders about the same thing. They also voted Yes, we would like more money.

Let’s repeat that. In both cases, the people who were about to get the money were asked if they still wanted it. Was it a surprise that they said Yes? Hardly. However, many were not so sure about any extra cash as 71% wanted to see that go to stakemoney rather than to breeding incentives.

None of the WA questions, or any of the introductory remarks, offered comment about the pros and cons of spending money in this way. So the respondents would have been influenced mainly by their personal situation. That’s understandable. It is like a bookie giving you 10/1 about a 3/1 chance. You have to take it.

But is it good business to decide things in this way? And how does it help the overall industry? Bear in mind that the job of racing authorities is to “progress and develop” the industry, or words to that effect. Should they succeed in doing that, then it would be obvious that participants would also benefit over time, regardless of action in the breeding area. More customers equals higher prizemoney.

Breeding is a vital sector of the industry, but does it need extra handouts? The short answer would have to be “Don’t Know” because, so far as we can determine, no authority has ever run a decent study of the effects of their breeding policies. There are lots of waffly announcements about how marvelous it would be, but never do we see the proof of the pudding.

For example, last year the Victorian Premier/ issued a release claiming that the increased breeding subsidies he was supporting would lead to higher employment in the industry. Now, is that a reasonable claim? It would not be hard to whip around all the Victorian breeders to see whose numbers were up and who had put more staff on because of the subsidy.

Somehow I doubt they would find much, especially about staff numbers.

There are two underlying issues here. First, the very small or casual breeder is faced with fairly solid fees and fixed overheads he has to overcome before making a profit. If we consider more breeding by these people is a good thing (some indicate it is not), then it is quite simple to address that by offering various concessions based on volume.

The second matter is that the general view would be that substantial breeders are involved in the most lucrative sector of the industry. If you are getting a good flow of $1,000 to $2,000 fees then you are probably doing nicely. Stories about sires being booked out are common. Big ads for sires underwrite formguide finances and track billboards. Some even make expensive overseas trips to obtain breeding stock. In other words, the need or justification for subsidy is very watery indeed.

The alternative is to put the cash towards higher prizemoney, thereby encouraging more owners to take part, and leading then to higher rewards for trainers. What goes around comes around. Besides, I would guess that there are many more battling trainers than battling breeders.

I have no idea of the actual profitability of breeders. Nor, I suspect, does anyone else. That being the case, why are they getting a subsidy in the first place? The principle of a subsidy is to help the disadvantaged overcome a tough period, but then only for a specific reason and for a specific time period. No subsidy should ever be introduced without a sunset clause.

Another point is that breeding is the only sector of the industry which is otherwise subject to the normal forces of the market place – supply and demand. That’s a good thing because it makes the sector more efficient, more attuned to customers’ needs. It also rewards the better operators. But if you interfere with that process then you run the risk of getting something you did not anticipate – like breeding with second or third choice of sires and dams.

And, since everybody has subsidies, there is no competitive advantage to be had.

This is yet another reason why independent auditors are needed to check on the effectiveness of expenditure undertaken by authorities. They are spending our money – punters’ money, that is – and should be held accountable for getting a return on “our” investments.

Of course, the underlying intention of state breeding subsidies is to build up the local breeding sector. Whether that happens, or just how that would help the overall industry is never stated, nor are any objectives ever nominated. In any case, this sort of activity pales into insignificance by comparison with other major economic trends in the industry. We have frequently mentioned the disparate size of betting pools as a big challenge, and a risk, to the smaller states (no doubt one reason why WA combines its pools with ).

But probably the biggest economic impact comes from the movement of dogs themselves. For many years now, Victoria has enjoyed an inflow of better dogs from the huge Wheeler camp and from NSW and Queensland generally. SA is sustained by the inflow of second level Wheeler dogs, helped a little by transfers of average dogs from Victoria. WA is massively influenced by the continuing transfer of dogs from the three eastern states, usually when they have become less competitive at home (transfers which are financed by accumulated prizemoney).

Without commenting further here on those actual flows (it is a big subject on its own) the point is that, relatively, breeding as such can have only a minute effect on the fortunes of any one state. Consequently, artificially created subsidies are highly unlikely to help in any meaningful way. The market will look after things very efficiently. Good managers would get rid of subsidies and find better uses for the money.

I also note that the last WA sire of any significance – Prince of Thiefs – was sent to Victoria to work at his trade. Of course, ’s litter will create great interest in WA, but then she was bred in NSW, wasn’t she? Nuff said.

All of which leaves us with only one piece of hard evidence. data show that between 2002 and 2011 breeding activity actually dropped. Spending all those millions of dollars over the years produced no growth at all. The money was wasted. But it also leaves some questions open. Why has there been no increase? And has all the discriminatory prizemoney for locally bred race winners done more harm than good? Or made no difference?

As for surveys themselves – they are always better drafted by research professionals, lest you get crook answers

DO WE REALLY NEED THEM?

I have to correct my recent claim that there are 120 different grades for Australian trainers to worry about. That should now read 123. GRV has just added (a) the “300” club for dogs which fit between T3 and 5th Grade, and runs on a complex points basis, (b) has just run heats of an event for dogs with 1 to 4 wins but no more than 14 total runs and (c) not to be outdone, is offering a four heat series for dogs with 1 to 4 wins but they must have had more than 14 career runs.

The mind boggles at the labour and IT costs of implementing and administering all these strange new races. The punters will have to pay for that, too.

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