RACING NSW RACE FIELDS FEES EXPLAINED

Market Base Rate (MBR) on Racing NSW

From 1 July 2017, Betfair will increase the Market Base Rate (MBR) on all Racing NSW races from 8% to 10%. The MBR is the maximum percentage Betfair customers pay in commission on winnings.

 

Why an increased MBR?

From 1 July 2017, Racing NSW will introduce a 33% increase to the race fields fees charged to Betfair for its Standard meetings, increasing fees from 1.5% of turnover to 2.0%.

Additionally, some Standard meetings will be upgraded to Premium meetings attracting a higher fee of 2.5%. Racing NSW has a further category, Premier, which has a rate of 3.0%.

The cost of Racing NSW racing was already high. At current MBRs, the fee increase now makes Racing NSW racing the most expensive product in the world that Betfair offers to its customers.

Betfair’s response to Racing NSW changes

Given the magnitude of the pricing increase, coupled with the adverse impact of the Turnover Model used by RNSW (more information on this later) unfortunately we have had no choice but to increase charges to customers betting on RNSW product.

This is why, from 1 July 2017 thoroughbred racing in NSW will have a 10% MBR. This will place it at a significantly higher MBR than any other racing and sporting event offered by Betfair worldwide. We will also re-introduce the Turnover Charge, solely on RNSW markets, in order to mitigate exceptionally high race field fees generated by the Turnover Model when customers trade on RNSW markets. We expand on both of these charges below.

 1.  Increase MBR to 10%

2.  Re-introduce Racing NSW Turnover Charge

In addition to the increase in MBR, Betfair will also re-introduce a Turnover Charge that will apply only to RNSW meetings.

One of the unique benefits of a betting exchange is the ability for customers to trade in and out (back and lay) as prices on a market fluctuate in the build up to the jump and then in-play. Unfortunately, RNSW have chosen a race field fee approach (the Turnover Model) where every “back bet” attracts a race field fee, even if a customer is trading and therefore generating very high levels of back bet volume relative to their eventual net customer winning position.

The original Turnover Charge was withdrawn by Betfair in early 2016, when significant movement of racing bodies away from the Turnover Model to the Revenue Model meant that we could encourage greater trading activity without the corresponding cost in fees. However, given the announcement of RNSW, we have had no choice but to re-introduce the Turnover Charge for their product.

The Turnover Charge will only apply when punters have wagered in 25 or more RNSW markets with over $2,000 in back bet volume during the course of a particular week. In addition, a customer would have to pay less than 1.5% of their Back Bet Turnover in commission to Betfair. Given these high barriers before the application of the Turnover Charge, it is expected the vast majority of customers will avoid ever having to pay it.

Race Fields & Racing NSW Facts

Since inception in Australia in 2006, Betfair has fought tirelessly to gain a level playing field and negotiate an equitable product fee model for a betting exchange. While Betfair has always advocated the payment of product fees to racing and sporting bodies in return for offering their products, Betfair’s objective is to keep commission as low as possible for its customers.

To run a healthy and vibrant exchange turnover is critical, and to foster turnover we need to offer customers attractive commission rates. While many racing and sporting bodies understand the importance of a vibrant betting exchange in providing customers and the market confidence in “the true odds”, and as an essential tool in fighting corruption in racing and sport, in some jurisdictions our arguments have not been acknowledged.

In 2015 Betfair introduced variable Market Base Rates (MBR) to allow for different product fee models. The MBR represents the highest commission that Betfair receive for winnings on particular markets. Upon launch, the commission ranged from 5% to 8% of a customer’s winnings. Since launching variable MBRs we have been able to successfully negotiate product fee reductions in key states and territories and as a result have reduced the MBR where possible.

Unfortunately RNSW have never engaged in constructive conversation with us. The latest fee increase was delivered to us without consultation and as a result we are forced to introduce pricing changes impacting both us and our customers. These changes don’t sit well with us, but are designed to help us achieve our objective of keeping the commission to our customers as low as possible in the long term.

