government

Operating costs a mystery to NZRB

/ Mezzasez / 2 Comments

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.

Is Messara our messiah?

/ Mezzasez

Is the light finally appearing at the end of the tunnel?

Last week’s announcement that John Messara would be reviewing the New Zealand industry’s governance structures before providing recommendations for its future direction had many industry stalwarts celebrating.

Messara, based on his efforts with Racing NSW and Racing Australia, is seen as New Zealand racing’s potential messiah. He has certainly shown himself to be incredibly astute in the operation of Arrowfield Stud, having employed several talented Kiwis!

While he is familiar with our industry he also lacks the parochialism which seems to stymie any local attempts to drive the industry forward. What will be interesting is how Messara will consider the needs of three conflicting codes. That is something which proved a bridge too far for previous chairmen of the NZRB who, for every financial contribution to one code, were then faced with the other two, hands out and demanding the same amount!

According to the Racing Minister, Winston Peters, Messara’s review – which is expected to be presented to government by the middle of the year – will “also assist the government in determining if the current Racing Act 2003 and the proposed Racing Amendment Bill are fit for purpose.”

The 2003 Act gave us the poorly written Section 16, the cause of much gnashing of teeth at the absolute absurdity of it all. For the benefit of those who have never actually read Section 16 it states as follows:

Amounts of distributions to codes

(1)

The Board must, as soon as practicable following the end of a racing year, determine the amount to be distributed among the racing codes for that year from any surpluses referred to in sections 53(2) and 57(2), or any other source whether capital or income.

(2)

Unless a majority of the racing codes otherwise agrees in writing, the amount referred to in subsection (1) must be not less than the total of the surpluses referred to in sections 53(2) and 57(2) for that racing year less the total amount credited to reserves for that year from those surpluses.

(3)

Unless a majority of the racing codes otherwise agrees in writing, the amount referred to in subsection (1) must be distributed among the racing codes in the same proportions that the Board considers are the proportions to which the codes contributed to the New Zealand turnover of the Board for that racing year.

(4)

In subsection (3), New Zealand turnover of the Board means the total gross amount received by the Board from racing betting placed in New Zealand on races run in New Zealand.

While on the subject of the Racing Act, Section 16 and the like, I have often been astounded at the number of people who work within the industry yet have no idea of the responsibilities of the various bodies.

The NZ Thoroughbred Breeders’ has come to the party with a fabulously simple explanation in their latest Bulletin, so big ups to them for the following:

https://www.nzthoroughbred.co.nz/site_files/13893/upload_files/blog/68426NZTBAonlineBulletin-Aprilrev.pdf?dl=1

Anyone who is a little confused about who does what when it comes to the Minister, NZ Thoroughbred Racing or the NZ Racing Board should check it out.

While their explanation included Section 8 (c) “The objectives of the Board are – to maximise its profits for the long-term benefit of New Zealand racing” I probably would have hammered the point home a little more by including Section 9 (a) which reads as follows:


Functions of Board

(1)

The functions of the Board are—

(a)

to develop policies that are conducive to the overall economic development of the racing industry, and the economic well-being of people who, and organisations which, derive their livelihoods from racing:

If John Messara can deliver us a blueprint for policies which can do that then he may very well be remembered as New Zealand racing’s messiah.  

Karaka announcement a fizzer

/ Mezzasez

Underwhelmed – was the prevailing reaction to the much anticipated announcement from Racing Minister the Right Honourable Winston Peters at Karaka on Sunday evening.

 

There was a touch of Trump in Peters’ opening remarks where he claimed he had never promised a “big announcement.”  That should have been a clear precursor to what was to follow in his bid to make racing great again.

 

Peters cherry-picked from NZ First’s 10 point racing policy – primarily revisiting taxation to encourage investment.  Reacting to the impact of numerous meetings being lost over the past season due to a combination of outrageous weather and poor track management, Peters also promised an all-weather track.  

 

To get across the line the track, at a yet-to-be-confirmed location, although touted to be the Waikato; at a yet-to-be-confirmed cost, though quoted in some media sources to be in the vicinity of $10million; still needs to be approved come budget time in May.

 

The one sentence which could well have met with universal approval would have been a commitment to “urgently review the operations and costs of the New Zealand Racing Board.”

 

The fact those words were not included in Peters’ speech makes me question the NZ First definition of “urgently”.

 

It was an opportunity missed.  Readers of this blog will be familiar with the excesses of the NZRB when it comes to richly rewarding the multitude who work there while the ROI to the industry stagnates.

 

Yesterday, as National party politicians Stephen Joyce and former racing minister David Bennett were enjoying hospitality at the yearling sales their leader Bill English, reacting to the proposed all-weather track, was questioning the need for taxpayers to contribute.

 

While English recognised the importance of an all-weather track he said he believed the industry should be able to fund it.  Perhaps that might have been an option if the NZRB wasn’t providing so many of its largely useless staff a six-figure lifestyle funded by the sweat of industry participants.

