The world of horseracing is proving to be tough going for Attheraces, the Arena Leisure, BSkyB and Channel 4 consortium. The decision last week by the Office of Fair Trading (OFT) to investigate the British Horseracing Board’s (BHB) sale of media rights for 49 of the UK’s 59 racecourses to the Attheraces consortium is the latest hurdle facing the TV racing channel and betting operation.
The OFT is concerned that the &£307m ten-year deal made in 2001 is anti-competitive, because the 49 racecourses acted together to negotiate the sale of media rights through the BHB, instead of selling their rights individually, thus potentially driving up the collective price of the rights.
If the OFT’s initial findings are confirmed then the deal hatched by the BHB is likely to be set aside.
But Attheraces sponsorship and communications manager Tom Earl says: “The unbundling of the media deal will not affect the Attheraces joint venture, merely whether we negotiate with separate courses or with the courses as a whole.”
One leisure analyst believes that Attheraces is on the verge of re-negotiating terms with the racecourses individually.
Even if Attheraces manages to secure an overall cheaper deal than the &£307m contract by negotiating direct with the racecourses, it will still have to do more than simply recoup its costs through betting, advertising and the onwards sale of media rights if it is to break into profit by its mid-2005 target. Running a TV channel with an interactive betting capability and a website and telephone betting operation is an expensive business: Arena’s share of losses from the venture last year was &£11.1m. Attheraces’ betting sales of &£4.9m for the year were lower than expected, partly due to the delay in the launch of the interactive television operation.
However, Attheraces claims that betting turnover for 2003 already equals that for 2002. In the betting world, margins are generally about nine per cent but vary considerably, with fixed betting taking lower profit margins than pool betting. Industry figures question how Attheraces will recoup enough money to pay for its media rights. Attheraces claims that the bulk of the money needed to pay for the media rights comes from the UK and international selling on of the rights, accounting in 2002 for &£17.1m of the &£24.2m paid to the racecourses.
Betting revenue, however, will be crucial in plugging any gap and making a profit. Attheraces’ new head of marketing Derek Wood (MW last week) has already changed all the marketing literature, inserting the word “Bet” before the Attheraces name, with the aim of encouraging consumers to think of the brand as a betting operation rather than just a TV channel.
But Andrew Lee, a leisure analyst at Dresdner Kleinwort Wasserstein, is sceptical about Attheraces’ chances of turning a major profit in the long term, mainly because its business plan has been based on pool betting rather than fixed odds. “I just don’t believe that it can get enough punters to become pool betters to get significant value from the amount they had to pay for the media rights.”
The UK is the only market in the world to offer fixed odds on horseracing, fuelling a tendency among punters to go for this type of bet. Industry experts claim punters unfamiliar with the gambling world tend not to differentiate between fixed odds and pooled betting and on average spend less on a bet. Recognising that it has to attract the regular big-bet punter, Attheraces has taken the step of introducing fixed bets through its telephone betting operation on a wide range of sporting events.
When Attheraces was launched there was talk that it would take up to 20 per cent of the betting market in horseracing, as well as increase its size by attracting new punters, especially women, who felt uncomfortable going into a betting shop.
However, Lee believes it is difficult to increase the size of the market as, unlike football, where viewers are entertained by the sport and don’t necessarily bet, he says people tend to watch racing not for its entertainment value, but “because they bet”.
New betting platforms do appear to be opening up the market. A report on Online Gambling in Europe from Schema, a consultancy for telecoms and media, says that one major online betting company reports that ten per cent of its business is generated by female customers, whereas for a typical betting shop the figure would be three per cent.
Schema estimates that the gambling market in Britain is worth &£29.9bn, of which &£26.7bn comes from traditional channels, while the remaining ten per cent comes from internet, digital TV and mobile phones. By 2005 it estimates that the gambling market will have increased to &£35.7bn, with &£1.1bn through interactive TV, &£4.1bn through online and &£400m through mobile phones.
Nevertheless, Attheraces will still have to compete with established betting names such as William Hill and Ladbrokes if it is to secure a major share of horserace betting market on these emerging platforms.
Robin Bosworth, a director at Schema, says: “Gamblers are fickle and have no customer loyalty, as they search for the best odds.”
If Attheraces is to make the most of its media rights and deliver on its business model then it will have to convince impulse betters sitting in front of the TV to take a flutter. That is easier said than done.