Operating costs a mystery to NZRB

A new season and hope abounds.  So what do we know so far?  The Messara report has landed on Winston Peters’s desk and no doubt will be given due attention once he has dealt with small matters such as the ASEAN Foreign Ministers’ meeting in Singapore this week.

We do need to occasionally be reminded that while racing is front and centre of our minds at all times Winston has had other pressing issues to deal with as he was at the helm as acting PM for the past six weeks or so.

Patience dear readers, we will know what the report contains soon enough but what we need to hope is that this one, unlike the myriad prior, is acted upon quickly and completely.

As a media hound who believes the worst of everyone I couldn’t help but be moderately amused that the NZRB, with its usual tone-deaf timing, released its Statement of Intent 2019-2021 this week.

If you were someone relatively new to the industry or even somewhat less jaded than I am then you might find yourself buoyed by the messages contained within.

My BS radar is so finely tuned these days that I can barely read a sentence without querying the thinking behind it.  I suppose it is nice to know that some of those employed at great expense to the rest of us were toiling away to create this work of art and fiction designed with that grand old police motto in mind – “move along people, nothing to see here.”

As regular readers will be aware I have a real problem with two areas of NZRB expenditure which are of course interlinked – operating costs and salaries, not to mention the numbers employed,  Rather than conduct a deep dive into such a shallow pool of information and risk major injury I have instead focused on those areas when perusing this document.  The findings should have anyone with a financial involvement in the industry questioning how we can let these people continue to operate.

Apparently NZRB “remains committed to undertaking a broader review of our operating costs.”  Good on them, at least they are getting the message I thought.  Only to have to apologise to my office mates for an expletive-laden outburst when I read the following statement:

“This was paused following the commencement of the Messara review and other strategic options analysis but will be reconsidered in the 2018/19 season.”

It took me a while to get my head around this one.  So, the industry is undergoing a review which will examine, among other aspects, how to return more money to participants and the outfit in charge of the dollars WAS “undertaking a broader review” of its operating costs but paused it as soon as the Messara report was announced.

Rather than actually continue to look at how they could apply a little slash-and-burn to operating costs which, until last season exceeded the payout to industry, they decided to sit on their hands and wait and see.

I trust they have done something really useful in that time.  I would suggest dusting off their CVs and working on creating some handy LinkedIn contacts might have been a good place to start.

After reading that statement it was difficult to see this as something other than another NZRB puff-piece.

Prior to it landing this week I was intending to revisit a time when NZRB CEO was newly appointed to his position.

In 2015 with the bright enthusiasm of a newbie, John Allen told NBR that the Racing Board needed to lift distribution to the industry by $40-50million “over the next few years.”

“Unless we can do that and get the facilities right, get the returns to owners right, so we can begin to get the investment into the breeding stock again that we need to support the industry over time, the whole industry grinds to a halt,” he said at the time.

“Basically, every dollar we spend is a dollar that doesn’t get distributed to the codes,” he added.

“It’s really important that the codes trust us to be efficient and effective with that money.”

Reading that is was apparent that Allen had been well schooled on what the industry needed. So, a few years down the line and what have we seen?

Back when Allen originally commented the NZRB 2015 Annual report showed operating costs at $139m, with staff costs $62.4m while the distribution to the industry was $134.2m.

The following season operating costs had dipped ever so slightly to $138.7m, staff costs peaked at $66.8m and distribution was $135.3m.

The 2017 annual report listed operating costs as $136.2m (a drop of $2.5m – remember those figures), staff costs at $63.6m and the return to the industry finally bettered operating costs at $137.6m.

Just a couple of notes around the staff expenses for the past two years – in 2016 that number was made up of $60.2m in salaries, $1.8m in termination costs and $4.7m in (covers a multitude of sins) “other staff expenses”.  In 2017 those figures for the same items were $59.2m; $18,000; and $4.4m.  However, included in this was $1.3m of expenses relating to strategic initiatives ie FOB, Racefields Legislation, Customer and channels programme, and Optimising the calendar.

So what of the future according to the overview of the 2019-2021 document?

