Falling at the first: the bad blood tearing racing apart

The crowds flocked to Aintree to see yesterday's Grand National – but it was a different story recently at Great Yarmouth, where a one-horse race was only narrowly avoided. James Moore finds an industry divided between big and small players, and between racetracks and bookies

The stands at Aintree were packed for yesterday's Grand National; the racing was of the highest quality and the winner and placed horses shared an impressive £800,000 in prize money.

An estimated 10 million people placed a bet on the big race, most of them the sort of punters who pay little or no attention to horseracing during the year. Bookies reckon there are only three million or so regular users of betting shops.

The public, though, was left with a picture of a sport in rude health. After all, everyone was smiling – even the losers enjoyed the day – and the bookmakers, trainers, owners and operators of Aintree seemed (more or less) to be singing from the same hymn sheet.

But behind the scenes, racing's various factions are deeply divided. An industry that, according to figures from the British Horseracing Authority, directly provides 18,000 full-time jobs and supports a further 69,500, including 42,000 in the betting industry, is in a state of some turmoil.

Because while high-profile events – such as the National, or the recent Cheltenham Gold Cup battle between the celebrated steeplechasers Denman and Kauto Star – have arguably never been better, it's a different story at the base of racing's pyramid.

A good example of the contrast between classic races and the humdrum day-to-day meetings came just two weeks ago, when Great Yarmouth's Easter Monday flat meeting offered a pitiful £18,600 for winners over six races – £5,000 less than the previous year. Trainers who for years have been bitterly complaining at the steadily diminishing returns from prize money finally decided enough was enough and called a boycott. The last race had just one entrant and would have led to the embarrassing spectacle of a walkover, had frost not (mercifully) caused the meeting to be called off.

The trouble, of course, boils down to money. In most parts of the world, racing is usually at least 80 per cent funded by government-owned monopoly betting companies that work along similar lines to Britain's Tote, pooling everyone's stakes and sharing them out between winning punters (less deductions for costs and tax). In the UK, however, the Tote is far from being the sole source of funding. All onshore bookies currently pay 10 per cent of their gross profits on horseracing as a statutory levy, overseen by the Government, via legislation dating from the 1960s, when betting shops were legalised.

The levy accounts for at least a third of racecourses' income, but it has been falling, from a high of £102m in 2003-04 to £90m in the 2006-07 tax year.

The British Horseracing Authority's chief executive, Nic Coward pictured, right), says this year's total prize money will be a record sum, thanks to increased contributions from sponsorship, gate receipts and picture rights. But the cash is being spread ever more thinly. Last year there were 1,415 meetings, at which more than 9,000 races were staged. This year will see 1,504.

Hence the Yarmouth one-horse-race debacle – which was exacerbated by the decision of the levy board to cut grants to those racecourses that fail to dip into their own pockets to maintain the level of prizes. In fact, prize money covers just 24 per cent of owners' costs – and that does not include the cost of buying the horses in the first place.

As if this weren't bad enough, the bookmakers want to cut their contribution towards the levy. They were furious when 31 courses – including most of the big ones, such as Ascot, Cheltenham, Newmarket and York – teamed up with Alphameric, a technology company, to form Turf TV, which demanded that bookies paid handsomely for the privilege of receiving its pictures. Previous TV footage used in betting shops had all been provided by SIS, controlled by William Hill and Ladbrokes.

Initially the industry's big three, William Hill, Ladbrokes and Coral, refused to take the service, only to be forced to cave in when their customers moved down the road into shops owned by companies that broke ranks.

Tom Kelly (pictured left), chief executive of the Association of British Bookmakers, estimates that Turf TV costs his members somewhere in the region of £35m a year. "The view of the bookmaking industry in general is that we make a lot of payments to racing in a number of ways, through the levy and through the picture deal," he says. "There has to be a cap on this. Because of Turf TV we are going to be paying more for pictures.

"If there is still a case for a levy [on bookmakers' profits], it has to be part of an overall system. Racecourses should not be able to take it and charge more and more for pictures."

Unsurprisingly, Simon Bazalgette, the boss of Turf TV and one of the founders of the racecourse-owned satellite channel Racing UK, disagrees.

He says: "Pictures only became part of the levy argument when bookmakers were asked to pay for pictures. It is just tit for tat. Up until now, the bookmaker-owned SIS has had a monopoly. We have made it a competitive market, and when you have a competitive market most people benefit. We are 100 per cent owned by racecourses, mainly those who believe in sustaining the quality of racing. It is through the top end that you drive interest – that is what people want to be part of."

Later this month, the two sides are due to face off in court, with each accusing the other of monopoly practices, although mediation talks continue.

For his part, Mr Coward acknowledges the problem with poor payouts at smaller meetings, but argues that elsewhere racing is in good health. "Prize money is an issue. It is important to owners, and to stable staff and trainers, because it provides a significant part of their income. We have been reviewing the fixture situation and expect to come up with proposals next week.

"But attendances are very healthy. Racing is the second- best-attended spectator sport in Britain, after football, and racecourses have taken steps to diversify their income streams, in contrast to what has happened in other racing nations. We were disappointed by the bookmakers' attitude to the levy because we produced economic analysis of the value to the bookmaking industry of racing that put it at a minimum of £135m a year. An extreme reading of their case would put it at just £35m."

The £135m figure would, of course, make another Yarmouth boycott unlikely, as long as the track's owners – the Reuben brothers, the property tycoons David and Simon – were willing to put their hands in their pockets too. But Paul Leyland, an analyst with Arbuthnot Securities who covers the gaming industry, describes the current situation as "an anachronism" and argues that racing should count itself lucky to get what it does.

"Racing's big events, like the National, can hold their own against any sporting event," he says, " but at the lower end that is not the case. The levy dates back to when bookmakers were restricted in what they could offer [to horseracing], so racing was protected. The sport has also been historically well connected and they have been given a enviable number of legacy benefits that are now starting to look outdated.

"The question is whether they can construct a commercial structure that allows racing to survive in its current form. Let's face it – no other sport gets this 10 per cent levy, and the argument that they [the bookmakers] use it [racing] and so they should pay doesn't wash any more. Nobody owes racing a living."

Nonetheless, it appears that the levy in some form is here to stay. The sports minister Gerry Sutcliffe made it quite clear that he was less than impressed at being called in to settle the dispute between the two sides over this year's payment. But talks are now being held between the various factions with the help of the All-Party Racing and Bloodstock group in the Commons. And, despite the rhetoric, each side needs the other.

Racing might not be the be-all and end-all it once was to bookmakers, but it still brings in over £1bn in profit each year.

And the racetracks might bitch and moan about the bookies, arguing that a more equal relationship would be a good thing. But they still ultimately need them to take punters' bets.

If the two could just agree, they have many interests in common – not least ensuring that offshore bookmakers taking bets from British punters, and betting exchanges, pay their way to the benefit of both. A thriving industry would be more likely if courses and bookies would work together. But after all the conflict and hard words, that remains an outside bet at long odds.