50th Levy Scheme Determination Announced

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

As we have previously reported, Jeremy Hunt, the Secretary of State for the Department of Culture, Media and Sport, was forced to determine the rate of the 50th Horserace Betting Levy (the "Levy") as a result of the failure of the racing and bookmaking industries to reach agreement at the end of October last year. On 16 February the Government announced that the Levy to be paid by Licensed Betting Offices and telephone and internet betting operators operating in Great Britain from 1 April will increase from 10% to 10.75%. The threshold level under which betting shops pay a reduced rate of levy will also be reduced from £88,740 to £50,000. Click here to see Jeremy Hunt's Written Statement in full.

In coming to this determination, the Secretary of State took into account representations by interested parties on what target amount would reflect the capacity of bookmakers to pay, what it is reasonable to expect bookmakers to pay and what the reasonable needs of horseracing are in all the circumstances. The Secretary of State believes that the reasonable estimated annual yield from the Levy should be in the region of £73.7 million to £80.8 million and that the terms of the Levy represent a fair deal for Bookmakers and Racing.

Mr Hunt noted in his Written Statement that "With the determination concluded, I would like to re-state my disappointment that the relevant parties were not themselves able to come to terms and I would strongly encourage them to develop a less adversarial relationship going forward. I have tried to be fair by listening to the advice of the Independent members of the Levy Board and I will continue to be guided by their advice in future years until what should be a straightforward commercial negotiation can be taken permanently out of the hands of Ministers."

In response to the announcement, Levy Board Chairman and senior Government Appointed Member Paul Lee stated: “I am pleased that the rationale set out in our submission has received recognition and support from the Secretary of State. The Determination represents a significant increase on the estimated 49th yield which, in the circumstances, we believe is fair and reasonable." He also noted that the Levy Board will give initial consideration to the impact of the 50th Levy scheme at its March meeting but that "there should be no assumption of any changes being made to the agreed 2011 budget. The full outturn of the 49th Scheme will not be known until June 2011.”

How does the final scheme differ from the recommendations made by the Government Appointed Members?

The Government Appointed Members ("GAMs") of the Horserace Betting Levy Board (Paul Lee, Penny Boys and Paul Darling) suggested that their proposed target yield of £75 to £80 million be achieved by the abolition of thresholds, making the Levy payable on foreign as well as on British racing and that the headline Levy rate should be reduced to 9% of gross profits. However, none of these suggestions was included in the determination.

Racing (together the British Horseracing Authority, the racecourse Association and the Racehorse Owners Associations) supported the GAMs’ recommendation to abolish thresholds as a mater of principle and to reintroduce Levy on foreign racing. Racing also supported the GAMs' requests to expedite the extension of the collection of the Levy to offshore operators which, as we describe below, remains something which the Government has yet to resolve.

The re-instatement of the Levy scheme to foreign racing was one of the most controversial aspects of the GAMs' recommendations. The Government's press release merely noted that "As the Levy supports British horseracing it has been decided to collect it only in relation to bets on those races that take place in England, Scotland and Wales." Although we can only speculate as to why this recommendation was not accepted by the Secretary of State, one reason may have been that DCMS feared that such a change would be susceptible to challenge by judicial review.

Impact on bookmakers

The Levy will obviously represent an increase in overheads for bookmakers licensed in Great Britain. However, in light of some of the demands by Racing – bookmakers may feel that the new scheme could have been considerably worse.
Smaller bookmakers will, no doubt, be relieved that the thresholds have not been abolished.

From Racing's perspective

The Chairman of the British Horseracing Authority responded to the announcement by hailing it "a major step in dealing with long-standing failings of the current system. It will halt the severe decline in the Levy, and the damage this is doing to the sport."

Meanwhile Michael Harris, the Chief Executive of the Racehorse Owners Association ("ROA"), likened the 50th Levy Scheme to "the curate's egg - good in parts." He noted that the ROA was obviously pleased to hear that the headline rate has been increased, but disappointed that the thresholds were not totally abolished and that a return to levy being paid on foreign racing was not supported.

But who "won"?

Given Racing's initial demand was for £130 to £150 million and the Bookmakers' Committee suggested the Levy should yield in the region of £58 to £61 million, this could be described as a judgment of Solomon. However, perhaps Racing has more to be pleased about than the bookmakers.

Unresolved issues and future reform

Following this announcement, there are a number of unresolved issues which merit discussion:

The Levy Scheme has been finalised on the basis of a 'range' of estimated yield. However, it remains unclear as to what will happen if the actual yield is significantly less or more than the projected "target amount". Racing argued that the betting shop thresholds should be abolished because big bookmaking chains were taking advantage of a concession intended for small independent bookmakers in relation to the big chains' smaller shops. Larger bookmakers may still potentially benefit from this concession (albeit at a lower threshold). The Government is still to make a decision on whether offshore-licensed bookmakers will be obliged to pay Levy through a secondary licensing scheme. See our report for further details. DCMS announced back in January 2010 that it wanted to create a "more level playing field [for British gambling operators] to compete with overseas rivals". However, it is yet to decide if any action should be taken to address this issue. Retail bookmakers (who can't move offshore) are sure to question why they are at least in part responsible for making up for falling levy receipts due to their online competitors moving offshore. The issue of whether certain users of betting exchanges should be regarded as being leviable bookmakers for the purpose of the Levy is still unresolved. The Horserace Betting Levy Board undertook a consultation during last year (which closed on 23 November – an extended date) and no announcement has yet been made on the outcome of the consultation. As noted above, on announcing the final terms of the 50th Levy scheme Jeremy Hunt again took the opportunity to voice his disappointment that he was forced to make this determination as a result of the Racing and the Bookmaking industry failing to come to a commercial resolution. However, until the relevant legislation is amended to remove the Secretary of State from the process, he could be called upon to determine the next Levy.

Both the BHA and the ROA have indicated that they will continue to lobby for major reform including legislative amendments to secure funding derived from offshore betting operators taking bets on British racing. The Bookmakers' Committee has also voiced its concerns that the Levy is "no longer fit for purpose" and in its Recommendations urged the Secretary of State to announce an end date for the Levy of March 2014.

DCMS has indicated that the Government's plans for reforming the Levy will be announced soon. As ever, any announcements on this issue will be keenly awaited by Racing and Bookmakers alike.