thoroughbred racing

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.

Time to learn from the past and forget the piecemeal approach

/ Mezzasez

When I was a kid, a journey with my grandfather was a travelogue of often defunct racecourses and anecdotes of what had gone on there years earlier.

My favourite tale involved the old Carterton track where he claimed he broke his little toe.

Between the time he quit race riding and established himself as a trainer many of the tracks he used to frequent had gone the way of the Dodo so there were plenty of stories.

So, what has that got to do with anything you ask?  Well, last week the NZ Herald, finally realising the Messara report was an eventuality whether their NZRB-employed “reporter” liked it or not, ran what I refer to as a “non-story”.

With the report yet to be released and so consequently light on any facts the writer went for the divide and rule approach by focusing on the fact Messara had been asked to focus on the thoroughbred code.

The reasoning was twofold he decided – our code had “fallen the furthest behind its Australian equivalent in terms of stake money and infrastructure, particularly New South Wales racing” and this doozy – “it was serious players in the thoroughbred industry, like Sir Patrick Hogan, who were among the most vocal Peters supporters before last year’s election.”  Right….so now we have established the level of media we are dealing with, lets move on to another aspect of the piece which left readers in no doubt as to the writer’s absolute terror that the gravy train may be about to derail.

Lacking an actual story, he decided to attempt to provoke the provinces with the following statement: “Reducing the number of racing venues in New Zealand also looks certain to be recommended but again that will be met with considerable resistance in some regions.”

No prizes for either assumption.  There is no doubt that, for our population, we do have a surfeit of tracks, likewise, if you are going to suggest to a club that they might want to curtail their activities and relocate then you had better be armed with a good argument.

Not every club is double-blessed in the way the Feilding Jockey Club, New Zealand’s best example of a club moving down the road, was – with the advantage of owning land someone else was prepared to pay money for AND being driven by a forward-thinking president and committee who put industry interests first. If you need further convincing just compare their Cup stake these days to the figure they ran for at their old home track.

Considerable resistance is an understatement based on my personal experience too.  I am old enough to remember going racing at the Opaki track just outside of Masterton – in May, it wasn’t pleasant.  At the time, working at BloodHorse magazine I was already aware of the glut of tracks in the country and the fact that some of them were looking pretty shabby and struggling to survive.

In my youth and naivety I suggested to a few of the locals – all heavily involved in the industry – that it wouldn’t be long before we saw racing in the Wairarapa solely at Tauherenikau.  Needless to say the reaction was instant and negative.

The same suggestion, it turned out, was made in the 1946 Finlay Royal Commission, although no one reminded me of that at the time!  Eventually it did happen, albeit about 40 years after Finlay and co’s recommendation.

The Herald picked the right irritant if it wanted to stir up anti feeling prior to the release of the Messara report.  The arguments around which clubs should survive, which should amalgamate or pool their resources and which should just pack up their tents have been hotly contested since Finlay’s Commission mooted the same.  

Anyone remember the Otautau Jockey Club or the Waiapu Racing club or the Tolaga Bay Racing club?  Those three were among six clubs the Commission recommended have their licences withdrawn and relocated to other clubs.  By the time the 1970 McCarthy Commission was back revisiting some of the same ground those three had gone, while many of the others which it was suggested might rethink their futures were still raging into the night (I’m looking at you Masterton)!

So here we are five Commissions of Inquiry down the track – yes, FIVE – 1911 Clifford; 1915 Hunter; 1920 Kent; 1946 Finlay and 1970 McCarthy – obviously we are very slow learners, something Waikato Stud’s Garry Chittick reminds us of regularly.

On top of these Commissions we’ve also had a Ministerial Review, which I vaguely remember in the early 1990s; the PwC industry report of 2002; the Ernst & Young Performance and Efficiency Audit of the NZRIB of 1997 (what I wouldn’t give to see something like that delving into Jackson St these days!); the Racing Industry Working Group report in 2003 and that is probably only scratching the surface.

And where do we find ourselves people?

Being controlled by an obese organisation which is haemorrhaging money via the open oozing wound which is its operating costs.  It suckles 870+ employees, with the knowledgeable and necessary being squeezed out at the expense (and I mean expense) of the six-figure earners who are disconnected and disinterested.

We are racing for stakes which wouldn’t – at the lower level – be out of place in a racebook from thirty years ago, while costs have continued to escalate.  The following from the 1970 McCarthy Commission report would not be too far removed from how NZ trainers are operating today – “training fees charged by the licenced trainers barely covered the costs of feed and labour…trainers relied chiefly on their customary 10 percent share of stakes for their personal income.”  You want to know why so many of our promising young horses are sold off-shore, there’s your answer.

Our infrastructure is struggling to remain fit for purpose thanks to decades of neglect – if it wasn’t for the weight of Health and Safety demands number eight wire would be all that was holding us together in some places.

