How Does the Regulatory Environment for Pool Betting Impact on the Financial Health of Horseracing Around the World?

Simon Bazalgette, the founding Chair of specialist management consultancy GVS EQ, and Martin Purbrick, a founding GVS EQ associate, take a canter around the world to see how betting regulation, and particularly pool betting, has a vital impact on the relative level of prize money, and therefore the financial health of the sport.

For the last century and beyond, Horseracing has had a symbiotic relationship with betting, and this remains the case in most countries – to a greater or lesser extent. As a result, the financial strength of each national horseracing industry depends on the way that betting is regulated and owned in that country. An understanding of a national regulatory structure for betting is vital for any understanding the wide variation of prize money in different countries.

Pool betting, also known as ‘Tote betting’ or ‘pari-mutuel betting’, has long been associated with horse racing. Tote betting was established in the 19th century and involves all the amounts bet combined in a pool, from which the operator takes a cut, then the odds are calculated based on the proportions wagered on each outcome. Totalisator odds are different to fixed odds in that they are not set until the race begins, no more bets are accepted and the total amount in the pool is finalised.

Tote operators were created to harness wagering to support the sustainability of racing, the welfare of horses, as well as employment for the large numbers of people involved in the sport around the world. Horse racing is a high cost and capital intensive sport to organise and operate, and requires considerable sustainable funding to survive. 

In markets with strong totes such as Japan, Hong Kong and France, racing generally does relatively well. In countries where other forms of betting have been licensed, racing can still do well if there is a fair balance of funding provided back to the sport from all types of betting. Australia would be a good example of this. In the US the position is rapidly changing from a pure racing tote market with the introduction of sports betting.

In the UK, the introduction of off course fixed odds betting in the early 1960s, with a relatively loose link to horseracing, has meant that British horseracing has lost pace with its fellow racing jurisdictions around the world when it comes to prize money and investment in the sport from the betting industry.

In South Africa and Australia there remains a mixed economy of fixed odds and pool betting. Australian racing has strong statutory support to ensure a meaningful percentage of betting revenues goes to horseracing ensures that prize money levels remain internationally competitive.

For many years there has been a steady but less than speedy process of the official totes connecting with each other to combine pools on racing – commonly known as commingling. There are several reasons for the slow progress, primarily the different bet types and conditions attached to similar bet types, but also the commingling technology (ITSP) which has been in place for more than 20 years but is still embedded in many heritage platforms. The most important development in commingling has been the World Pool, which is hosted by the Hong Kong Jockey Club. 

In addition to the main national or state totes, there are a number of private pool operators who offer access to the pools particularly for large international players who offer significant liquidity to the market.

Some countries, particularly the Gulf States, do not have licensed betting of any sort, and the sport relies mainly on the financial support of the state, the royal families and rich owners.

To a large degree, the level of funding available for horseracing is dependent on the level of support that national or state regulations provide, particularly with regard to funding from betting, and therefore any attempt to assume that success in one country can be used as a template for another should be treated with great caution.

Let’s take a high level look at what this means for the major racing jurisdictions.

France

The French pool betting market is around €9 billion annually, the profits from which are reinvested back into the sport. It is notable for its wide retail distribution through the vast network of over 20,000 tabacs (tobacco and convenience stores) in the country.

Pool betting in France is primarily controlled and run by the PMU despite attempts to open up the market over the last decade or so. The PMU returns all its benefits to the 66 French horse racing companies organising gallop and trotting races (France Galop and Le Trot), sustaining more than 60,000 direct and indirect jobs throughout France. 

In 2023, the PMU paid a total contribution of 835 million euros to France Galop and Le Trot. This financial contribution supported the operation of 233 racetracks and 26,000 horses in training.

Other types of betting operator have been licensed in France since 2010 but they remain heavily restricted and take only a very small share of the French horserace betting market.

Japan

The Japan Racing Association (JRA) is the custodian of horse racing and also tote betting at the national level. Pool betting on racing in Japan generated a betting turnover of over 2.5 trillion Yen (Euro 15 billion). The JRA is required to provide 10% of its gross betting turnover to the national treasury, as well as 50% of any surplus profits remaining at the end of the fiscal year. Three-quarters of the contribution must be used for improvement of livestock breeding and the JRA also contributes additional funds to horse breeding as well as the promotion of equestrian culture.

