EMHF - Positive EU decisions give cause for optimism

POSITIVE EU DECISIONS GIVE CAUSE FOR OPTIMISM      There have now been no fewer than five European Commission decisions, over the past five years, which have given the green light to member states wishing to introduce state aid in favour of their horseracing industries and which should be of great interest and encouragement to a number other European racing industries. If lessons can be learnt from these cases, this may help the racing industries in other European countries construct the arguments necessary to follow suit, thereby improving the financial health of our sport across the region.    Racing authorities the world over are engaged in conversations with their governments, seeking to establish, protect, or maximise statutory funding for horse racing as well as to safeguard the future health and stability of the industry and that of the breed. Normally, this funding takes the form of a statutory return to horseracing from betting.    So, typically, the racing authority must first provide good arguments to answer the question of why government should support such a guaranteed return to horseracing from betting (which would normally constitute special treatment for the sport). Then, in many cases, a further question has to be successfully answered: “Why should Government feel confident that objections on the grounds of state aid will be overcome?”    These five decisions – relating to France and Germany (in 2013) and to the UK, Finland, and Denmark (last year), are examples of racing authorities not only having convinced their governments to provide such assistance, but also of their governments having successfully argued before the European Commission that the measures introduced constituted ‘compatible’ (ie admissible) forms of state aid. These decisions should be of interest to those racing industries that either:    have no current statutory support, but where their government either allows, or is contemplating allowing, betting operators independent of the sport to take bets on their racing, or    have statutory support, but where the level of that support can be demonstrated to be insufficient to sustain the country’s racing industry, and/or the terms of that support can be shown to be in some way unfair.    The causal factors behind the measures being introduced varied substantially between the five countries, as indeed did their context, in terms of each country’s betting and racing ‘landscape.’ In three countries – France, Germany, and Denmark – the catalyst was a liberalisation of betting to end a previously existing monopoly. Of these, in the cases of France and Germany, the trigger for this liberalisation had been an adverse view taken by the European Commission of the restriction on trade that the monopolies had created; in Denmark, the move was voluntary and sought to revitalise betting interest in horse racing. By contrast, in Finland the pre-existing monopoly was retained – but the scope of betting activity within that monopoly was widened. And, by contrast again, in Britain there already existed a highly liberalised gambling regime – it was the circumvention of the rules by betting operators that provided the impetus for change.    The level of support approved has varied somewhat. In the pioneering French case, a levy of 5.6% of stakes was applied to online bets on domestic horse racing, divided up pro-rata between the three codes – Flat, Jumps, and Trotting. In Germany a tax was placed on domestic and foreign betting operators (fixed odds and Tote) of 5% of stakes on German horse racing (Flat, Jumps, and Trotting). In Great Britain, a levy of 10%, not of stakes but of ‘Gross Gambling Yield’ – ie the difference between stakes placed and winnings returned to punters, above a de minimis threshold of £500,000 per annum – was applied to all bets placed, whether in Britain or elsewhere, on British horseracing (Flat and Jumps). In Finland, an allocation of 4% of the proceeds of a newly formed state monopoly (which covers all forms of legal gambling – lotteries, pools, betting games, slot machines, casino games, and totalisator bets) was directed to horse breeding and equestrian sports (of which the horseracing element only comprised trotting, since there is no gallop racing in Finland). And in Denmark what has been introduced with effect from January 1st of this year is an 8% levy on all betting companies’ turnover from betting on Danish horse racing. All Danish racecourses (the only gallop track being Klampenborg) benefit. This is to replace, in a phased manner over five years, the current 21.25% cut of on-course turnover which each course has been receiving.    Without exception, all five arrangements were deemed to constitute ‘State aid.’ The definition of state aid that was applied can be found in Article 107(1) of the Treaty on the Functioning of the European Union (TFEU). This states that “any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market.”    None of the five governments contested the fact that the measures they were proposing indeed constituted state aid. Why, then, did the commission approve them? For the answer, in all five cases, we must look first to the pioneering French case, which has profoundly influenced all those that have followed.    As Christian Maigret, the finance director of France Galop, recalls, it was a protracted process: “In fact, the parafiscal levy on online horse racing betting took a very long time to be instigated because of the discussions between the French government and the EC on the legal nature of this tax and on the financial statements to justify the tax.”    The first attempt – which pinned hopes on it being exempted from state aid restrictions on the grounds that it constituted ‘public service compensation – was rebuffed by the commission, and the French authorities were required to re-think and re-submit their application on different grounds.    Two years later the French government instead proposed their levy as “aid to an economic sector, namely the horse racing and equine industry, based on the common interest that the PMU and competing online horse-race betting operators have in organising horse races on which bets are placed.”    By doing this, they were effectively pinning their hopes now on the applicability of Article 107 (3) (c), which effectively exempts “aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest.” It is a reliance on this exemption that all four of the other countries have subsequently taken.    To qualify under this get-out clause, “an aid measure must pursue an objective of common interest in a necessary and proportionate way.” Testing for this involves balancing the “positive impact of the measure….against its potentially negative side effects, such as effect on trade and distortion of competition.” First, it should be demonstrated that the measure aims at a “well-defined objective of common interest.” Second, that is it well designed to do so and, significantly, “that the same change in behaviour could not have been achieved with less aid.” Finally, the distortions on competition and the effect on trade are quantified, in order to assess whether the overall balance is positive.    