Make no mistake, this Messara report will paint a clear picture of what needs to be done and don’t be surprised if it sounds vaguely familiar.  After all, we’ve had a swag of Commissions and reports which have recommended the way forward. In each and every case these have been adopted in a piecemeal fashion, with the hard decisions avoided to our detriment.

The 1970 McCarthy report, in its conclusion, was wary of this after stating its recommendations were designed with the object of presenting one comprehensive plan of reform.

It stated: “Piecemeal adoption would lose much of the advantage of a plan aimed at ensuring a viable future for the industry as a whole.  Hopes of this are less likely to be fulfilled if the recommendations are not seen as inter-related.”

The final statements of that Royal Commission are worth repeating in full:

“We cannot leave our task without stressing once more two points which we have made often during this report.  The first, that though racing and trotting are merely different parts of an industry which includes other groups as well and which must therefore have machinery to co-ordinate and direct it, yet we firmly believe that the two codes should be left to decide their own internal structures and run their own affairs as they themselves would wish, without direction from others, save when the economic welfare of the whole industry is involved.  Because of this belief we have refrained from some positive recommendations which we might otherwise have made about matters which we think would be better changed. The second point is, that though we are convinced that the industry will experience increasing difficulties and challenges in the years ahead, its situation is far from desperate; it has much vitality and many forces for good. It must, however, prepare for the future by mobilising and employing them with the greatest efficiency.  Only if it does that, will it live vigorously and prosper.”

We had the chance in 1970 but lacked the cojones to make the changes needed.  Let’s not make the same mistake this time.

 

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Missing the mark with media

/ Mezzasez

If ever you needed an example of how far below the radar New Zealand’s racing industry is travelling, there was a glaring one on Newshub’s AM Show this morning.

While talking politics with, surprise, surprise, political reporter Tova O’Brien, host Duncan Garner queried the connection acting prime minister Winston Peters has with racing.  It would appear that, like the racing minister, the industry itself has little relevance when it comes to this show.

In the past there have been cringeworthy interviews around the NZ Derby meeting – focus being fancy hats and how much the trophies are worth.  Prior to the yearling sales there was a confused introduction of Sir Patrick Hogan with Garner claiming he was about to have “one last crack at the Karaka Million.”

Racing, once part of the nation’s fabric, is de trop and something which retains the stigma of back-alley betting shops and aged beer-swilling smokers, at least with this news outlet.  So much for the marketing and communications efforts of the six-figure salary earners in Petone!

Every step of the way those charged with promoting the industry have missed their mark.  They have failed to mark out a place for an industry which contributes $1.6 billion to the economy.  Their sole focus with media is on top end events.  Hospitality for media types at these events is more about the food and booze in isolated marquees rather than checking out the stars of the show and giving them an authentic experience.

It’s probably not their fault as one would expect few of those who work at the Racing Board have had an authentic racing experience themselves.  They certainly have no grasp of the industry’s rich history.

For example, here we are, coming up to the 40th anniversary of the first day women rode against men in New Zealand (15 July 1978).  Today females make up around half the riding ranks, some are even second-generation jockeys and there are numerous fantastic story opportunities.  If we are relying on anyone from the NZRB to lead the way when it comes to celebrations and some media acknowledgement to mark the occasion then, I imagine, we will be left disappointed!

The incredible story around “letting” women ride against the men has been there since day one and this one could even appeal to Duncan Garner and the AM Show crew – well, maybe not Mark Richardson!

While the industry hierarchy may have had to been bitch-slapped into allowing women to apply for licences once they took that step they ensured there was no discrimination when it came to pay scales.  From day one – 40 years ago – female jockeys have been paid the same amount as their male contemporaries.

Given the cacophony in the general media around gender equality – especially in the area of pay equity – this is one story which the industry should be shouting from the roof-tops.

I imagine there is a reason that the six-figure earners at the NZRB aren’t trumpeting this one (apart from the fact that any reference to pay rates might focus more unwanted attention upon the $60 million in salaries which the organisation siphons out of the industry).  Most likely it is that they probably don’t know (and don’t care) because they are so far removed from the industry they work for they wouldn’t have the first clue what jockeys are paid.

I can’t imagine any of them have ever used any of that six-figure salary to enjoy a share (or two, or three) in a horse and therefore are aware of the actual costs of racing a horse in New Zealand.

It is no wonder then that media outlets like Newshub continue to think of racing as some misty, murky relic of the past – populated by the likes of Winston “and his mates.”

Those who are charged to do as follows – via the Racing Act 8 Objectives of the Boards  The objectives of the Board are – (a) to promote the racing industry – have failed dismally and will not be missed upon their (hopefully imminent) departure!

 

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Winners are grinners, until you delve into the figures!

/ Mezzasez

Forgive me for the length of this blog post as I set out to write about one topic and then I had a winner!