It is no coincidence that Japanese racing offers the largest pool of prize money in the world, given the JRA’s control of horserace betting in Japan under its vertically integrated sole licensed operator. Betting on other sports is also limited to only a small number of local sports such as bicycle, boat and motor racing.

The Japanese pool is restricted from commingling with other international pool operators, with only limited pilot trials having taken place to date. Typically this is driven by the presence of Japanese runners in overseas races, to allow Japanese punters to bet on these horses. When this does take place, it generally has a major impact because the level of Japanese betting will be significantly larger than the home pool.

Hong Kong

Hong Kong has vertically integrated racing and pool betting, operated by the Hong Kong Jockey Club (HKJC). It generates around HK$130 billion (€15 billion) in annual betting turnover, with the HKJC being the largest corporate taxpayer in Hong Kong, and operating one of the world’s largest and most active charitable trusts. All surplus funds after operating expenses are either reinvested in racing or passed to the HKJC Charities Trust.

Most recently, the HKJC has become the host of the most successful international pool betting initiative, the World Pool and involves a collaboration of over 25 racing jurisdictions allowing customers to bet into a single pool involving enormous liquidity. This enlarged liquidity ensures that there are less odds (price) variations in smaller betting markets and better value for all betting customers. In the 2023/24 racing season, there are 45 World Pool fixtures at racecourses around the world, and the number is likely to continue to grow.

By allowing international horseracing fans the ability to bet into one pool on the major group races around the world, it has created a significant additional betting revenue stream in other territories whereby, for example, racedays such as the Epsom Derby, Caulfield Cup and the Dubai World Cup benefit from the significant level of betting that can be generated. 

United States

In the US, betting is regulated at the state level and historically was limited to pari mutuel betting on horseracing.

Alongside this there were some examples of licensed casinos or slots which would usually be allowed only on racecourses or designated casino sites. Where a racecourse had such additional betting, it would significantly increase the level of prize money that racecourse could offer compared to other US racecourses.

The first Off Track Betting (OTB) service for horseracing was licensed in New York State in the 1970s, and rolled out in a number of states thereafter. These have been superseded by account deposit wagering services (ADWs). Horseracing remained the prime beneficiary of the OTBs and ADWs until in 2018 a Supreme Court ruling opened up the potential for states to licence fixed odds sports betting and almost 40 states have now done so to some extent.

US horserace pool betting is dominated by the two major racetrack groups - Churchill Downs (through its Twin Spires service) and the Stronach group (through their 1/ST and Xpressbet services). The two groups also own two of the major tote tech companies, United Tote (CD) and Amtote (1/ST). Churchill recently announced that NYRA (the racing operator in NY State) had completed its purchase of a 49% stake in United Tote.

Licensed betting on horseracing remains around $10 billion pa but betting on other sports has grown to over $90 billion pa.

United Kingdom

The UK has arguably the most competitive licensing environment for betting in the world. The UK Tote was created by Winston Churchill (a Jockey Club member) in 1926 as an independent body run for the good of racing; but unlike other countries, its betting monopoly was ended in the early 1960s with the creation of licensed fixed odds betting shops. Also unlike elsewhere, British horseracing was given no control over the off-course market, but instead a statutory levy was created to ensure that a small proportion of the profits from betting on horseracing was passed through to contribute to the financing of the sport.

Since that time, pool betting has had a declining share of the betting market and currently represents around 10%. The UK is dominated by fixed odds operators, and while British punters have the widest choice of competitive bets in the world, they also benefit from the highest return on bets in the world. This means that pool betting, with its higher take-out rates, struggles to match the pricing for fixed odds for simple bets, but is more competitive in so-called exotic bets, particularly the Place Pot.

The Levy is currently set at 10% of gross margin on betting on domestic horseracing, which, due to the highly competitive market and the low margins, is the equivalent of around 0.7% of betting turnover, amongst the lowest return from betting to horseracing in the world.

There have been various attempts to bring the Tote closer to racing, either through transferring its ownership to the sport, or through a preferential sale to racing, but these attempts have all failed. In 2011, the Tote was nationalised and then sold to the bookmaker group, Betfred, who sold it on to its current owners (which includes several large owners and breeders) in 2018. The UK Tote has had a commercial arrangement with the British racecourses (via their shared on-course betting company, Britbet) which is due for renewal in 2025.