The commission considered that the French levy had four common interest objectives – making equitable, as between betting operators, the burden of funding horse races; contributing (through the liberalisation of online gambling) to the emergence of (a) a legal framework and (b) legal structures for online gambling, thereby increasing legal certainty and clarity for all those involved and, finally, “promoting the rational development of equidae production and breeding.”    It found the scheme to be appropriate, in that it “prevented the PMUs competitors from obtaining a share of the online betting market without contributing to the costs of organising horse races.”    It further found the amended scheme to be ‘proportionate’ and compliant with the principles both of freedom to provide services and of non-discrimination. This followed a number of important concessions that had been made since the initial application. For example, the costs to be recovered by the levy (i) only now included ‘premium races’ – ie those on which anyone could bet, whether in France or abroad, as opposed to those on which there was only on-course betting – and (ii) excluded the breeders’ premiums which are only paid to breeders of French-bred horses. As a result of the re-calculation, the rate of levy had reduced from the original 8% to 5.6%. A number of checks and balances had been volunteered also, to prevent the chance of the agreed ‘common interest costs’ being exceeded.    The commission authorised France’s parafiscal levy on 19th June, 2013.    Subsequent commission decisions have confirmed its conclusion that the support of horseracing is a worthy aim and, properly constructed, will be deemed by the commission an “objective of common interest.” It is worth contemplating precisely why EU decision makers should consider that racing is worthy of such treatment.    There are a couple of golden nuggets, within EU legislation, which have been of crucial assistance to racing’s cause. Hidden deep in the sands of EU publications they may be – but nuggets they certainly are.    The first can be found in Council Directive 90/428/EEC within which there are two crucial paragraphs:    Whereas in order to ensure the rational development of equidae production, thereby increasing productivity in the sector, rules governing intra-Community trade in equidae intended for competitions must be laid down at Community level;    and    Whereas trade in equidae intended for competitions and participation in such competitions may be jeopardized by disparities existing in the rules concerning the allocation of a percentage of the prize money or profits for the safeguard, development and improvement of breeding in the Member States; whereas introducing free access to the competitions presupposes harmonization of these rules;    The French authorities drew from these two statements the following conclusion:    The Directive on trade in equidae intended for competitions…recognised the interest in ‘ensur(ing) the rational development of equidae production’ and encouraging ‘the safeguard, development and improvement of the breed.’    The commission clearly agreed with this interpretation, and the above passage of text has provided the bedrock for all five of the decisions – in each of which the self-same wording can be found somewhere in the text! Thus, the snowball effect of precedent in EU law is evident.    The Finnish decision is perhaps the most helpful of all to racing authorities in this regard, in that this aim of the ‘rational development of equidae production’ was their sole objective cited – and proved sufficient, in and of itself, to be considered of common interest.    The second helpful reference can be found in the European Commission 2011 green paper on online gambling in the internal market, which says that    a specificity of horse racing compared to other sports is that its primary attraction is for gamblers. Thus, to a greater degree than other sports events, its viability will depend on sufficient proportions of gambling revenues being reinvested into the activity.    Again, this quotation was cited in the French decision and has been called upon in subsequent cases. The inability of horseracing to fund itself without a return from betting was noted by both the German and Finnish governments.    But these observations could be said to beg the questions of whether or not horse racing is (a) a worthy recipient of financial support and (b) dependent upon income from betting, why should the betting industry be required to provide such support? In brief, the commission has accepted the fact that there exists a symbiosis between racing and betting, stating in its German decision: “both bookmakers and betting platforms benefit equally from the organisation of horse races by offering betting products based on the results of horse races. They felt the Danish measures appropriate, in part because they would ensure ‘a fair distribution of the financial burden (of organising horse races) between the betting and the racing industry.”    So the above two quotations in bold type, derived from EU documents, can be seen as the foundation blocks upon which a racing authority may build its case for support, whatever the specifics of its proposed funding arrangements.    Another staple observation made by the commission when arriving at its verdicts has been that “the Commission has consistently declared compatible with the internal market tax measures applied to enterprises of a certain sector that aim at financing collective activities that would benefit the entire sector.” Although not confined in its scope to horseracing, this is another point that racing authorities would be well-advised to include in any case they construct.    While the argument about the importance of horse racing has seemingly been won, it can do no harm to underline the main reason why the development of the equine sector – as opposed to, say, the development of the gastropod sector through competitive snail racing – is considered worthy and important.    The French authorities noted the scale and geographical spread of the industry, which was said to employ 74,000 people, “present in every region of the country.” Finland claimed that the equine industry “employs some 15,000 persons full-time and part-time” and “plays an important role in the development of agriculture and other rural livelihoods, besides being important for the vitality of rural areas.” Horseracing is one of the most labour-intensive and job-creating of the equine pursuits. Further helpful data, for example from economic impact studies in Britain and Ireland, can be found on the new Global Reference Library feature on the International Federation of Horseracing Authority (IFHA) website at    http://www.horseracingintfed.com/Default.asp?section=Resources&area=12   .    It is important that the measures proposed can be shown to be ‘fair.’ For example, the German decision talked of ensuring “an equal distribution of the financial burden between all horserace betting operators” and “the creation of a level playing field.” And, if their effect is to liberalise the betting market and enhance competition, so much the better, since this is consistent with the principle of freedom to provide services.    There are limits, however, to the amount of support that will be considered acceptable. In the British decision, for example, the commission states: “The amount of the aid must be limited to the minimum needed for the common interest objectives to be met.”    It then becomes incumbent upon the applicant to show that the funds raised will not exceed the costs – or that, should they do so, there are mechanisms by which the surplus can be repaid. Defining the “costs for the organisation of horse races” then becomes a critical task. What is allowable and what is not?    The organising of races, drawing up and enforcing the rules, anti-doping and anti-match fixing measures, arranging the necessary facilities by maintaining and building racecourses, selecting horses, providing occupational training and social welfare for those in the industry, and equine veterinary science and education are all elements that have been accepted. But other factors, such as capital expenditure on the racecourses and, crucially, prize money, have also been successfully included.    Legitimate aims include the provision of a sufficient number of races and sufficient field sizes to excite the interest of punters. And having healthy levels of prize money has been accepted as a prerequisite to achieve these aims. The commission has stated that “prize money, integrity and veterinary science and education…are essential for the sustainability of the horse racing industry, notably the number of horses in training, the number of owners, core industry employment and field size.”    In calculating the necessary level of prize money, Britain looked to a ‘basket’ of competitor national racing industries – those of Ireland, France, and Australia – and calculated their respective average prize money levels per race. This was posited as the ‘optimum’ figure, and a total required level of prize money then calculated, given Britain’s current number of races run. Britain’s actual prize money levels were then set against this optimum figure, and the shortfall calculated. This shortfall then became one element – alongside racecourse costs (including finance and capital) and veterinary research/education – within a total figure of required funding for a sustainable racing sector. The commission accepted this as a reasonable calculation.    I would encourage racing authorities to read these judgments in full before, where appropriate, approaching their governments, emboldened by their findings.       SEMINARS ON THE NEW INTERFERENCE RULE – A BIG STEP TOWARDS HARMONISATION    The EMHF is very keen to see a new model rule in the international agreement adopted by all its members. This would mean that trainers, and others, will know that, wherever within our region they may be racing, cases of interference will for the first time be approached on the same basis by the stewards. The model rule reads as follows:    If, in the opinion of the Staging Authority’s relevant judicial body, a horse or its rider causes interference and finishes in front of the horse interfered with but irrespective of the incident(s) the sufferer would not have finished ahead of the horse causing the interference, the judge’s placings will remain unaltered.      If, in the opinion of the Staging Authority’s relevant judicial body, a horse or its rider causes interference and finishes in front of the horse interfered with and if not for the incident(s) the sufferer would have finished ahead of the horse causing the interference, the interferer will be placed immediately behind the sufferer.      Racing Authorities may, within their Rules, provide for the disqualification of a horse from a race in circumstances in which the Staging Authority’s relevant judicial body deems that the rider has ridden in a dangerous manner.      As signalled in the last edition, following the IFHA’s decision last October to introduce this model rule, two hastily arranged EMHF seminars were delivered on this subject in January by Denis Egan, chief executive of the newly named Irish Horseracing Regulatory Board (IHRB), and senior members of his team. The first, at the IHRB’s Curragh headquarters, attracted delegates from Germany, Greece, Czech Republic, Slovakia, and the Netherlands. The second, in Stockholm, was attended by a further 30 or so stewards and others, mainly from Scandinavia.    The seminars were very well-received and no unexpected impediments emerged that would indicate that a united European adoption of the above ‘Category 1 approach’ could not be a reality by the end of the year.      EMHF MEETINGS    The EMHF holds two regular meetings annually – a general assembly, and a meeting of our executive council. We are looking forward greatly to visiting two new countries on our roster of hosts. Our general assembly will take place at Athens on Sunday, April 22nd following racing at the city’s Marcopoulou Racecourse on the day prior. Then, our executive council members will be hosted by the Jockey Club České republiky (Czech Jockey Club) on Sunday, 9th September and will get the chance the previous day to race at Pardubice racecourse, home, of course, to the famed Velka Pardubicka steeplechase.      CALENDAR OF TOP RACES ACROSS OUR REGION    ‘Equine Tourism’ is an established term – indeed, it was the subject of a conference last July at the European Parliament, organised by the MEP Horse Group in conjunction with the European Horse Network. What this term means to most people is travel to different destinations in order to ride horses. But another legitimate form of ‘equine tourism’ is going racing while on holiday. I believe this is an underdeveloped theme with great potential. Many racing fans would like to take in a race meeting while on vacation, and some would even construct their holiday specifically around a series of race meetings. But accessing the racing programmes of every racecourse in order to construct practicable itineraries takes time and effort. The EMHF website features what we believe to be the only resource showing the location of all racecourses staging thoroughbred racing across our region. (Click on a flag on the home page and it will take you to a map of the country, with the racecourses shown.) This makes for a good starting point for research, but a longer term ambition would be to link this with fixture lists, so as to be able to show where racing is to be staged on any given day.    As a first step, we recently asked our members to submit the 2018 date of the ‘top race’ of their calendar. (We left it to them to decide how they selected their ‘top race.’) There is now a new feature on the site ‘Top Race Dates’ (under the EMHF News Tab); go to    http://www.euromedracing.eu/top-race-dates   , which shows the selected races by country. Below is the same table by date. Perhaps it will inspire you to visit new racing venues, or to encourage your owners    to race horses there.

