Thursday, February 02, 2017

"... one more step towards the abyss"

I've been thinking about prize money for a while, and the Pegasus World Cup Invitational has really focussed the mind.  We used to have sweepstakes, when all the entry fees (ie stakes) would go into the pot into which the racecourse had already put a specified amount, eg the race had '£3,000 added to stakes'.  So if there were £1,000-worth of entry fees, this race would be worth £4,000.  The alternative was a 'plate', in which the racecourse merely said that the race would be worth such and such.  It's semantics, really, whether one says for a plate (or a 'guaranteed sweepstakes') that the racecourse varies its contribution depending on the total amount of the entry fees, or that it puts up the prize but keeps the entry fees.

We only have plates nowadays (ie all races are 'guaranteed sweepstakes') and by and large the change to this system around 20 years ago was quite a good stealth tax as the values of races mostly dropped.  It was sold to us on the (questionable) idea that people like to know in advance what the race would be worth (because, obviously, previously one only knew the race's exact value once the declarations had been taken, because the entry fees are not charged for horses who are eliminated).  But really the change's principal appeal was to the racecourses, because it made it hard (but not impossible) to work out how much or how little they were contributing.

This has come into focus recently with the best scam of all: the Pegasus World Cup Invitational.  The racecourse (Gulfstream Park) guaranteed a total prize fund of a whopping twelve million dollars - but said that the entry fee was a million dollars, and the race wouldn't be run unless there were twelve entries.  Great wheeze, eh?  The Australian Turf Club have come up with something similar now with the $10 million 'The Everest' although in its defence one should point out that it could find itself putting up $2.8 million: it won't run the race unless it receives at least 12 entrants at $600,000 each, so if it gets just the 12 there will be a shortfall of $2,800,000.

What is my point?  Well, the reason why I've been mulling over prize money is because since the JCR bombshell I've been puzzling over the supposed half-billion-pound ten-year investment.  I couldn't see how this could possibly be the case, but then Tom Kerr did a very good job in the Racing Post of showing that it basically meant that JCR would be keeping on keeping on.  But even that doesn't really explain this too-good-too-be-true extravaganza.  Firstly, how can this 'investment' be dependent on Kempton being sold?  If Kempton were to be sold for, say £100 million, we'd be starting by having made an investment of minus £100 million (ie having sold an asset worth £100 million).  Therefore, to make a net investment of £500 million, they would have to have invested £600 million (ie reinvested that £100 million to take their investment back to zero, and then invested a further £500 million on top of that).

See what I mean?  The way it has been sold to us is (presumably deliberately, because - one hopes - they aren't idiots) very misleading.  If I'm a breeder with a herd of broodmares, if I get my hands on some money, go to the December Sale and buy another broodmare for 100,000 guineas, I have invested £105,000 in my stud by increasing the value of the broodmare band by that amount.  But if I go there and sell a broodmare on the first day for 100,000 guineas - ie realise an asset, or make a negative investment of 100,000 guineas - and then buy a different mare on the second day for 100,000 guineas, I haven't invested 100,000 guineas in my broodmare band: I have kept my investment in broodmares the same (in fact I've reduced it because what I have received is less than I have paid, because of Tattersalls' commission) and merely partially altered the composition of the herd.

In the same way, if you sell one racecourse and build another to replace it, the money you spend on the replacement is not an investment.  In fact, whatever you do with the £100,000,000 which you have realised by selling an asset you are not investing it: you are either reinvesting it or taking it out of the business.  JCR knows this perfectly well.  It claims that "we reinvest all our profits into the sport".  That's accurate.  It knows perfectly well that if one transfers £100,000,000 from the register of assets into cash, one has made neither a profit nor a loss.  And that if one then spends that cash on £100,000,000 of assets, one has still ended up doing nothing other than maintaining the status quo: one has temporarily reduced the value of the assets in one's register by £100,000,000, and then redressed the situation.  They know this: they're not idiots, even if they seem to think that we are.

But why have I been mulling over prize money?  Well, that was the other thing that was bugging me.  One doesn't have to know much about accounting to know that the costs of putting on the race-day, eg staff costs, prize money etc., are not filed put under 'investments' but under 'operating costs'.  And what are the prize-money costs of putting on the raceday?  I have recently read and hugely enjoyed Peter Corbett's second book, 'Bahram & the Aga Khan III'.  When we had proper sweepstakes, we knew what the racecourse had added to the stakes (ie entry fees) (although we didn't really, as we didn't know whether that money was added by the racecourse or added by the sponsor).  But now we don't know anything unless we do the research - which Peter has done:-

"For example in 2015 the Two Thousand Guineas was advertised as £450,000 guaranteed.  However, by declaration time £419,000 had been paid by owners in forfeits!  Not much left for the racecourse and the sponsors: Qipco to find. Why can't racecourses return to the days when races were advertised as say, £200,000 added to stakes?  If Newmarket had done this in 2015 then the race would have been worth £619,000 and the winner would have received about £354,000 instead of £282,841."  Anyway, it would be interesting to know whether this mythical half-billion investment includes £450,000 for each running of the 2,000 Guineas; or £31,000; or £31,000 minus whatever Qipco's contribution was; or zero.  Nobody is expecting JCR to invest half a billion pounds over a ten-year period, irrespective of what happens to Kempton.  That would be impossible.  It's just hard to swallow that the whole Kempton/Newmarket AW scheme could be sold to us on the untrue basis that this is what would happen if the sale were to go through.

That's probably enough of my fairly convoluted ramblings.  But I'll throw two more observations into the mix, one passed to me last week by Sir Rupert Mackeson and the other gleaned from Robin Oakley's current column in 'The Spectator'.  Sir Rupert called me to recount a conversation which he had had a few years ago with the late Nigel Clark at Kempton Park; when Sir Rupert offered the opinion that he could see the way things were going, and that he could see the place ending up as housing, Nigel Clark had replied, "That's impossible - there's a covenant on the place".  While Robin Oakley opines:-

"Killing off one of London's two remaining jump tracks cannot possibly boost the sport.  Levies or Racing rights will not produce funds for ever: to sustain the sport long-term, racing needs people to come and watch it.  I have been a lifelong devotee of the sport because as a boy I used to wheel my bike down the road, prop it against the fence and stand on the saddle to watch horses thundering by, the jockeys in their multicoloured silks shouting at each other and the crescendo from the distant stands building.  Hurst Park, just across the Thames from Kempton, was sold off for housing in the 1960s.  If the Jockey Club chooses to do the same with Kempton, racing will take one more step towards the abyss."

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