Review of the Electronic Gaming Machine, Club Keno and Wagering Licences and Funding Arrangements for the Racing Industry Post-2012

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1 Review of the Electronic Gaming Machine, Club Keno and Wagering Licences and Funding Arrangements for the Racing Industry Post-2012 Funding Arrangements for the Racing Industry Post-2012 Issues Paper Gambling Licences Review Office of Gaming and Racing March 2006

2 Overview As part of the Review of Electronic Gaming Machine, Club Keno and Wagering Licences and Funding Arrangements for the Racing Industry Post-2012, the Government is inviting submissions from all interested parties to a series of Issues Papers. This Issues Paper covers the post-2012 funding arrangements for the Victorian racing industry and is intended to facilitate submissions from interested parties. The introductory section outlines: the scope, timetable and process for the overall Review of Electronic Gaming Machine, Club Keno and Wagering Licences and Funding Arrangements for the Racing Industry Post-2012; the process and timetable for making submissions; and the approach to making submissions publicly available. This Issues Paper then presents a range of information on the current funding arrangements for the racing industry and lists a number of issues and questions to guide the preparation of submissions. Interested parties should read this Issues Paper in full before preparing and forwarding submissions. Any queries regarding the Review, this Issues Paper or the submission process should be directed to: Director Gambling Licences Review Office of Gaming and Racing Department of Justice PO Box Collins Street East Melbourne Vic 8033 Australia (03) or send them by to glr@justice.vic.gov.au. This document is not an invitation to apply for a gaming or wagering licence or any right to provide gaming or wagering in Victoria. The State and the Minister give no warranty (whether express or implied) as to the accuracy, completeness or otherwise of any information or opinion (including any opinion on the Gambling Regulation Act 2003) whether provided in this document or any documents relating to the Gambling Licences Review. 1

3 The Review of the Electronic Gaming Machine, Club Keno and Wagering Licences and Funding Arrangements for the Racing Industry Post-2012 The Minister for Gaming announced in July 2004 the broad scope, approach and timetable for the Review of Victoria s electronic gaming machine, club keno, wagering and lotteries licences. The Minister indicated that all stakeholders, including the community, would be provided with the opportunity to contribute to the Review. Details of the overall approach to the Review of gambling licences can be found on the Department of Justice website at Gambling+Licences+Review?OpenDocument&1=0-Gaming+and+Racing~&2=0- Gambling+Licences+Review~&3=~. The Review is being conducted in two phases. The review of the public lotteries licence commenced in July 2004 and, in November 2005, the Minister for Gaming invited a short-list of interested parties to apply for a ten-year public lotteries licence from July Information on the review of the public lotteries licence and the public lotteries licensing process can also be found on the Department of Justice website. On 4 January 2006, the Minister for Gaming announced the commencement of the second phase which covers the Review of Victoria s electronic gaming machine, club keno and wagering licences and racing industry funding arrangements post The Minister also released an Information Paper setting out the broad scope of the Review, the process for submissions and consultations, the broad timetable and the range of issues the review will be considering. The Information Paper can be found at Gambling+Licences+Review- Review+of+EGM+Keno+and+Wagering+Licences?OpenDocument&1=0- Gaming+and+Racing~&2=0-Gambling+Licences+Review~&3=0- Review+of+EGM+Keno+and+Wagering+Licences~ The Review will be directed by a Steering Committee, chaired by the Secretary of the Department of Justice, Penny Armytage. A Gambling Licences Review project team has been established in the Office of Gaming and Racing, Department of Justice. The Review, having regard to the: Government s statement of principles to guide future gambling policy and legislative development; Trends and developments in the gambling sector; The economic, social and community benefits and costs of the current and alternative licensing arrangements; The transition and other issues involved in the implementation of new or revised licensing arrangements; and Government s commitment to a viable and growing racing industry; 2

