Page last updated at 07:58 GMT, Thursday, 18 March 2010

Horse racing gallops to maintain its popularity

By Will Smale
Business reporter, BBC News, Cheltenham Racecourse

Sizing Europe clears the final fence in the Irish Independent Arkle Challenge on the first day of the 2010 Cheltenham Festival
The Cheltenham Festival is the highlight of the jumps season

As the 20 racehorses thunder away from the start line, the crowd of 50,000 roars its enthusiasm.

Then, as the rainbow blur of satin-shirted riders start to jockey for early positions in the stampede, the spectators are quickly quiet again.

Some are fidgeting with their betting slips, while others take a fortifying gulp of stout, or draw on their cigarettes.

It's a sea of tweed, flat-caps and Barbour, with the odd posh frock, and more than a few over-sized green hats as the large Irish contingent celebrates St Patrick's Day.

During Cheltenham we see more business in the four days than we normally get in three weeks. There is nothing else like it
Paddy Power, head of communications, Paddy Power

Welcome to day two of the Cheltenham Festival 2010. With more than £600m due to be gambled over the four days and 26 races in the UK alone, excitement and nerves are fighting a very close two-horse race.

The pinnacle of the UK jump racing season, the festival is big business.

Attracting the very best horses, more than 200,000 people will attend this year's festival in total, with millions more watching on television.

And this means good news for the bookmakers.

"It's a proper bonanza for us," says Paddy Power, head of communications for the Irish bookmaker that bares his name.

"During Cheltenham we see more business in the four days than we normally get in three weeks. There is nothing else like it."

Events business

As the horses go round the parade ring before the first race, Peter McNeile, director of sponsorship at Cheltenham Racecourse, says the festival is worth £7m in gate receipts alone.

Peter McNeile, Director of sponsorship at Cheltenham Festival
Peter McNeile says Cheltenham attracts the very best horses

"Let me just say that the festival is very profitable," he says.

"On top of the gate receipts we get £2m in sponsorship, and have the largest number of hospitality tents for any sporting event in the UK. We do up to 7,000 restaurant covers over the week, with some paying £600.

"So while we are primarily in the sport industry, we are also an events business."

For McNeile the continuing success of the festival, which is now in its 99th year and continues to sell-out, is all about the quality of the horses it attracts.

"It is a tremendously fun four days out for people who attend, but at the core of that is the fact we get the very best National Hunt horses."

Competition for bets

But if the Cheltenham Festival remains as popular as ever, what about the wider British horse racing industry?

Despite the recession hitting consumer spending last year, total attendances at the 60 racecourses across England, Scotland and Wales remained level.

200,000 spectators to attend over the four days of racing
10,000 fans have come over from the Republic of Ireland and Northern Ireland
More than 200,000 pints of Guinness will be consumed
About £600m set to be bet across all 26 races
Total prize money on offer of £3.5m for the winning horses

According to the official figures from the governing body, the British Horseracing Authority, 5.7 million people went to the races in 2009, up slightly from 2008.

And horse racing continues to have total attendance figures second only to football in the UK.

Yet at the same time, the horse racing industry admits that it is failing to attract enough younger adults, who appear more interested in watching - and gambling - on football, rugby, cricket and other such ball-based sports.

At the same time, many other gamblers have been turning their attention more to playing in online casinos.

To try to boost horse racing's popularity, an industry-wide initiative called Racing For Change has been launched to look at how the sport can reach a "substantially larger section of the consumer market".

Earlier this year, it unveiled a series of proposals, including free or reduced price racecourse entry for younger adults, increased marketing, and a simplification of the racing schedule.

Falling back

Figures from the big gambling companies show just how much horse racing is having to cope with increased competition from other sports.

According to Paddy Power's eponymous spokesman, 15 years ago horse racing accounted for 90% of its business.

Horse racing has seen its share of the pie decline - down from an historic 75% - but the pie itself has got bigger
David Williams, Ladbrokes

"But since the advent of online gambling, betting on sports like football has really taken off," he says.

"As a result, horse racing's share has fallen back to about 60%, but that is not racing's fault.

"And as we are continuing to grow our business, while racing's share of overall betting has fallen, the actual amount of money placed on it has risen."

Ladbrokes spokesman David Williams agrees, saying you need to look at the betting industry as if it was "a big apple pie".

"Horse racing has seen its share of the pie decline - down from an historic 75% - but the pie itself has got bigger," he says.

Tax avoidance

But although betting levels on horse racing have risen slightly, the money the industry actually gets back from the gambling industry has not kept pace. And there are two main reasons for this.

First, most of the big UK gambling firms have moved their online operations overseas to places such as Gibraltar and Antigua, meaning they can avoid having to pay the 10% levy on gross profits that they have to give back to the horse racing industry - at least for that part of their business.

Spectators on St Patricks Day
St Patrick's Day adds to the fun at Cheltenham

William Hill spokesman David Hood said moving its online operations to Gibraltar was primarily about avoiding the 15% tax the UK government puts on gambling profits.

"When you take the 15% tax and 10% levy together, that's 25 pence out of every £1 we win going straight out of the door," he says.

"If you move your online operations to somewhere like Gibraltar, you can cut the tax part down to 2% or less, so it is a no-brainer.

"It simply would be imprudent as a public listed company to maintain our online business in the UK."

While keen to stress that William Hill pays the 10% levy on all horse racing bets placed in its network of 2,500 UK shops, he says the British horse racing industry should concentrate on growing their own businesses rather than "looking for Oliver Twist-like handouts".

Impact of exchanges

The second factor in reducing the levy payments that the horse racing industry gets has been the big growth in betting exchanges in recent years.

Rather than acting as a traditional bookmaker, betting exchanges such as BetFair instead allow members of the public to bet with each other, only charging a 3% commission from the winner.

Horse being led around the parade ring at Cheltenham
Horse racing is failing to attract younger gamblers

And the exchanges only pay the 10% levy and 15% tax from this commission.

While the traditional bookmakers complain that the exchanges are not paying their fair share, BetFair disagrees.

BetFair spokesman Mark Davies says its commission is directly comparable with the profits made by the traditional gambling companies, only smaller.

"You might as well write a piece about Waitrose being upset that Tesco pay less tax because Tesco charges less for the same shopping basket of goods," he says.

"The fact Tesco therefore sells more baskets might, you think, be of relevance, but the bookies seem to think it isn't."

The Horse Racing Levy Board - the body that sets the levy payments both the traditional bookmakers and the exchanges have to pay back to the horse racing industry - is now continuing its latest review.

However, the problem for the Levy Board is that the horse racing industry is also rather reliant upon both the bookmakers and exchanges contributing prize money for races.

And if the levy goes up, the prize money could be much less forthcoming. So negotiations are understandably delicate.

But back at Cheltenham such scraps are of no concern, as the racing continues and the alcohol flows freely.

"The festival is a magical week," says punter Neil McCormick, 39, who has come over from Dublin.

"I haven't won yet today, but I had a winner yesterday. And the atmosphere is just fantastic - you can't beat it, really you can't."

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