Bitter funding battle leaves racing stranded in the stalls

Horseracing says it is being short-changed by bookies and has delayed the 2011 fixture list. But after a huge World Cup do bookmakers care, asks James Moore

Those bemoaning the state of British football might care to cast their eyes in the direction of the country's second most popular spectator sport: horseracing this morning finds itself, once again, in the midst of financial crisis and organisational meltdown.

With the seemingly perennial row over funding the sport threatening to spiral out control this year, the British Horseracing Authority (BHA) yesterday opted to delay publication of its 2011 fixture list and issue a furious press release blaming bookmakers and betting exchanges for "exploiting loopholes" to get out of paying their share.

The decision – described by the BHA as "unprecedented" – could be set to cast a shadow over the livelihoods of 20,000 full-time workers in the sport and a further 80,000 who work indirectly within racing, through a variety of industries such as catering and hospitality. If you believe the BHA.

Racing is unique among sports in that it is funded by a statutory levy of 10 per cent on the profits bookmakers and betting exchanges make from those who bet on the sport. The racing authorities argue that bookies should pay much more. The bookies beg to differ. It is usually all resolved in meetings at the Department for Culture, Media and Sport (DCMS) where ministers (who would dearly love to get shot of the responsibility) are called upon to knock heads together.

The BHA, which regulates the sport, says it has made the decision to suspend the fixture list because the yield from the levy has collapsed. "Despite the betting industry posting bumper profits in recent years, the amount contributed to the levy has gone into freefall," it says. "In 2009, the yield from the Horserace Betting Levy shrank by more than 20 per cent, from £115.3m to £91.6m. It has been reported that the 2010 levy has dropped even further to £76.5m, a further fall of 17 per cent."

In other words, the levy has dropped by more than a third in the last two years. The BHA claims the betting industry is exploiting "loopholes" such as moving online, and in some cases telephone betting, businesses offshore where they can avoid the levy. They also believe that betting exchanges have long been short-changing the industry – not least because people who use exchanges to act as small bookies by "laying" bets placed by others, don't pay any tax on their profits.

The BHA – which has talked of cutting the 1,500-plus fixture list by as much as 250 meetings – describes yesterday's move as "an unprecedented step" that "reflects the seriousness of the situation we are in".

Nic Coward, the BHA's chief executive, said: "This is massively frustrating, particularly as in many ways the sport's hard work to prepare for and beat off the worst of the recession is going to plan.

"The levy underpins the fixture list, tens of thousands of people depend on it for their livelihoods and this year we are facing a catastrophic cut in income. It is not fair and not right that the people working in racing should suffer as a result of the majority of the betting industry looking to bypass the levy in order to maximise their own profits.

"It would be irresponsible for us to plan for 2011 when setting fixtures now could ultimately result in racing being left out of pocket. Decision-makers should be in no doubt about what is happening and take urgent action." That appears to be aimed directly at the DCMS.

The move has been backed by the National Trainers Federation and Jockey Club Racecourses, which hosts a quarter of those fixtures, including many of the best through its ownership of marque tracks such as Newmarket and Cheltenham.

Bookmakers, however, tell a rather different story. They point out (with some justification) that it's not just the levy that they contribute towards racing. There's another £75m paid for TV pictures, and £50m in sponsorship, taking the total to £200m. Of course, the latter two revenue streams go direct to racecourses (and so don't have to be used towards funding prize money, which is a major concern of the BHA, and of owners and trainers).

Bookmakers say that this figure will hit £250m by 2014 if the levy remains static. They also argue that even with online gambling moving offshore, they still paid £919m in tax compared with profits of £596m. What's more, they say, the bumper levy yields of recent years were partly fuelled by unusually good earnings from high rollers who made big losses.

"The payments bookmakers make for broadcast pictures are a big part of racecourse income and clearly impact bookmakers' "ability to pay" and racing's needs – both of which should be taken into account in levy discussions," said Ciaran O'Brien from Ladbrokes.

Tom Kenny, the chief executive of the Association of British Bookmakers, said: "This is an unhelpful development. Racing has created a situation where, while the product is declining in popularity, the supplier is putting the price up through the increasing cost bookmakers have to pay for media rights. Income from the levy is supposed to be set at a level that balances needs with bookmakers ability to pay. We would suggest that racing's needs are declining thanks to the money they make from media rights. Our ability to pay is also declining, for the same reason."

Where will it all end? Probably before the DCMS again, where some sort of compromise will be hammered out and ministers will exhort both sides to stop fighting with each other and sit down around a table to work out some sort of commercial deal that will relieve them of the responsibility for sorting out the charade.

A spokeswoman for the DCMS said: "Racing makes an important contribution to both local economies and the nation as a whole. [DCMS minister] John Penrose has met with the Levy Board, representatives of the British Horseracing Authority and with the Association of British Bookmakers to discuss the decline in levy yield and ask for suggestions from each about how the levy might be improved or, if possible, suitably replaced." In the meantime, racing's popularity continues to decline and efforts to improve the situation remain hamstrung by bloodletting. The 250 fixtures under threat are also low-quality affairs, which few would miss. A figure that ought to worry racing comes from William Hill: it estimated the industry's turnover from the World Cup at £1bn. With no levy on the profits.