27 September, 2022

The nation’s second-favourite betting sport

Lee Richardson MBA, CEO of Gaming Economics and regular Gambling Insider contributor, addresses the overall state of horseracing in the UK, which is facing a critical juncture ahead of the Gambling Act review

When I first walked into a betting shop in the UK, in the mid-1970s, horseracing was by far the most popular sport to legally wager on - and not just in the UK... the world. Times change.

According to GBGC, the data expert and Gambling Insider partner, global horseracing handle in 2015 was $114bn, just about level with global betting on all other, non-horseracing sports. Since then, other sports betting has grown to an estimated $298bn for 2022, with horseracing expected to total around $159bn.

Thus, over the past seven years or so, horseracing has declined from an estimated 50% share of total global sports betting to around 35%, with the post-PASPA sports betting explosion in the US at least partially responsible for the widening of that gap.

However, global horseracing most certainly has its own issues to deal with; with annual growth in handle of just over 4% per annum over the past seven years, it`s thus likely barely grown at all in real, inflation-adjusted terms, including within the UK.

Set against that declining share of the global betting market, horseracing also has a declining share of the domestic UK market, and for a wide variety of reasons.

In the UK, horseracing handle is overwhelmingly done through fixed-odds betting; elsewhere in the world, it`s mostly pari-mutuel (tote) betting that dominates, sometimes through holding a monopoly market position. But that difference only tells a fraction of the story.

Horseracing is Britain`s second-largest sport in terms of employment and revenues generated annually. Official Gambling Commission figures showed domestic off-course betting on horseracing in Britain generated £ 4.6bn turnover in 2016, yielding £ 333m in GGY, with online betting on racing accounting for a further £ 5.4bn in turnover and £ 353m GGY.

Half a decade on, those overall yields are estimated to have stayed pretty flat, with online growth largely offsetting a sustained decline in the retail, off-course sector. A 27% reduction in the number of betting shops over the past five years - from almost 9,000 in 2016 to an estimated 6,500 today - is just one of the reasons for racing`s declining share of total betting revenues.

Results from Entain - which owns Ladbrokes and Coral, two leading UK High Street and online brands - from March 2022, underlined the continuing scale of this change in consumer betting patterns.

Rob Wood, the company`s CFO and Deputy CEO, said "there`s no doubt that over-the-counter is subsiding and it`s mostly the traditional products, I`m afraid, horseracing and greyhound racing in particular. That`s where the declines are."

Although racing`s income is largely driven by betting-derived revenues, collected from punters through the statutory Horseracing Levy system, other race-day income remains vital for the courses who stage the sport seven days a week.

That revenue stream, too, is under extreme pressure, with recent average daily race going attendances down an unprecedented 54% when compared to 2019, the last full pre-pandemic year.

Even July 2022`s "Super Saturday" - where the top-tier tracks of York, Newmarket, Ascot and Chester all race - showed average attendances were down almost 20% versus 2019.

The aftermath of the pandemic, plus a current, and accelerating, 'cost-of-living-crisis,' appears to suggest that a day at the races has become an expensive, highly discretionary consumer activity in mid-2022.

Like all other sports, UK horseracing was badly impacted by the pandemic, with cancelled fixtures - including a Grand National, the nation`s favourite, where more people bet on the race than vote in a British General Election - followed by racing being held behind closed doors.

The sport saw zero on-course betting for almost a year, and retail turnover on the sport - already under structural change as highlighted above - was hugely impacted by the Government-mandated closure of betting shops throughout the UK, for over a year, between 2020 and 2021. Footfall in shops is still well down on pre-pandemic levels.

While the industry rightly received plaudits for keeping 'the show on the road' during C-19, it seems increasingly likely that fundamental, structural change to the sport has already occurred, which now needs urgent, new responses from the industry.

From the betting perspective, the position is complex, challenging and critical. The Tote, which offers pari-mutuel betting on horseracing, has undergone ownership change and is now operated, under a variety of guises, by the industry itself. But it hasn`t launched any significant new horserace betting products for over 20 years, and its small share of horseracing betting is static at best.

For the fixed-odds bookmaker - and as outlined by Entain`s experience noted above - horseracing is simply no longer as important a betting product as it once was.

Additionally, the UK Government`s pending - and much delayed - Gambling Act 2005 Review White Paper, anticipated to include new consumer affordability checks, is already hitting racing`s revenues.

Newly appointed Chairman of the sport`s governing authority, the British Horseracing Authority`s (BHA) Joe Saumarez Smith, told a recent industry conference: "We are quite worried. Partly because of the delays in publishing it... we need certainty because it is hard to make policies without knowing what the Government`s thinking.

"Second because the Gambling Commission are going ahead and, for their own reasons, implementing a lot of restrictions. So, even if the White Paper comes up with limitations on operators at relatively high levels by comparison with what was predicted, the Gambling Commission is now making operators put in restrictions. This is already having an effect on levy and media rights payments. We are seeing that in the returns for April and May, and it`s a big threat to the industry`s revenue."

Some industry estimates have forecast the annual impact to British racing`s revenues of intrusive affordability checks on low levels of consumer spend at £ 100m.

A new ٟ.3m industry TV advertising campaign, launched in mid-2022 to boost racegoing attendances, and a new BHA 'industry strategy think-tank' launched around the same time, may both be laudable endeavours but both run the risk of being too little, too late. A couple of bright spots on the horizon may be TV coverage and media rights income, plus opportunities for better exploitation of consumer data.

ITV took over the sole domestic free-to-air TV coverage of British horseracing in 2017 and has since arrested the decline in off-course audiences, with the Cheltenham Festival 2022 recording its highest TV audience in over 10 years. ITV Racing has since won broadcasting awards and a BAFTA gong now beckons. Betting turnover is always boosted by TV coverage and such exposure remains a vital channel to win new customers, and better inform the viewer. Media rights income for overseas coverage of British horseracing is also growing, albeit from a small base.

The BHA`s Saumarez Smith has also spoken of the need for the sport to improve its use of data, "as this is one of the biggest opportunities for the growth of our industry. Pretty much every major rival sport has invested huge amounts in data projects, realising that unless they fully understand their customers and their behaviour, they cannot optimise their business, nor maximise their share of the consumer wallet."

Having followed the sport since my teenage years, I`ve also been involved in racehorse ownership and still go racing as often as I can. I`ve even played a small role in the sport`s history, while working at the British Horseracing Board in the 1990s, helping win the right to host race meetings with betting in Britain on a Sunday; making the sport more commercial and attractive to new sponsors. It`s still a sport I care about, deeply.

Horseracing continues to be a fascinating part of the British sporting landscape, with heritage and tradition like few others, while remaining a significant, daily betting medium for millions of fans. But if it`s to have any chance of holding onto that place among fans and bettors alike, for future generations, the industry needs new, innovative and cohesive leadership, with a fresh narrative to help win new bettors, fans and racegoers. And it needs it now.