Sunday, 15 September 2013

Owners - #1 Stakeholders, #1 Economic Contributors …. But Well Last in the Economics of the Sport

I love this time of the year. Two year olds are coming out on to the track and showing us what they can do for next year; all the NH owners’ days are under way with the dreams of future Cheltenham and Aintree glories well and truly alive; and the champions’ days in Ireland, at Ascot, Longchamps and the Breeder’s Cup are still ahead of us. Lots to look forward to, and it is magnificent being an owner. Alas, the moose on the table (as one of my clients always used to say) is the lamentable return to most owners for their investment. In the last blog I was thinking of calling this one “Milking the 8,215 cash cows (owners) dry”. However, I’ve decided to stay with the facts as summarised in the Deloittes study, Economic Impact of British Racing 2013. But here is the key paragraph in the report for us:

“Owners are the single biggest contributors to the funding of British racing, both through their purchase of horses from breeders (£189m being breeders’ expenditure and commission paid on horse purchases) and ongoing training and racing expenditure paid to trainers, jockeys and supporting industries (£369m). After receipts of prize money and sponsorship of £85m, owners are estimated to have made a net injection of over £470m in 2012 (compared to £465m in 2008).”

So let’s dig into these figures as well as others in the report and highlight the key statistics and implications (bearing in mind that the key figures relate to 2012).

  • As owners, we’re putting the thick end of half a billion pounds a year into the sport. No-one else puts anywhere near that amount of money into the game. We are the #1 economic contributor, by a considerable margin. 
  • Prize money over the past decade has remained within a relatively narrow band between £94m and £110m. In 2012, it was down at £78m (although encouragingly it is rising through 2013). For every £100 an owner spent on training and racing their horse, they recovered on average £21. 
  • Cumulative inflation over the same decade has been 34%, so as an absolute minimum prize money should have gone up over that period by at least a third. 
  • Average costs per day for each horse in training rose from £54 to £62 over the four-year period to 2012.
  • Gross cost per run was £4,000 (reduced by 20% when prize money is taken into account). This is far more than virtually every other racing nation because of the low prize money in the UK. 
  • The expanding fixture list (particularly with the dross of A/W racing) has resulted in average prize money per race declining by 14% since 2003 (but of course has led to a rise in betting turnover). 
  • There were 24,000 horses in training during 2012. 17,500 appeared on the track. So over a quarter of all horses didn’t appear, and obviously made no contribution whatsoever for their owners. Of those that did appear, 6,500 won at least one race, so – big intake of breath – only a quarter of horses end up winning anything. 
  • Between 2008 and 2012, there was an 11% fall in the number of horses in training, and a 14% fall in the number of owners. 
  • 60% of all owners are involved in joint ownership in order to share the costs. 
  • The final statistic (from the ROA) is that the upper end of the ownership scale has been the most resilient. Owners with three or more horses are down 7%, whereas those with an interest in only one horse are down 16%.

Phew! At this point it’s probably best either to lie down with a large block of ice on your head, or alternatively bang said head against a brick wall. These figures just do not make any sense whatsoever. Having said that, I have no intention of decreasing my involvement, despite the economic lunacy of being an owner.

Graham Lee came out with a very interesting comment about his switch from NH to the Flat: “The jumps is about fun, but the Flat is about business.” I was talking to one of our owners and he both agreed with the statement while also thinking that it was ludicrous. Owners are being exploited because there is a view that they will carry on supporting the industry regardless because of their love for the game.

Well, my challenge to everyone in racing is let’s start looking at the whole game as a business first, and dramatically improve the total economics of the sport. That means that as owners, if we are the #1 contributor, there must be a fundamental shift in the returns. We are the #1 stakeholder, and if the economics don’t change, the whole sport is on extremely rocky foundations.

Sunday, 1 September 2013

Great British Racing – But Still Dire Returns for The Diminishing Number of Owners

Many of our owners make an annual pilgrimage to the Knavesmire for the Ebor meeting, and this year was no exception. To many eyes it is the best track in the country, fantastic racing, hugely knowledgeable crowds and without any doubt the cheapest and highest quality Champagne on any racecourse in the land. Delighted to see The Fugue bounce back in the Darley Yorkshire Oaks for her owner-breeders, the Lloyd-Webbers, and she may now be off to either the Arc, the Prix Vermeille or the Breeders’ Cup. I was always a big fan of Rock Of Gibraltar, and Declaration Of War seems to be very much in the same mould – a huge, tough horse who really dominated the Juddmonte International. He could be a great stallion in time, and is one to keep an eye on.

However, the result that really pleased me was Tiger Cliff winning the eponymous race itself. When I lived alongside Paul Cole’s gallops on Woolley Down, I often used to meet Henry Ponsonby walking his dogs. Indeed, the very first time I met him, he managed to sell me a share in Bonchester Bridge at Nicky Henderson’s, which is how I met Jamie Snowden, now one of our trainers. On occasions Henry can be an irascible devil, but if you share a magnum of claret with him he is one of the best raconteurs in the business. A typical tale involves an encounter with a naked but well-known author. She obviously forgave him because Henry makes a proud appearance in one of her recent novels – maybe surprisingly, with his clothes on. His partner, Kish, has not been at all well recently and this victory must have been a huge tonic. To land Europe’s richest handicap and bag £155,000 for the syndicate owners was a superb triumph. Apparently Tiger Cliff is due to head to Alan King, so who knows, we may see him pop up in the Supreme Novices at Cheltenham next March.

Finally on this Yorkshire theme, it was also great to welcome back Karl Burke as the designated trainer at Spigot Lodge after 1,491 days. The whole Burke family is completely dedicated to making this yard a great success, so nothing really is going to change, but Karl must have been very pleased indeed to pick up his first winner within a few days of regaining the licence. It was a long time to be on the cold list! By coincidence, Henry Ponsonby, when he lived in Wensleydale before being banished to Lambourn, used to ride out at Spigot Lodge. Our sport can be a close network.

Back though now to the economics of racing. I suspect not many of you have ploughed through the 50+ pages of the Deloittes report, The Economic Impact of British Racing 2013. I have now, and it provides a good reference point (figures relate to 2012). I’ll be coming back to it a lot over the next few blogs. Here are some facts and figures to consider:
  • Contribution of horse racing to the UK economy: it is the second-biggest sport after football. Around 6 million people go racing every year. The net worth / total economic impact of racing is £3.5bn. There are 20,000+ people employed directly in racing. If you include betting operators and other parts of our sport, there are 85,000 jobs at stake. The industry generated over £275m in tax for the Exchequer.
  • Owners’ contribution to the sport: in 2012, 8,215 owners spent £369m in direct training fees and racing expenditure. If you add in the investment in bloodstock, it was £470m. Prize money won was £78m. With sponsorship included, the return on ownership (ROO) was £85m – a miserly 20%. The number of registered owners has dropped by 14%.
  • Racecourses’ contribution to the sport: there has been £950m of unprecedented capital investment over the past decade. Media operations generated £173m in revenues. Media rights are booming and are expected to exceed £100m in 2013. Income from racegoers, sponsors and corporate customers was £371m. Prize money was lower in 2012 than in 2004.
  • Bookmakers’ contribution to the sport: their gross win in 2012, i.e. the amount lost by punters, was £710m. Racing received £75m via the statutory 10.75% levy applied to their “profits” on this sum. Levy has fallen sharply (from £150m) as bookies have gone offshore to evade tax and the levy.

I’ll come back to some of the issues that naturally flow from these figures in the next blog. At the moment I think a tentative title could be “Milking the 8,215 Cash Cows (Owners) Dry”. More on that next time.