Horserace betting remains at a significant level in the UK, c£5bn pa, second in Europe to France, but due to the difference to the regulatory structures, the amount transferred to the sport is significantly lower than in France.

Australia

Australia is arguably the best example of a mixed economy of pool and fixed odds betting, all of which provides significant funding back into horseracing. 

Each state and territory has its own regulatory authority for betting and racing. Betting is owned and run separately from the sport, and generates around €15 billion pa, which is pretty evenly split between pool betting and fixed odds.

Tabcorp Holdings, a public company, is the largest operator of pari-mutuel betting, running TAB-branded services across multiple states, and each state tends to have its own pool operator as well.

As in the UK betting operators are required to pay a proportion of their revenues to the sport, under what is known as Racing Fields regulations. The level required in Australia is significantly higher than the UK levy – typically between 1.5% and 3% of betting turnover - and allows Australian racing to offer prize money at the top end of international levels. 

Ireland

The betting market in Ireland has many similarities to the UK. Betting on horseracing is around €1.1bn to €1.3bn each year, with Tote Ireland representing a small proportion (6%-7%). Betting operators pay a government levy which is paid over to the horseracing industry via Horse Racing Ireland (HRI), usually between €80m - €100m pa. This funding supports the development and promotion of the industry, racecourse maintenance and annual prize money of around €65m pa.

South Africa

South Africa is a market with a mixed economy between the original pool operator (the SA Tote, owned by Phumelela, the largest racecourse group) and fixed odds operators. Phumelela has arrangements in place with the National Horseracing Authority of South Africa to support prize money and the promotion of SA racing in the country.

Pool betting on horseracing is around €400m pa and represents around two thirds of the market, with fixed odds operators growing fast.

Conclusion

The financial contributions to racing from totes are a critical part of the sustainability of racing, supporting a huge number of jobs in the sport. However, the regulatory and tax structure for pool betting varies considerably around the world.

Most countries will have started from a similar position of the tote being the only form of licensed betting as explained by Sir Winston Churchill: “I have always believed that it was a good thing for the State to organise the totalisator and take control of this form of betting in order to eliminate illegal practices and to ensure that a proper proportion of the proceeds went to public purposes.” 

The position in each country has diverged significantly over the last 100 years, and this means the impact on the funding for the sport is very different in each country. While there are areas of similarity, building greater collaboration between tote operators is a long road but one that can only benefit racing in the long term.

EMHF Racing Industry Survey

Article by Paull Khan

In this issue, we take a novel perspective on our region’s national racing industries. As well as looking at various measures of their scale, we will – perhaps for the first time – consider these in the context of the overall size, population and wealth of the countries in question. 

Let us look at the big numbers first. Our region boasts over 300 racecourses staging thoroughbred racing, between them putting on nearly 5,000 races and running over 30,000 races for prize money of nearly €600M. These races are competed for by nearly 30,000 owners, 4,500 trainers and 4,300 jockeys. The average prize money across all 21 countries is – perhaps surprisingly – as high as circa €19,000 and the average field size a very respectable 9.1 (runners per race). It is also noteworthy that those horses which race average over five starts per year.

We produce over 27,000 thoroughbred foals – representing nearly one in three of the global foal crop.

Before looking at how these figures break down between the 21 countries, let us consider the context within which each racing industry exists: how big, how populous and how rich is each nation?

An early observation is the enormous disparity in their size. Our largest racing nation is not a factor of 9 bigger than our smallest, nor of 90, nor even 900. The Channel Islands could fit into Libya nearly 9000 times!

Turkey and Germany boast the highest human populations, some way ahead of Britain and France. 

In terms of overall size of the national economy, Germany is some way ahead of Britain and France. But when we look at how this wealth is spread across the population, a very different picture emerges. The wealthiest average citizen is to be found in Norway, with Switzerland and Ireland filling the places.

With that backdrop, our respondents answered questions on the scale and nature of their racing in the following way.

France boasts twice as many thoroughbred tracks as any other country, and together with Britain, accounts for 60% of the region’s total. Five of our members – Channel Islands, Cyprus, Hungary, Netherlands and Norway have just a single active racecourse.

Many of the French tracks race infrequently and, when looking at the number of individual days’ racing offered, Britain is the clear winner, with nearly four meetings taking place every single day. It is a similar story with the number of races run.

