Racing set to pay cost of Lottery's success successposes

Greg Wood looks at how the Lottery is threatening the betting industry

The phrase "a licence to print money" is said to have been coined by Jack Banks, an on-course bookie, to describe betting shops when the off-course betting industry was legalised in 1961. It was heard again just over 30 years later when the National Lottery was conceived and launched, but it now seems that Britain has room for only one such licence, and that its new holder is a formidable opponent. As a result, the betting and racing industries are facing potential disaster.

This is the conclusion of a report commissioned by the Bookmakers' Committee from the Henley Centre, an independent research organisation, which is expcted to be published in the next few days. A summary of the report, which is currently circulating within the industry, predicts that if current trends continue and Government assist- ance is not forthcoming, loss of betting turnover to the Lottery will cause the closure of 2,000 of Britain's 9,300 betting shops, with a resultant loss of at least 6,500 jobs. Racing, meanwhile, which receives much of its funding via the Betting Levy on bookmakers' turnover, could face a massive shortfall of pounds 6m on its anticipated Levy turnover for 1995 of about pounds 50m.

Both the betting and racing industries were well aware before the launch of the National Lottery last November that it posed a threat to betting turnover. The scale of its success, however, seems to have taken all parties by surprise.

Although Banks's prediction has generally been borne out - Ladbrokes' acquisition of Hilton Hotels was the most obvious demonstration of the profits to be made - betting shops work to narrow margins. About 80 per cent of the average punter's stakes are returned in winnings - even if it feels like rather less - so the same money often moves back and forth across the counter (that is, turns over) many times.

Turnover must therefore be high and continuous if profits are to cover overheads. In 1994, total betting turnover in Britain was pounds 6bn, but the Henley report predicts a drop of 1.5 per cent in 1995 when, without the Lottery, an increase of 6.2 per cent would have been anticipated. Add the effect of higher overheads from evening and Sunday opening of betting shops, and the prediction of 2,000 closures does not seem far-fetched.

For racing, the effects of losing an estimated pounds 6m from its share of betting turnover could be disastrous. Although still underfunded in comparison with many other leading racing countries, the British turf has improved its finances significantly in recent years. Removing pounds 6m from prize-money and development programmes could send it into a vicious spiral of decline, making punters even less likely to invest in a deteriorating product.

Both racing and the betting industry are to lobby the Treasury for a reduction in betting tax in the next Budget, which would in theory stimulate turnover (the Henley report will form a vital part of the bookmakers' case). However, since the small punters who are the off-course bookies' most loyal customers already seem to have fallen for the appalling odds offered by the Lottery, it must be doubtful whether an extra penny or so off the cost of every pound staked would tempt many back.

An alternative, from the bookies' point of view at least, is to allow bets on the winning numbers in each week's Lottery draw. A similar scheme is very popular in Ireland, where the odds offered on getting, say, three correct numbers are much better than those paid by the official organiser. For all but the jackpot payout, in fact, bookmakers could offer much better odds than Camelot.

While this might offer relief to the bookmakers' employees and shareholders, however, it would do nothing for racing, since Levy is charged only on turnover on British racing.

The Henley report will make it clear how serious a threat now faces Britain's betting and racing industries. The licence to print money has been lost, and without it they now face a struggle to survive.