A betting exchange offers a different way of betting; it is a buy-sell market place where supply meets demand – essentially a platform that matches customers bets of opposing views, backers and layers.

This is vastly different to traditional betting via tote operators or with fixed odds bookmakers. Rather than building a profit margin into each market as tote operators (average 15% for tote products) and fixed odds operators (average 10% for fixed odds) do, Betfair charges commission on a customer’s net winnings on each market.

Betfair is the only legal exchange in the Australian market and services a unique customer segment. Far from ‘cannibalising’ the Tote, Betfair offers the only legal market where you can ‘lay’ against a result, and enable low-margin trading wagering methods, such as ‘trading in and out of positions.’ This can’t be done (legally) anywhere else in the market, let alone with the Tote.

Trading attracts a significant amount of activity, and thus turnover, often at very low margin. We know that many punters are attracted to this type of wagering activity, but the way that some racing bodies charge this type of activity is not economically viable.

Racing bodies have commonly applied a turnover based fee model to wagering operators. This makes sense for Totes and Bookmakers who only hold one side of the bet, but not for a betting exchange. Recently, Betfair has been successful in moving more racing bodies to a revenue model which is far more aligned to how a betting exchange operates.

Back Bet Turnover Model (RNSW model)

RNSW’s race fields model does not distinguish between traditional betting (Tote and Fixed Odds) and the betting exchange and charges us a percentage of Back Bet Volume (BBV) turnover. BBV can be considerable when customers trade frequently. Betfair views Net Customer Winnings (NCW) as the more appropriate turnover definition for a betting exchange as it is the net impact of all trading activities.

The fees charged from July 1, 2017 are as follows:

  • Standard Meetings are charged at 2% of BBV turnover (previously 1.5%);
  • Premium Meetings are charged at 2.5% of BBV turnover; and
  • Premier Meetings are charged at 3.0% of BBV turnover.

RNSW’s model causes a significant disparity when it comes to the payment of race fields fees as a percentage of revenue earned by a wagering operator. Based on a $100 dollar wager on a Standard Meeting, Betfair will pay 53% of its revenue to RNSW as compared to a Fixed Odds operator who will pay between 20%-31% and a Tote operator who will pay 13%. This is before GST, payroll, operating costs and marketing costs.

Revenue Model

As can be seen with multiple racing jurisdictions adopting a revenue based metric for a betting exchange, there is a growing acceptance of treating the betting exchange differently to Totes and Fixed Odds operators.

Racing Victoria (RV) and Racing Queensland (RQ) have both adopted the Revenue Model charging a betting exchange 35% of revenue across all their meeting types, including premier race meetings.

The chart below demonstrates the cost of RNSW racing compared to both RV and RQ’s highlighting that a Standard Meeting in NSW (at for example Dubbo, Young, Wyong) is more expensive than the Melbourne Cup and the Queensland Stradbroke:

Due to the already high cost of RNSW racing an 8% MBR was applied. From 1 July 2017, Betfair will increase the MBR on all RNSW meetings from 8% to 10%. The MBR is the maximum percentage Betfair customers pay in commission on winnings.

Customers who bet on racing jurisdictions with race fields models that are appropriate for a betting exchange (e.g. RV, RQ, Tasracing, Harness Racing Victoria, Thoroughbred Racing South Australia, Thoroughbred Racing Northern Territory, Darwin Greyhound Association, Greyhound Racing NSW and Canberra Thoroughbreds) enjoy the most attractive MBR at 6%. These jurisdictions in turn are experiencing a growth in volume, as more customers direct their punting dollar to the more attractively priced codes.

A stark example of the impact of MBRs can be seen below when comparing turnover (back bet volume) on RV markets versus RNSW markets:

Over the last few years we have made significant progress in educating racing bodies and governments about the nature of the betting exchange and the unique product that we offer to Australian punters. We’ve had some significant success in the past, and now have close and beneficial relationships with a growing number of racing bodies. Our agreements with these racing codes have enabled us to pass on cost savings to our customers, which is always our long-term goal.

