The Levy: A Living Fossil?
What is the Horserace Betting Levy?
The Horserace Betting Levy (known in the industry simply as “the Levy”) was introduced in 1961 when high street betting shops were legalised. It is a statutory financial contribution in the form of a hypothecated tax that bookmakers must pay to the Horserace Betting Levy Board, which then disburses such funds to the horseracing industry for purposes set out in the Betting, Gaming & Lotteries Act 1963.
These include veterinary research, the preservation of rare breeds of horses and the general improvement of horseracing. The Board is a non-departmental public body sponsored by DCMS and funded out of the Levy it collects from bookmakers.
Sounds like a good idea.
It was - when it was introduced almost half a century ago. Designed to compensate racecourses for the expected reduction in gate receipts when high street betting shops were legalised, it was also compulsory - previously bookmakers had only been encouraged to make voluntary contributions to their local courses.
How much does it raise and how?
Since 2002, the Levy has been set at 10% of the gross profits generated by bookmakers on British horseracing. Until this year, the annual “yield” has averaged about £92-£94M, peaking at £115M in 2007/08. However, it has dropped significantly since then and, on current projections, is expected to raise about £76M in the year ended 31st March 2010.
Why such a drop?
Although horseracing is a tremendous British tradition and the racing here is among the best in the world, it is not something that appeals to the younger generation in the way that it used to, so the customer base is not being replenished.
In addition to this, new technology combined with the commercial imperatives inherent in a competitive market has broadened the availability of betting opportunities enormously.
“Numbers” games, football, virtual racing and gaming machines are all now vying with traditional pursuits for customers’ attention. Horseracing is seen as “too difficult” by many younger customers who may not want to commit the time to studying form and learning the language of racing. Quite reasonably, they prefer to bet on sports they already know a lot about such as football, or to play computer-based simulated games on the machines.
This, together with the deepest economic recession the betting industry has ever seen, has caused a dramatic downturn in betting on horseracing and, indeed, on greyhound racing as well.
A “Fossil”?
Times have changed. When the Levy was introduced, it was the only source of formalised bookmaker funding for racing. Of course, many bookmakers used to sponsor individual events or whole race cards and still do. But that is a discretionary spend that cannot always be relied upon by racecourses, especially in economically difficult times.
However, bookmakers need live pictures of horseracing in their betting shops. Racecourses, who own the rights to such pictures, have become increasingly aggressive over the charges they make. Bookmakers now pay as much for their pictures as they do in Levy and this sharp escalation in cost has made racing by far the most expensive product in the betting shop.
It simply doesn’t make economic sense to pay such a high cost for a declining and relatively low margin product. Bookmakers believe that, in a commercial age, racing should no longer be propped up by its own, unique hypothecated tax and that the Levy should be abolished in favour of a commercial mechanism which reflects its value.
Is it not Government policy to abolish the Levy anyway?
Yes - the abolition of the Levy was announced in by the Labour Government in March 2000. It has been delayed for many reasons but, in its most recent statement on this matter in March 2006, the government said that the Levy would continue until an agreed commercial mechanism could be found to replace it.
In reality, while the Levy continues, there is little incentive for those who benefit from it to seek a commercial replacement. As the ABB has already advised the new administration in DCMS to set a date for bringing the Levy to an end thereby forcing all parties to reach a mutually acceptable solution.
The Government has yet to accept that advice but we expect that, should insuperable difficulties occur in obtaining agreement on the 50th Levy Scheme, due to start on 1st April 2011, it will indeed wish to review the whole statutory mechanism.
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