The prediction is distribution for 2018-19 “budgeted at $151.6m” explained thus: “a $0.8 million increase on last year (2017-18) to offset increased venue services charges to the codes from the vision capture upgrade. This includes the $12 million of additional funding targeted at increasing stakes across the 2017/18 and 2018/19 seasons that has been approved by the Board. A further amount of $2.6 million is being distributed to fund the continuation of the activities and expenses of the Event Marketing and Logistics (EML) business, which was transferred to the equine codes on 1 August 2017.”

So that increase included the $12m that we have borrowed to ensure our stakes aren’t a total embarrassment, yet the work on reducing operating costs was paused.  How are we meant to take these people seriously?

We are now living outside our means with a three year revolving debt facility having been established during the current season.  According to the SOI document this was to allow for “critical investments in growth initiatives.”

No need to panic though as they assure us “as the benefits of the strategic projects are realised, NZRB will take a prudent view to repaying debt while continuing to invest and increase distributions to the industry.”

I don’t recall anything in the NBR  article where Allen mentioned they may have to borrow to get close to the $40-50m he recognised was needed when he took the reins.

And what of the costs, of which, need I remind you, Mr Allen said every dollar they spent was one we didn’t get?

Well apparently in the 2017-18 year they are expecting “underlying operating costs to increase by $2.5m to $136.2m.”  Yes, that is correct – Increase, and what’s more this is in line with their budget.  So much for looking to rein in their operating costs.

The more observant of you might notice that $136.2m is actually the figure given as operating costs in the 2017 Annual report, which had me scrambling to back and double and triple-checking the figures.  I went so far as to seek the independent advice of an accountant (a real one, unlike those obviously used by the NZRB) and he confirmed my suspicions when he walked me through the figures.

If you check out the figures used on page 5 of the SOI under the heading Managing Costs you will find the following: “Excluding investment behind our key strategic initiatives, underlying operating expenses in the 2016/17 year decreased by $5.0 million (3.6%) to $133.7 million compared to the prior year ($138.7 million in 2015/16.”  So the mystery $5m decrease which leaves us with $133.7m is largely fictitious as the actual figure in the 2017 Statement of Profit or Loss is $136.2m.

Perhaps I should’ve been alerted to the fact this was not going to be a document which could be relied upon for its veracity when an email follow-up was sent out one day after the SOI was released into the wild.

It stated: “Unfortunately, there was an error in the summary document of the NZRB Statement of Intent sent to you yesterday. The document should have read ‘ Reported net profit before distributions of $173.5 million is budgeted for 2018/19, $201.2  million in 2019/20 and $219.6 million projected in 2020/21.”

If you fancy torturing yourself then go read the fantasy document yourself.  I’ve read so many of these promise-the-world documents over past decades that I believe none of it any more.  The creative accounting/obvious muck-up just confirms that my skepticism was well placed.

Like so many who have watched our industry driven into the ground by people with no skin in the game I am tired and jaded.

However, I am also damned if I am going to walk away before I see this current mob marched out of their cushy NZRB offices and replaced by people with the dedication to see this industry succeeds. Let’s make sure it happens.

No pressure Winston, but it’s up to you now.

2 thoughts on “Operating costs a mystery to NZRB

  1. As I have tweeted to John Allen and Glenda Hughes their decision to borrow and hope that the racefields legislation would be passed into law intact and before the election was an extremely naive miscalculation by two people that should have known better.

    Liked by 1 person

  2. A thorough summation of past & present. The greatest cost savings will come with the abolition, destruction, taking out, call it what you like, of the NZRB level. The trouble with monopolies is no competition, nothing to measure themselves against, they just get fat!! The codes can run themselves & all that’s needed is a small group to manage the out of control TAB. With a bit of luck we may only have to wait 10 days for Winston to return to NZ, read the Messara Report, release it to the public & put it into play. The key will be who will drive it, hey I’ve got a great idea, why not let the author of the report drive the changes. This isn’t the first report he’s written & let’s face it, the one he wrote for NSW Racing worked out ok didn’t it? Oh how I love Sydney Racing each Saturday, thank you John Messara.

    Liked by 1 person

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