Yes, one of the fab four in which I hold varying sized shares rocked up at Ruakaka and showed the world what a Galloping Weka can do.  Wekaforce, a daughter of Showcasing and Spera, was introduced to me by Janine and Les Wallace and so I joined the large team (including several mates) which races her from Tony Pike’s stable.

Wekaforce showed she might have an interesting career in front of her with a smart winning effort at her first trial at Te Teko recently and hence she found herself today in a two-year-old race.

While Vinnie Colgan had been on board at the trial his unavailability today meant Michael “The King” Coleman climbed on board.  It had been a couple of decades since he last won for me, I reminded him via text last night. “Couple? Try three,” was his pithy reply – obviously my various trainers weren’t putting him on enough!

So, long story short Wekaforce showed she was well named and added to Showcasing’s ever-growing band of winners with a four and a quarter length victory.   Vinnie may have difficulty prising Michael off in the future!

As I’ve written previously, it’s always a huge buzz when you have a winner and great fun when you can share it with your friends.  However, as I’ve also written before we are all in this for the love of it and that excitement because the financial returns just aren’t there at the moment.

I feel confident as I write “at the moment” thanks to the promise of the Messara overhaul.  At last it feels as though someone might slash through all the wastage at the NZRB resulting in increased returns to those who are actually forking out to put on the show.

So, in a convoluted way that brings me to the original topic I had in mind before I got side-tracked by a winner!

Racing’s contribution to the nation’s economy has been laid out in some detail in the latest Size and Scope report produced by IER for the NZRB.

IER have a long-standing relationship with the Racing Board, having conducted research at Summer Festival and other key meetings over the past six years.  The company brands itself as a boutique business consultancy which specialises in the areas of research, strategy development, economic and social impact studies, and performance measurement in sport, racing, tourism and the entertainment industry.

I must confess that I did nag NZRB CEO John Allen as to when the document might appear online, having read that it was due around now.  To his credit within days the report surfaced exactly when promised yesterday afternoon.

Much of what is reported should be widely known by those at the coal face and, while I will focus on a few points here, I recommend checking out the original 90+ page document if you are interested in looking at how the industry is tracking in your own region or if you want more detail around the other two codes.

The big numbers are around the industry’s value-added contribution to the country’s economy which sits at $1.6billion – $1,633.5m to be precise.

We also employ 14,398 FTE, with 46% of these employed as a direct result of racing activity (take a bow NZRB, you’re likely to be top of the heap here, if not with numbers employed then definitely thanks to your wage bill).

When it comes to the other figures I have only concentrated on the thoroughbred code and, please note, the numbers relate to the 2016-17 season.

The total number involved in our code is 34,768 which is made up of 3,705 breeders; 15,951 owners; 1013 trainers; 228 jockeys; 2633 racing club and industry staff; 6475 staff employed by participants; and 4,763 volunteers.

During the period under review we welcomed 3,354 live foals, while there were 6,376 thoroughbreds in training.  The majority of these – which I am sure will come as no surprise – were in the Waikato, with 46.9% trained in the industry heartland.  The next two regions, which are each home to 12.7% of the total were Taranaki/Manawatu-Whanganui and Auckland.

During the past season in the wording of the Size and Scope study the “thoroughbred training activity is responsible for generating more than $274 million in expenditure impacts in New Zealand.”

Now remember, this is just the cost for those in our code and while I know we are all incredible optimists this figure just confirms it.  So, we paid $274m to get our thoroughbreds to the races and, at the end of the season, the money distributed to the THREE codes by the NZRB was $135m (according to the IER report) or $137.6m (according to the NZRB Annual report).

Apparently, we’re meant to be ecstatic to be racing for $10,000 minimums (yeah great, 30 years ago winning a $10,000 race paid your training fees for a year, I hate to think how quickly the winner’s share of today’s $10,000 race will be eaten up).

What I find really galling is the fact that the Board wants us to be grateful for that minimum level and the fact they are “giving” the industry $137.6m.  All this while they recorded operating costs of $136.3m last season.

We’re also meant to be grateful that they’ve reeled themselves in a little bit and dropped those costs by $5.1m (3.7%) from the previous season.

If the chairperson of the board is to be believed we’re all idiots and we simply don’t understand why they’ve had to spend so much over the years.  Witness this little snippet from the NZRB’s Statement of Intent 2018-2020 – “The reasons for the historically increasing trends in NZRB’s operating costs over the decade to 2014 have not been well understood in some sectors of the industry,” she said.

Rather than explain to us plebs why it was necessary to spend so much instead we get the old policeman tactic of  “move along folks, nothing to see here” and  Glenda tells us: “However, the key point now is that the current Board and management are succeeding in reducing NZRB’s year on year normal operating costs.”

If that is the key point then the Messara report can’t come soon enough!

In the meantime I shall raise a glass to Wekaforce and the Galloping Wekas team – we might not get rich but we are anticipating plenty of fun based on today’s debut win.