 

Prime Minister Jacinda Ardern when addressing the taxation proposals told Newstalk ZB yesterday that the industry was facing rising costs and diminishing returns.  She added that the coalition agreement between Labour and NZ First included a commitment to support NZ First’s Racing policy.

 

“In areas where we are relative to other international industries, if there comes a disincentive to invest in your domestic industry and more incentive to invest overseas, then you have to look at your competitiveness,” she said.

 

While those with skin in the game were debating the location of the all-weather track, online feedback on many news sites saw plenty taking swipes at what were largely described as handouts to the “wealthy” racing industry.

 

“If it’s such a multi-million dollar industry then why are taxpayers paying half?” was a common theme.

 

The perception of the industry from the outside is that it is populated by high-flyers.  Why wouldn’t they think that when, for the week leading up to the sales at Karaka, racing and breeding make their annual appearance on mainstream TV?

 

The general public see people racing for $1million stakes; glossy yearlings being paraded and sold for six (and occasionally seven) figure sums; overseas buyers being wooed with fine wine and sumptuous food.  

 

What they don’t see are the go-round meetings where we are still racing for stakes which haven’t increased exponentially with the cost of having a horse in work.  They don’t see the vendors in the later days of the sales struggling to get a bid, or the legwork being done by trainers to fill bargain-basement syndicates.

 

The reality of the industry is largely hidden.  Take a look at the financials of most racing clubs and it doesn’t make pretty reading.  At the end of the day a bunch of volunteers – who are incidentally, becoming more and more difficult to attract – are battling to keep racing afloat.

 

We have fundamental problems which have failed to be addressed due to a lack of funds.  In the meantime staff expenses at the NZRB still total in excess of $60million. They are down from 2016’s $66m down to $63m – at that rate in another dozen or so years they might have salaries about where they should be!

 

The Racing Minister also gave us a reminder to be positive.  That would be a little easier if we knew he was going to make good on the one policy point which could see some serious money return to the industry.  

 

Urgently review the operations and costs of the New Zealand Racing Board – sooner, rather than later please Winston!

 

 

 

More climb aboard the NZRB gravy train

/ Mezzasez / 2 Comments

In my job in the real world I joke with one of my academics about a certain media topic being “the gift which keeps on giving.”

“The gift” is one of those stories which is continually evolving and of which the media is never going to tire.  Pretty much how I felt when, just days after writing my last post about the salary excesses of the Racing Board, an email was circulated announcing some new appointments.

Obviously those 488 permanent employees mentioned in my previous post weren’t cutting it when it came to government and industry stakeholder engagement.  The email in question stated that NZRB had reviewed that area of its communication earlier this year and after an extensive recruitment process claimed they now had the right team to work more closely with stakeholders.

Faced with that task is a team of five. Yes, you read that right – five people to focus on that area of communication.

It was another of those jaw-dropping moments which made me ponder how many people at the Racing Board it might take to change a lightbulb.

Of course, they would probably need to undertake a review before any bulb was changed and quite possibly advertise externally to ensure they found the right people!

The cohort of five is headed by an Irishman Ian Long, who previously held a similar position at NZ Rugby and, like NZRB CE John Allen, also worked at NZ Post.

Given the onerous task in front of him, he is going to be “supported by” parliamentary refugee Bill de la Mare, who comes to NZRB from positions with various ministers, including former racing minister Nathan Guy.  Propping the other side of this front row will be James Wigley, who boasts a marketing background according to the NZRB email, though Green Grass Marketing Services where he was a Marketing Consultant for a number of years, does not appear to have any visible digital footprint.  Wigley also has two years’ experience as a senior marketing manager with the NZRB’s Event Marketing and Logistics team.

The final two making up the team both have interesting titles, with Pete Lane tagged as Operations Specialist and Dan Smith carrying the poisoned chalice as Strategy Manager – Calendar Optimisation.  Presumably the former will provide protection when the latter advises clubs of changes to their dates!

You’d think that just reading this email would be enough to confirm that NZRB is not even paying lip service when it comes to looking at ways to cut its costs.  But it gets better, or worse depending upon your level of tolerance for black humour.

While the email is signed by one Stephen Henry, General Manager Services, it is actually sent by an executive assistant.  I am always suspicious of people who need others to send their emails, they engender memories of black and white movies where women were in the typing pool while blokes did the “real work.”

It may well be that Henry is indeed too busy to deal with emails to industry stakeholders or maybe it is something which was common practice during his time at MFAT.  The last time I received an email from someone, but actually generated by someone else, it came from Henry’s CE, John Allen, who also came to the Racing Board via MFAT.

Given Allen proposed job losses of close to 300 when at MFAT (that was later reduced to a mere 79) one would be forgiven thinking he would be capable of bringing NZRB staffing levels back to a manageable level.

However, based on this latest announcement expect the following – come the annual report there will be savings of between $3-$5million in salary expenses and we will be expected to be grateful for a job well done.

Try and shake off the Stockholm syndrome, instead we now need to channel the crazy newsman from Network, meet outside those offices in Petone and yell:  “I’m as mad as hell, and I’m not going to take this anymore!”