New Betting Taxation for 2003

Gross Profit Tax

The BHB

  On Course Betting

The BHB are to charge on course bookmakers 10% Gross Profit Tax as from 1st April this I believe is iniquitous and rather like the recent proposed increase in data charges to the press is way over the top.

The BHB if successful in their claim will leave British Racecourses without bookmakers since they bet to far less than 10%. Which is perhaps what the multiples envisage.

Here is a letter to Richard Page M.P.giving a chronological oversight into The NAB Chairman's dealings with the BHB

                 The NATIONAL ASSOCIATION of BOOKMAKERS L TD

CHAIRMAN: John Stevensm SECRETARY: Brian Newlan

Richard PageM.P 

House of Commons

London SWIA OAA.

16th January 2003.

Dear Mr. Page,

Thank you for your letter of 14th January in which you raise a number of points which I will address below.

  The disappointment of racecourse bookmakers stems primarily from the fact that payments by off-course bookmakers have increased by less than 50% whereas those by racecourse bookmakers will have escalated from £100,000 in 1999 to in excess of £2 million under the new data charge proposals. In contrast in the last 18 months off­-course business has expanded by 40%, much of it in higher margin betting platforms whereas the business of racecourse bookmakers has declined due to the elimination of off-course betting tax and the rapid expansion of betting exchanges.

  With respect to my allegations that racecourse bookmakers and others, such as spread betting firms, were specifically excluded from negotiations which determined that pre race data would cost all bookmakers 10% of gross profits my recollections, backed by hard written evidence, are crystal clear. The BHB publication dated 26th July 2001, "Commercial Policy to Bookmakers", proposed to charge all bookmakers across all channels a fee of 1.5% plus VAT of gross betting turnover for pre-race data from 1 st May 2002. This proposal was completely unrealistic. As a consequence of the refusal of the BHB to move it's position no progress was made in negotiations between the two parties. Without agreement the betting shops would not have been able to cover UK racing and this would have had fatal consequences for the racing industry and the BHB. In addition the bookmakers embarked upon seeking a Judicial Review.

  As a consequence minds on both sides were concentrated. Chris Bell (Ladbrokes) contacted Peter Savill in March 2002 with a view to opening further discussions. Initially Peter Savill agreed to meet only representatives of the 'Big 3' but it was pointed out that the Chairman of the Bookmakers' Committee (Warwick Bartlett) should also be present. Peter Savill agreed on the condition that he would only meet the above four bookmakers. This meeting was held at the Hilton Hotel on 26th March and was followed by a further meeting on 28th March at which Nigel Smith (BHB Commercial Director) also attended. At these meetings a number of decisions were agreed including that a 10% gross profits data charge should be paid by all bookmakers. 

The outcome of these meetings was circulated to members of the Bookmakers' Committee and discussed at a meeting of the Bookmakers' Committee on 5th April 2002 and ratified at a later meeting held on 15th April 2002 by a majority of 8 : 4 which under the Bookmakers' Committee Constitution was a virtual certainty. Thus, the NAB was specifically excluded by the BHB from taking part in the negotiations which led to the decision concerning the 10% gross profits tax although we were informed of this decision by the Bookmakers' Committee when it was a fait accompli. However, at no stage was the NAB allowed to be involved directly with the BHB in these negotiations. Since Warwick Bartlett was also the Chairman of the British Betting Offices Association (BBOA) which represents small independent off-course bookmakers it is clear that the interests of all off-course bookmakers were represented in negotiations with the BHB and that racecourse bookmakers were not represented.

 With respect to your point about statistical support for my figures concerning the financial impact of the BHB's proposals there is abundant evidence. In my original letter of 28th December there was a serious misprint in that the estimated data payments by racecourse bookmakers should have read £2 million. This stems from the BHB's estimates of £2.2 million although my personal view is that the dynamics of the situation will ensure that the actual amount raised will be less. The figure of 30% reduction in net profits is derived from two sources. Firstly from a survey of 10% of racecourse bookmakers and secondly the certified accounts over three years of 15 prominent racecourse bookmakers which have been submitted to the Office of Fair Trading. Because of the confidential nature of this information no copies have been kept on record.

Concerning your point about the time span between the agreement being reached and the complaints of racecourse bookmakers I have the following comments,

a)      At the present time racecourse bookmakers have not yet had sight of the BHB pre-race data contract. An initial draft which was sent to the NAB on 17th September 2002 contained so many elementary mistakes that it had to be withdrawn immediately. Since this date, in spite of many promises, no contract has been forthcoming. You will appreciate that it is very difficult to complain about a contract that does not exist.

        b) In spite of the above point the NAB has been aware since April that it was the intention of the BHB to charge racecourse bookmakers   10% of gross profits for data although this charge was to be abated for the majority of bookmakers. For example, bookmakers earning less than £75,000 gross profits were to be given some relief from the charge. This was confirmed in a letter from Nigel Smith dated 29th April 2002 (see Appendix 1) and by John Brown of William Hills acting in the capacity of Chairman of the Bookmakers' Committee on 5th April 2002 (see Appendix 2).

This relief was to be determined by the formula   X x 10% divided by £75000

                                                                    where X = gross profits.

Using this formula a substantial number of bookmakers would have paid less than

10% of gross profits. However, at some point there was a change in the strategy of the BHB of which I was informed in a letter from Nigel Smith dated 13th September (Appendix 3).

  The contents of this letter revealed two changes. Firstly, gross profits were to be charged on the disaggregated basis of not allowing losses at one racecourse to be offset against profits at another. Thus a bookmaker having gross profits of £80,000 at winning racecourses and £16,000 losses at other racecourses would have to pay £8,000 out of gross profits of £64,000, representing 12.5% of gross profits. The price of getting this 'per pitch' provision rescinded was to be the NAB's agreement to the payment by bookmakers of 10% of gross profits to the Levy Board for the period of the 42nd Levy (2003 - 2004). Secondly, the relief given by the formula above was to be on a per diem basis which completely negated the original intention of giving relief to bookmakers earning less than £75,000. A final turn of the BHB screw emerged in October 2002 when it became apparent that the BHB was not prepared to take hedging into account when calculating gross profits. The effect of this would have been that a bookmaker who was prepared to lay a bet of £5000 to £1000 with the intention of hedging £4000 to £800 would not be prepared to lay such a bet to the detriment of the strength of the ring. In the event of such a bet losing the bookmaker would have been 'taxed' on the whole £1000. It was only when we made it clear that this was the final straw that the charge was dropped.

c) Because the 42nd Levy Scheme had to be concluded by 31 st October 2002 the NAB reluctantly agreed under duress to agree to the proposals of the Bookmakers' Committee that all bookmakers should pay 10% of gross profits for data rights.

Without this agreement the Bookmakers' Committee was not prepared to agree to the aggregation of racecourse gross profits for the purpose of calculating the 10% gross profit levy. Further, without agreement racecourse bookmakers would have been outside the levy scheme and would therefore have had to pay V AT on the

10% levy.

You will appreciate that the contents of my letter of 28th December only scratched the surface of my complaint. Similarly, more can be said than is contained in this letter. I

would be pleased to expand on any of the above points by visiting the House of Commons at any time. In particular I will be in London on 22nd January and 4th February. Please feel free to distribute this letter to any interested parties

 Yours faithfully,

John Stevenson

CHAIRMAN.