Why Consumers Matter

Gary Johns has made some good points. The former MP and Labor stalwart, writing in The Australian, related a story about the late and highly respected John Button, then industry minister in the Hawke government. Button walked into a caucus meeting and asked, “What is the government doing owning an airline?”

At the time, this was about the Commonwealth Government and its own TAA, later renamed Australian Airlines and then merged into the government-owned Qantas, and then privatised. So were Telstra, the Commonwealth Bank, the Commonwealth Serum Laboratory and others.

Even now, as Johns points out, “state governments still hang on to assets that would not pass the, ‘what is the government doing owning?’ test”, fearing adverse voter reactions.

Exceptions would be the various state TABs, now all privately owned (WA excepted), but unfortunately still monopolies in their field. The arrival of the NT bookmaker group has served to keep them honest but only in respect to punters wanting electronic access.

But, putting all that together, why don’t we ask what governments are doing owning the racing industry itself?

Some will argue that it’s not the government but the racing codes that own their operations. However, where it counts, that’s a load of codswallop. Governments appoint the boards that run racing (note how often those boards change when the government does). They make the rules. They decide who gets what out of betting commissions. They set taxation levels, which then fund a tenth of state budgets. They make grants when it is politically opportune to do so. They compete with other states for patronage, just as they do in offering incentives for firms of all kinds to re-locate (as Tasmania did with Betfair). They alone could create a badly needed national betting pool, yet have never done so, preferring instead to try to stay a jump ahead of the other guys (which never happens).

Governments purport to do this for the benefit of taxpayers and to protect the average “man in the street” from abuses. More codswallop – there are plenty of other rules and regulations to do that. All they are protecting is their tax income. Even then, you can easily make a case that more lively management and promotion of the industry would actually increase taxes paid.

The challenge then becomes whether racing codes would be better off under a different form of “ownership”, whether full corporatisation (eg the Snowy Mountains Scheme), or private ownership (like the airlines and banks), or something in between.

In its current form, the racing industry has already shown it is not able to compete adequately with other forms of gambling, including sports betting. Its fall in market share from over half to just on 10% is proof enough. However, its ham-fisted handling of the arrival of NT bookmakers and Betfair, and its mix and match approach to setting rates on their activity (racefield commissions) which illustrate that fragmentation of the effort does no-one any good. Co-incidentally, Qantas, now the subject of much debate about its future, once had hold of half of all international passenger traffic to and from Australia – but now it has only about 17%.

Of course, state racing authorities are there mainly to join the dots. The heart of the industry are the 80-odd raceclubs, all of which are run by unpaid amateurs under state law (governments again). Private enterprise messed up things at the start of mechanical hare racing in NSW in 1927, after which a Royal Commission ended up passing control over to a local club and then to a government department before finally setting up a racing authority largely made up of members of those same clubs.

Victoria continued with privately-owned clubs – with erratic results – until 1955 saw the creation of a Control Board with government-appointed members, again from inside the industry. Other states had industry boards from the start.

Still, another half a century has gone by and the racing industry is looking like a very mixed bag. Breeding numbers are very flat in all codes and betting volumes are not really keeping up with inflation (IBIS consultants calculate a fall of -2.9% at the moment), while the quality of the average race is dropping and, with it, a rising proportion of mug gamblers is funding the industry. Strategically, it points to a need for major reform to ensure prosperity in the long term. Apparently, no such action is in the offing.

A key issue, according to Gary Johns again, is that “too many Australian goods and services have been preserved for workers, not consumers”. Hence the failure of Holden, Ford and the like, and the presumption that Qantas is a treasured icon, even though people are not buying its services any more.

The racing product is essentially designed to satisfy owners and trainers, although the former often do not do well financially, and the latter are often finding it hard to get owners to pay their bills. While gross distributions and minimum prizes for basic races are set by the state authority, it is the raceclub which decides many of the priorities, including what sort of races are run and the amounts paid for feature events.

Club boards are essentially made up of owners and trainers anyway, so fairly naturally, they cater for trainers who are the “workers” of the industry. Hence the continued pressure for rewards for battling participants, almost regardless of the interests of the punter (the “consumer” here), or the long term effect of their policies. Like most amateur sporting clubs, raceclubs tend to work on a survival pattern, hopefully getting through to next year with a bit in the kitty. If that doesn’t work, the state authority can always bail them out – and often does.

In that context, it is surprising that racing has done as well as it has. In turn, that is due solely to the willingness of the average Australian to have a bet. Forget the millionaire owners; it is the $5 gambler that is keeping racing alive. But can it last? The indicators are not great, doubly so in the areas covered by TattsBet (Queensland, NT, SA and Tasmania), because of falling patronage in the face of better offers from other totes or bookies.

On top of that, the peculiar structures in Queensland and Tasmania are fragile to say the least, as they operate with outmoded versions of management. Both have had declines in finances yet have continued with, or intensified, systems that simply don’t work in today’s climate. To which you can add NSW, which is suffering under conditions created by past authorities.

Johns again: “The longevity of the Qantas brand depends on its market worthiness and customer loyalty, not ownership”. In other words, government should not fuss over who owns Qantas, but instead concentrate on getting the best deal for customers. Should racing be any different?