EUROPEAN EDITION - ISSUE 61 - APRIL TO JUNE 2018

By Paull Khan

There have now been no fewer than five European Commission decisions, over the past five years, which have given the green light to member states wishing to introduce state aid in favour of their horseracing industries and which should be of great interest and encouragement to a number other European racing industries. If lessons can be learnt from these cases, this may help the racing industries in other European countries construct the arguments necessary to follow suit, thereby improving the financial health of our sport across the region.

Racing authorities the world over are engaged in conversations with their governments, seeking to establish, protect, or maximise statutory funding for horse racing as well as to safeguard the future health and stability of the industry and that of the breed. Normally, this funding takes the form of a statutory return to horseracing from betting.

So, typically, the racing authority must first provide good arguments to answer the question of why government should support such a guaranteed return to horseracing from betting (which would normally constitute special treatment for the sport). Then, in many cases, a further question has to be successfully answered: “Why should Government feel confident that objections on the grounds of state aid will be overcome?”

These five decisions – relating to France and Germany (in 2013) and to the UK, Finland, and Denmark (last year), are examples of racing authorities not only having convinced their governments to provide such assistance, but also of their governments having successfully argued before the European Commission that the measures introduced constituted ‘compatible’ (ie admissible) forms of state aid. These decisions should be of interest to those racing industries that either:

  • have no current statutory support, but where their government either allows, or is contemplating allowing, betting operators independent of the sport to take bets on their racing, or

  • have statutory support, but where the level of that support can be demonstrated to be insufficient to sustain the country’s racing industry, and/or the terms of that support can be shown to be in some way unfair.

 

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