Horseracing in the wars (again) - will the Levy be the main casualty?

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

In a previous update on the contest between Turf TV and SIS, we used various military metaphors. Since then, war has indeed been declared by some of the combatants and there is no immediate sign of an armistice.

At the beginning of June, the Tote confirmed it had signed its chain of 550 betting shops up to Turf TV. This was a significant deal for Turf TV, but their PR was marred by the announcement, at almost the same time, of a profits warning by Alphameric, the racecourses' co-owner and technology partner in the Turf TV joint venture.

The four biggest chains of betting shops - William Hill, Ladbrokes, Gala Coral and BetFred - have not signed up to Turf TV and William Hill's Chief Executive, David Harding, (who has since left William Hill) said that racing had "declared war" and was quoted as saying that Hills would use all means at their disposal to secure victory, including commencing competition law proceedings against Turf TV.

Battle has now been joined on several fronts. As indicated by David Harding, William Hill, Ladbrokes, Gala Coral and BetFred have (together with the Bookmakers' Afternoon Greyhound Service (BAGS))) launched proceedings in the High Court against Turf TV and its racecourse partners (other than Ascot) claiming that the racecourses infringed competition law by selling exclusive media rights to Turf TV. Turf TV and their racecourse partners have since counter-claimed, alleging that the bookmakers and BAGS have themselves infringed competition law by colluding against Turf TV and, in BAGS' case, by entering into licence agreements with Arena and Northern and sub-licensing the rights to SIS. Turf TV also issued a counter-claim against SIS challenging the legality of its agreements with BAGS and with various British and Irish racecourses.

These proceedings have come at a difficult time for Alphameric. Following its earlier profit warning, Alphameric announced in September that "toughening trading conditions" would lead to significant losses. As a result, Alphameric's share price fell to 6.75p on 25 September, having traded at 69p only four months earlier. The share price recovered after Alphameric reported in October that it had received various unsolicited approaches and on 7 November that it intended to raise £9.7m by way of an underwritten rights issue. However, Alphameric announced on 17 December that takeover talks had been terminated and the share price fell to 20p. Alphameric therefore remains in a difficult position, exacerbated by the fact that the Hills, Ladbrokes and Corals' betting shops have been significant customers for Alphameric's technology.

As foreshadowed in our original piece on this topic, the bookmakers have also turned their attention to the Levy which provides racing's key financial underpinning. The Levy was only reprieved from abolition by Richard Caborn in December last year following a review chaired by Lord Donoughue which concluded that there was no legally robust commercial alternative to the Levy as a means of funding horseracing. The Government's decision to retain the Levy was supported by the bookmakers. In his announcement (click here to view), Mr. Caborn said that the Government had decided to retain the Levy "until such time as a secure and adequate alternative commercial funding arrangement can be identified". The statement went on to say that the Government intended to repeal the legislation which gave it power to abolish the Levy – however, that legislation has not yet been repealed. The Donoughue group also recommended some changes to the procedure by which the Levy is set each year – these changes were designed to minimise the prospect of the bookmakers and the Levy Board failing to agree the Levy by the statutory deadline of 31 October and, more particularly, to avoid the consequence of the Levy having to be determined by the Secretary of State at the DCMS (this statutory requirement on the Government to intervene being one of the reasons why the Government was keen to abolish the Levy in the first place). One of the other recommendations made by the Donoughue review group was that the process by which the Levy is agreed annually should be refined with a view to minimising the chances of the Levy being referred for determination to the Secretary of State.

The bookmakers are now attacking the Levy in several ways. First, they are saying that racing has now found its commercial mechanism in the form of Turf TV so that the Government can go ahead and repeal the Levy. Second, they refused to take part in a review of the Levy-setting process endorsed by Richard Caborn. Third, the bookmakers are arguing that the amount of the Levy should be reduced to take account of their increased aggregate payments for horseracing television rights resulting from take up of the Turf TV service. Fourth, they are arguing that the Levy should also be reduced to reflect their additional costs from the new Gambling Act licensing regime.

Not surprisingly, the amount of Levy was not settled by agreement between the bookmakers and the Levy Board by 31 October 2007 with the result that the matter has been referred to the Secretary of State for determination by April 2008. This, coupled with the replacement of Richard Caborn (who has been a supporter of racing) as Minister for Sport by Gerry Sutcliffe and the appointment of a new Secretary of State at the DCMS (James Purnell) must again cast serious doubts about whether the Levy will continue. Even if, as seems likely, the Secretary of State decides to continue the current Levy scheme for another year, in the absence of any settlement of their dispute with Turf TV, the bookmakers are likely to continue to challenge the Levy by lobbying Government for its repeal and perhaps by bringing a European State Aid challenge. If the result of the establishment of Turf TV is the disappearance of the Levy, the racecourses behind Turf TV will indeed have achieved a Pyrrhic victory.