As for total prize money on offer, Britain and France are well clear of the field, accounting between them for nearly 70% of the region’s overall pot. 

But when it comes to average prize money per race, Britain (€21,527) drops to third behind both France (€29,098) and Ireland (€23,676).

All nations strive for significant average field sizes, in many cases looking to 8 as the magic number. It is interesting to note that the region as a whole comfortably exceeds that target – the EuroMed average being 9.2 runners. It might be expected that Ireland sits atop this table, but the fact that Morocco shares this lead, with Libya a close third, will surprise many.

The figures confirm Ireland’s numerical breeding dominance, its foal crop almost equating to that of France and Britain put together. A striking feature of these tables is Turkey’s high ranking on many measures. Foal crop is a case in point – Turkey now produces nearly four times as many thoroughbreds as either Germany or Italy. The country also makes a top-four spot in number of race days staged, number of races run and prize money offered. There is an argument to be made that Turkey should now be considered as being part of the ‘big four’ of EuroMed racing.

There has been much discussion in recent years, around the European Pattern Committee table and elsewhere, about the need for Europe to bolster its staying and sprint divisions. Countries were asked how many flat races they ran (a) at distances up to and including 1200m/6f (which is how, for the purpose of this exercise, we have defined ‘sprints’; (b) at distances between 2400m/12f up to 3200m/16f (which we have termed ‘Classic+); and (c) of 3200m/16F or longer (which we have called ‘long-distance’).

Britain stages more than double the sprints of any other country. Before one gets to either France or Ireland, one finds Turkey, Cyprus, Morocco, Italy and Libya.

On average, the region allocates 18% of our races to the sprinters. It is noteworthy – and a complete surprise to the author - that France appears right at the bottom of this particular table, with only 4.8% of its races being sprints.

Italy leads the way in running races in the ‘Classic+’ category. Here, the average allocation is 13.4%. While France (15.1%) is slightly above that, both Ireland (6.6%) and Britain (6.2%) are well below this figure.

But when it comes to true long-distance races, Britain is a clear leader, staging more than half of those in the whole region. Half of our countries do not stage a single long-distance race. Percentage-wise, both Britain and Ireland give the same exposure to long-distance races, at 1.2% of the total.

So, to return to the question of relativity, let us look first at which countries have the highest and lowest density of racecourses. Specifically, we’ve calculated how many tracks each country has for every 100,000sq.km. Norway, with its sole racecourse, has the lowest density, with only one-third of a racetrack in each of its 100,000sq.kms.  The figures reveal that Ireland, Britain and France have a remarkably similar racecourse density, posting figures of 24, 26 and 31 tracks/100,000sq.km respectively. But the runaway winner in this category is little Channel Islands. For France to match its racecourse density, it would need to build more than 2,500 new racecourses!

We remarked earlier on Ireland’s preeminent position in the breeding sector. But when one takes the human population into account, the findings are staggering. If one looks at the number of thoroughbreds born annually per million of the population, Britain has 68 foals, France 88 foals, Cyprus is a surprise second with 121 foals, but Ireland is on a different planet, with 1367.

Finally, we ask how each country’s prize money allocation stacks up against its national wealth. In other words, how much of its Gross Domestic Product (GDP) does it spend on prize money for races? The figure we’ve chosen is annual prize money in Euros per $bn GDP. France and Britain come out near identical in third and fourth with €72K and €71K respectively. Ireland is comfortably ahead with €120K. But the runaway winner, remarkably, is Cyprus, which boasts £235K in prize money for every $bn of their national GDP.

And so, the answers to the quiz: Q1 You could fit 8,886 Channel Islands into Libya. Q2 Ireland and Morocco boast the highest average field sizes. Q3 France has the lowest percentage of its races that are sprints. Q4 Slovakia has the highest percentage of its races that are 2m/3200m+. Q5 Channel Isles has the most racecourses per square km. Q6 Ireland breeds the most thoroughbreds per million of its population. Q7 Cyprus devotes the highest proportion of its national wealth to prize money. Well done if you got those right!  

Sources: Country size data - Nationsonline.org (except Channel Islands, Wikipedia); Population data – worldpopulationreview,com (except Northern Ireland and Channel Islands, Wikipedia); GDP data – worldometers.info (except Northern Ireland, Channel Islands, Wikipedia); Exchange Rates – Xe Currency Converter. All other data – the Racing Authorities themselves.