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The Inside Track - The regular column from the RCA

The Financial Equation

MYTH: Britain’s racecourses are awash with media rights money that is being stashed away.

TRUTH: Britain’s racecourses have delivered virtually all their recent economic growth into prize-money for the benefit of the industry.

The facts, as Racecourse Association chief executive Stephen Atkin points out, can be gleaned from the recently published BHA Fact Book 2011-12, which revealed a significant year-on-year increase in the racecourses’ cost base.

Racecourses’ executive and sponsorship input to prize-money in 2011 went up by almost £15 million in one year, from £30.35m in 2010 to £45.23m, which included £2m from British Champion Series Ltd for additional Champions Day prize funds, a net increase in investment of £13m.

At the same time, though, the Levy Board cut its grants to racecourses, other than directly for prize-money, by around £9m – with the equivalent sum committed to prize-money – which was offset to the tune of £1.5m by a reduction in BHA costs, increasing racecourses costs by a further £7.5m.

Atkin squares off the financial equation by explaining: “Bringing those figures together, the increase in racecourses’ costs in 2011 was £20.5m - £13m from increased prize-money contributions and £7.5m from the net drop in Levy Board grants for fixture incentives and raceday services.

“What effectively happened, therefore, was that these extra costs were covered by incremental income, which came from a variety of sources, including increased betting-shop and other media rights and commercial areas such as admissions and hospitality, plus cost savings.

“So we can conclude that in 2011 the racecourses delivered all their marginal gains in income and reductions in costs into prize-money, either directly through their own contributions or indirectly through lower Levy Board funding.

“This was recognition of the importance that racecourses attach to prize-money and how serious the position looked at the start of 2011.

“Even so, total prize-money in Britain dropped from £98.96m in 2010 to £93.89m last year. But without the racecourses’ considerable extra contribution, it would have fallen even more.”

In terms of betting shop rights income, Atkin explains: “This is just one element of racecourse income and expenditure, and you have to look at the whole business, not just one element.

“But even if you take the rights income alone, it’s clear that while there have been increases over the last two years, racecourses are still playing catch-up with the reduction in Levy Board funding, which in 2011 went down by around £28m in total from 2010, and by £43m compared with 2009.

“Betting shop rights income has grown over the same 2 year period, but quite modestly, from £56m for LBO rights in the calendar year 2009 to £57m in 2010 and £60m last year, a net increase of just £4m, which represents only 10% of the reduction in Levy Board grants”


Atkin adds: “Prize-money probably reached its low point at the end of 2011 and I think we will get near to £100m this year. And while we don’t yet know what profits racecourses will make in 2012 - the figures will be impacted by unusually heavy summer abandonments - the situation looks better for 2013, when the Levy Board will put considerably more into prize-money,

“But it’s also worth remembering that we are still trying to fix the substantial leaks that have occurred over the last few years. Even though betting shop rights income is projected to increase in 2012 and 2013, racecourses will still be catching up with the earlier reductions in Levy Board grants, as the table below illustrates.”

 All this has to be measured against a background of business performance, Atkin points out.

Figures collated recently by the Levy Board show that the combined profits, before tax and loan capital repayments, of Britain’s 60 racecourses in 2011 amounted to £20.9m, compared with £20.6m in 2010 and £20.2m in 2009.

“To all intents and purposes the performance is flat,” Atkin says, “which in a difficult economic environment is far from a disaster.

“On the other hand the performance is not sufficiently healthy for the long-term sustainability of racecourses, which are capital intensive and require considerable investment to generate income.

“Whereas international competitors are generally funded by their national betting industries, British racecourses have a much more diverse funding model.

“Obviously the betting pound is very important but it is vital that racecourses also generate income from racegoers, sponsors and hospitality. This costs money and in that context a total profit level of £21m is not really satisfactory to attract funds for new investment.

“Racecourses need to push their profits forward as soon as it is reasonable to do so, alongside their on-going substantial commitments to prize money.”

Comparison of Levy Board grants (including prize money and other support )and betting shop income

(£million)

    Levy Board Grants

    Betting Shop Rights Income

    Total

2009

97

56

153

2010

83

57

140

2011

54

60

114

2012

58

73

131

2013

68

84

152


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