Hard Times for Sport of Kings in Ancestral Home

http://www.nytimes.com/2013/06/18/sports/18iht-srasrace18.html

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The Royal Meeting at Ascot Racecourse recently turned the corner on its 300th birthday, and the luster of winning on those exalted grounds remains as vivid as ever. The five-day meet, which begins Tuesday on the fabled course near Windsor Castle, remains the showcase of British racing in the sport’s ancestral home.

To mention money in this rarefied setting might seem tasteless. Royal Ascot does not offer the best prize money compared with other top races in Britain, never mind the rest of the world. Its tradition, everyone will tell you, does not have a price tag.

This is the philosophy of British racing. But beyond Ascot, the industry’s numbers do not add up. Many in the industry acknowledge great concern over racing’s financial future, none more so than horse owners. In 2012, owners’ gross expenditure was £389 million, or $609 million, while income through prize money and sponsorship amounted to £85 million.

“We’re seeing a situation now where prize money for many of our races is less than it was 10 years ago,” said Mark Johnston, one of Britain’s most successful trainers. “And for quite a few, it’s less than it was 20 years ago.”

He laughed gloomily, adding: “I don’t mean corrected for inflation; I mean it’s actually less than it was 10 years ago.”

Yet despite its poor return, Britain still hosts some of the best racing in the world. In 2011, 6 of the 10 fastest horses in the world called the country home, and 8 of the 10 fastest ratings came on British racecourses. Last year, the undefeated British superhorse Frankel drew crowds worthy of the Beatles. His breathtaking 11-length victory in the Queen Anne Stakes at Royal Ascot was ranked as the greatest performance in history by the Timeform ratings organization.

“Our racing is holding its head up very well indeed,” Johnston said. “But on a financial front — that’s where the problems are here.”

British racing operates on a funding model with longstanding flaws — among them the so-called levy mechanism, an arcane system whereby the industry receives an annual portion, around 10 percent, of bookmakers’ profits from racing bets. Each September, the British Horseracing Authority, the sport’s governing body, meets with bookmakers before a government arbiter and negotiates the total contribution for the following year. The B.H.A. allots about half of its take to prize money and much of the rest to integrity measures and personnel costs.

This system was introduced in 1961 to protect the racing industry with the legalization of off-track betting shops. The bookmakers’ contribution was based on a percentage of betting turnover until 2002, when this was changed to a percentage of profits. In a sense, the industry now profits from the losses of its main customer base — the bettor.

“It’s an anachronism in 2013,” said Paul Bittar, the authority’s chief executive. “It hasn’t been fit for purpose in a long time.”

The authority’s total levy receipt has nearly halved in five years, from around £120 million to approximately £70 million, the result of declines in betting, lower margins and increased competition from other sports. British bookmakers who host bets at offshore locations effectively do not contribute to the levy. Bittar said the B.H.A. was pursuing legislative change to close this offshore loophole.

Most of the world’s large racing jurisdictions use parimutuel betting, in which the racecourses, not bookmakers, keep profits. France, its birthplace, offers average purses twice those in Britain. Elsewhere, Hong Kong and Japan, rising racing powers, offer fewer races but average purses 10 times larger than in Britain. Successful owners in those countries can expect to profit, whereas British owners almost see horses like sunk costs, Johnston said.

British racing relies heavily on foreign investment, especially from the Godolphin and Darley banners of Dubai’s ruling Maktoum family, for which Johnston trains 100 or so horses. Qipco, a Qatari investment company, now sponsors the British Champions Series and British Champions Day.

Sponsorships rose last year from £25 million to £31 million, and along with the fees from media rights, have partly countered a falling levy. Unlike the levy, which is statutory, racecourses can choose how much sponsor money to commit to prize money.

“Sponsors are attracted by that history, that prestige, that tradition,” said Paul Greeves, the executive director of Weatherbys, which keeps the General Stud Book for Britain and Ireland. He said that is why British racing survives.

From 2008 to 2012, the number of foals bred in Britain fell by 26 percent, and 39 percent in Ireland, according to Greeves. From 2007 to 2011, the number of active owners in Britain declined by 1,126, or almost 12 percent.

Johnston said that top trainers, including himself, are enduring. But middle-level trainers with once-successful businesses are struggling badly, he said. He cited the example of a lower-rated filly he trains who won four races over the winter and yet still lost £4,500 for her owners, after the costs of training, care, transport and entry fees.

Johnston worries that people will turn to gambling, which encourages foul-play or outright cheating. Mahmood Al Zarooni, Godolphin’s trainer who in April admitted to administering anabolic steroids to 15 horses in his care, is the most high-profile example. Race-fixing scandals and suspicions have mounted since the turn-of-the-century advent of betting exchanges, like Betfair, that allow individuals to lay odds on horses to lose. Betfair had only voluntarily contributed to the levy until recently striking a five-year contractual obligation.

The bookmakers have not looked kindly on the exchanges. “From a financial and an integrity point of view, it’s been a curse for British racing,” said Simon Clare, the communications director for the bookmaker Coral.

Restructuring the levy agreement remains the central issue. The plan, Bittar said, is to replace it with commercial agreements between the betting and racing industries. Two years ago, the B.H.A. began negotiations in earnest with major bookmakers.

In the meantime, British racing hopes to build on recent increases in attendance and popularity of its equine stars, and to attract new investors from emerging markets.

“We’ve got heritage and history to sell, and Royal Ascot is what it’s all about,” said Johnston, who has won there 35 times. “It really is something very special.”