Yes, there is a possible legal solution to racing’s financial problems | Trainer Magazine | European Trainer Article Index

Jun 30

Jun 30 Yes, there is a possible legal solution to racing’s financial problems

Horseracing costs money Funding is, by far, the most important issue for racing in the long run. Insufficient funding affects sales, number of horses in training, training fees, wages for staff, employment, maintenance of the tracks, and, in the end, the welfare of the horses and the quality of the sport. There are only a few possible sources for funding. Visitors to the tracks are growing fewer every year; people attend racing at the big events but in between they want to follow races through internet or television. Revenue from broadcasting is a small but secured source of income for the big racing nations, where the viewers are already attracted to the sport. Support from the government is not a reliable source and in most countries is considered to be political suicide in comparison to the public need for funding health care and education. However dedicated and involved we might be, we must never forget that racing belongs in the sector of “ nice to have ”, not “ need to have ”. The only realistic source of income is what we can get from betting. In most countries racing is funded to a certain extent by betting. The State’s interest in tax revenue. All States have a legitimate interest in obtaining tax to finance their needs and obligations towards their citizens. How much tax each state considers it requires for this purpose and what shall be covered with taxpayers’ money is not a legal issue but a political decision to be assessed by the people at each election. Typically, a system where a substantial part of the government’s expenses would be paid through a tax originating from betting would be rather easy to accept for the taxpayers, especially in relation to income tax or tax from owning real estate, including properties containing people’s private housing. It is also good for racing if it makes a substantial contribution to governments’ finances since the official attitude will then be very benevolent. Racing shall not only be a “ sport of kings ” but a sport for society as well. The EC regulatory framework and its values in relation to a regulated gambling market. EC regulations are based on the principle of free movement and non discrimination regardless of State of origin. If marketing goods or a service is legal in one member State it is automatically legal in all member states. Exceptions from these principles can be made for environmental or national health reasons, which are frequently used by Sweden. An accepted exemption from a principle is always diminishing the importance of the principle itself . The gambling market and restriction of free movement based on the public health argument. The idea of the European Common Market is based on the principle of free movement of goods, people, capital, and services, and on non discrimination regardless of country of origin. This free movement can be restricted for reasons of public health or if it creates a public danger in any other way. The restriction can be legitimate provided it is relevant, effective for its purpose, and designed in a proportionate way. The member States have historically had a wide range of interpretations of the public interest argument. In Sweden, the pari- mutuel gamble company, ATG, is among the five largest buyers of commercial advertising, with a total marketing investment of approximately €21 million per year. The public health argument –  gambling addiction – is by no means medically substantiated by a scientifically recognised method. To my knowledge, there are no official studies comparing gambling addiction in countries with a regulated gambling market as opposed to countries with a free gambling market. As a summary, you could say that it is only a question of time until the current situation is going to change, and without appropriate actions it will most certainly not be to racing’s advantage. This mutual need for a solution might be a blessing in disguise. The possible legal solution to racing’s financial problem. The enticement to invest into any business is related to one’s possibilities to utilise what comes out of it. This is nothing new. The farmer will not work the land and sow seed unless he is entitled to benefit from the harvest, which is the theory behind the whole intellectual property right including patent, trademark, copyright, and so on. Those who pay for tracks, horses, and training do not own the right to use what can be harvested from it. The right to arrange betting on the event is free for every betting company in the world, without any legal rights for those who have invested in the event. A sustainable solution to the problem must provide racing with substantial funding and ensure that the Governments tax income from betting without: q distorting competition between different forms of gambling; q creating exemption from EC principles of free movement of capital or services and non discrimination between different distributors in different countries; q creating severe limitations and control of the citizens’ free communication over the internet. With no existing functional solution, are we in need of a new, uniform legal construct and an adaptation of tax regulation and criminal law? Society has, for a long time, accepted that it is possible to own intellectual property such as scientific discoveries, artistic work, and commercial trademarks of different types. This is considered to be property over which the owner has a right to dispose. To apply the same theory on racing’s right to use the races for betting requires a legal construct which will be a new form of intellectual property , the right to provide betting which would belong to the person or organisation that organises a hazardous event which may be subject to gambling. The Organiser shall own the right to provide betting on the event. This shall not be restricted to racing but applicable to all sorts of events including internet poker; “It is only a question of time until the current situation is going to change, and without appropriate actions it will most certainly not be to racing’s advantage.” otherwise, racing will lose in competition to other such events. With the right to own comes the right to dispose and in consequence the business opportunities. An Organiser, free to dispose over its right to provide betting, has a choice to either provide betting itself or to licence that right, exclusively or non- exclusively, to an external betting company, the Provider . To protect the Organiser from intrusion on its property right, there will be a need for an adaptation of criminal law. As with all other infringements, it must be a criminal act to provide betting on an event to which the Provider has not acquired the right from the Organiser. A Provider that intrudes, without permission, on the Organiser’s exclusive right shall be obliged to pay severe and preventive damages to the Organiser and also, through criminal procedure, be convicted to a penalty. This is the same type of legislation that protects authors and commercial trademarks. The taxation on betting shall be paid according to the territoriality of the event and calculated based on total turnover. The country where the event takes place shall have the sole right to the betting taxation. If the betting is totally web-based, like internet poker, the location of the server defines the territory. Both Organisers and Providers shall be obliged to pay corporate taxes according to ordinary tax legislation. The Organiser shall be primarily responsible for paying the betting tax. If the Organiser has licensed the right to provide betting to an external Provider, it shall be sufficient to show proof of the licence arrangement to the government, and thereafter the Provider has the sole responsibility for paying the gambling tax. Punters who choose to gamble at events outside the EC area shall be personally obliged to declare and pay gambling tax. To withhold such income shall be considered an ordinary criminal tax offence and will be prosecuted within the country’s normal criminal procedure. What will a uniform European new legal construct and an adaptation of tax regulation and criminal law provide? The benefits from this type of system are numerous. The suggested legal construct does not violate fundamental EC principles since it not only allows free movement of capital and services, but is also non-discriminatory and even promotes free and fair competition between Providers (betting companies). The legal construct does not intrude on a person’s integrity and right to free communication, and it can be administered within normal well-known procedures used in connection with VAT, intellectual property, damages, fiscal matters, prosecution, and penalties. The risk of detection is fairly high for illegal providing of gambling since it is hardly possible to achieve a sufficient turnover in secret. The traceability is also good since for practical reasons, betting companies have extensive records and systems adapted to provide accounting.  The system allows the government to substantially increase its tax revenue from betting as well as corporate tax from Organisers and Providers within the country. The system will not only be beneficial to racing organisers but to all types of sports and athletes. What’s the catch? Who is going to pay if racing and the governments substantially increase their revenue? The answer to that question is the punters. They will still “win” but they’ll win less, which, if seen from the bright side, mitigates the risk for addictive behaviour. The difficulty is that to implement a new form of intellectual property is a huge political undertaking. It is a normal human reaction to be suspicious of and therefore reject any new ideas, regardless of how good they might be. The ETF does not have a lobbying organisation of its own, but its membership constitutes a vast network through owners, breeders and friends all over Europe and beyond. Let’s join forces and ensure a financial security for racing’s future.

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(European Trainer - issue 30 - Summer 2010)

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