It was with disappointment that we were advised of the decision by RNSW, and frustration that we were forced to pass on some of these costs to our customers. However, that will not stop us pressing our arguments about the importance of the betting exchange, and benefits it brings to punters and racing participants alike. We know that your passion and loyalty about the Exchange matches our own.

Additional Information

Race field fees are the mechanism by which Australian domestic licensed wagering operators contribute returns to the various racing bodies around the country.

While each state and territory varies slightly in terms of the mechanism for payment, they all require wagering operators to pay for the information relating to a race where a market is offered.

Some states and territories leave the decision of the metric and percentage rate for the payment of race field fees solely to the principle racing authority. This is the case for Victoria and Queensland, amongst others.

In other states, such as Western Australia and New South Wales, the metric for payment is determined in legislation, while the actual fee percentage is set by the principle racing authority.

This is why it is important for Betfair to not only work closely with principle racing authorities, but also state and territory governments.

2000 Betfair offers its first market in the UK
2006 Betfair is awarded a non-exclusive licence by the Tasmanian Gaming Commission to conduct Australia’s first betting exchange. The first bet is matched in August 2006. Since our first wager in Australia, Betfair has always contributed product fees to the racing industry. This is in stark contrast to other wagering operators who fought the requirement that the wagering industry makes a meaningful contribution the racing sector.
2008 NSW and Victorian governments introduce legislation enabling Racing bodies to receive product fees from corporate bookmakers and exchanges. The introduction of this legislation confirms the practice adopted by Betfair of paying product fees to racing bodies to ensure returns are made to industry participants.
2011 Racing Victoria commissions a substantial report into how corporate bookmakers and betting exchanges pay product fees to racing bodies. The report, authored by Peter Yates AM with PwC recommends that product fees be calculated on the basis of a Revenue Model. This report confirms our preferred payment model for product fees to racing bodies.
2012 Betfair and Sportsbet participated in court proceedings against Racing New South Wales. There were two separate arguments that were being pursued by Betfair and Sportsbet that ran in parallel. Sportsbet opposed the payment of any fee to racing bodies. Betfair on the other hand made no claim that there was no requirement to pay a fee, rather, we made a submission that metric for calculating the fees should be differentiated for betting exchanges. On both arguments, the High Court found in favour of New South Wales. A summary of the judgement can be found here; http://www.hcourt.gov.au/assets/publications/judgment-summaries/2012/hcs12_2012_03_30_Betfair.pdf
2012 In response to High Court decision, Betfair is forced to pass on some of the cost through an increase in Commission for all Australian racing jurisdictions. The new rate of 6.5% and is higher than overseas racing and all sports.
2012-2017 Betfair continues to work with racing bodies around an equitable pricing metric for the betting exchange. Racing Victoria, which previously employed the turnover model in line with RNSW, announces the adoption of a 35% Revenue Model with respect to betting exchanges in 2015.
2015 Betfair introduces a variable market base rate (MBRs), to reflect the different pricing mechanisms across Australian racing jurisdictions. Racing Victoria, on a revenue model, move from 6.5% to 6% with Tasmania and South Australia. Jurisdictions on a Turnover metric, WA, QLD and NSW move to 8%.

Following introduction of the variable MBRs, Betfair redefine the Turnover Charge to ensure minimal applicability.

 

End of 2016

Queensland shift to a 35% Revenue Model in line with Racing Victoria. As a result of the change Betfair is able to reduce the MBR for all Queensland products to 6%. This equated to a reduction of RQLD Commission of 25% for Betfair customers. Since the change Racing Queensland wagering volume has seen exponential double-digit growth with Betfair.
2017 The NT Racing codes adopt a Revenue Model in line with RQLD and RVL.
July 2017 Racing NSW increase their prices by 33% for Standard Racing, making it the most expensive racing in the world for Betfair. Betfair respond by introducing a new market base rate of 10% and a Racing NSW Turnover Charge.

We would welcome any feedback or suggestions that you have about our announcement, and what we can do together to support a betting exchange in Australia. You can get in touch with us here: racingnswchanges@betfair.com.au.

View Betfair’s Media Release with regards to these changes.