4 is requested to review and provide advice on: The electronic gaming machine and wagering licensing arrangements post-2012 and the broad approach and timing to implementing these arrangements; The arrangements for the provision of Club Keno; The funding of the racing industry post-2012; and The broad financial and regulatory arrangements for the proposed licensing arrangements. In assessing the benefits and cost of the current and alternative licensing arrangements, and associated regulatory framework, the Review will give foremost consideration to the Government s principles for guiding policy and legislative development. The Government s principles to guide future gambling policy and legislation are: developing and reinforcing the Government s commitment to responsible gambling through measures that assist and protect problem gamblers and those at risk of becoming problem gamblers, their families and the wider community; developing and maintaining the State s commitment to the highest standards of probity for gambling service providers; accepting gambling is a valid activity for many Victorians who are entitled to expect ongoing high standards of service, transparency, and accountability from the gambling sector; ensure that the legitimate financial benefits of gambling (both private and public) are transparent, appropriately recognisable and fairly distributed to the Victorian community; that to the extent possible consistent with the other principles, gaming service providers operate in a competitive environment; and establishing proper consultative processes to ensure that appropriate information is given to, and input is received from, the wide variety of persons interested in gambling including stakeholders, affected parties and, to the widest extent possible, the broader Victorian community. (Source: Minister for Gaming, Second Reading Speech, Gambling Regulation Bill, Legislative Assembly, 6 November 2003) The Review will advise how these principles can be translated into the future licence structures and associated arrangements. 3

5 Key Review Dates The following are the key dates and provisional key dates in the timetable for the Review of Victoria s electronic gaming machine, wagering and club keno licences and racing industry funding arrangements post Release of Information Paper 4 January 2006 Release of Issues Papers Early March 2006 Submissions Due 4 May 2006 Public Consultations: Gaming Machine Licence Structure Arrangements Public Report on Gaming Machine Public Consultations and Release of Submissions Announcement of Post-2012 Licence Structures and Funding Arrangements and the Timing and Approach to Awarding of Licences May July 2006 (Provisional) September 2006 (Provisional) 2007 (Provisional) Issues Papers To assist public submissions to the Review, a number of Issues Papers have been prepared. This Issues Paper covers the review of the racing industry funding arrangements post Separate Issues Papers have also been released on: Gaming Machine Licences Arrangements Post-2012; Club Keno Arrangements Post-2012; and Wagering Licence Arrangements Post-2012 All the Issues Papers are available on Gambling+Licences+Review- Review+of+EGM+Keno+and+Wagering+Licences?OpenDocument&1=0- Gaming+and+Racing~&2=0-Gambling+Licences+Review~&3=0- Review+of+EGM+Keno+and+Wagering+Licences~, 4

6 or via to or by writing to the Office of Gaming and Racing at: Gambling Licences Review Office of Gaming and Racing Department of Justice PO Box Collins St East Melbourne Victoria 8003 Australia This Issues Paper provides an overview of the current racing industry funding arrangements, the economic dimensions of the racing industry in Victoria and trends in the racing industry and funding levels. The paper identifies a small number of issues and questions as a guide for submissions from interested individuals and organisations. Interested parties can also raise other issues or provide information which they consider relevant to the scope of the Review. Given the links between the current funding arrangements for the racing industry and the current wagering and one of the gaming operators licences arrangements, it is recommended that interested parties, in preparing submissions to this Issue Paper, familiarise themselves with the Issues Papers on the wagering licence arrangements post-2012 and the gaming machine licence arrangements post In particular, interested parties may wish to consider making submissions which combine or link their responses to all or selected Issues Papers. In any event, it is important that submissions contain, where possible, relevant facts, figures and data and other documents to support the views expressed. Lodgement and Closing Date for Submissions The Review will accept submissions from all interested parties on the issues relevant to the review of funding arrangements for the racing industry post-2012 s as outlined by the review s terms of reference. Submissions will be accepted via at glr@justice.vic.gov.au or can be posted to: Gambling Licences Review Office of Gaming and Racing Department of Justice PO Box Collins Street East Melbourne Victoria 8003 Australia Submissions are due by 4 May All responses to this Issues Paper will be regarded as formal submissions and treated accordingly. The Review will publish all written submissions received on the Department of Justice website unless it considers the publication of all or part of the submission is not in the public interest because of the inclusion of commercial-inconfidence material or for some other reason. Anyone wishing to make a submission in 5

7 whole or part in confidence should contact the Gambling Licence Review before doing so. Each submission from an individual will be published with the individual s name unless the author has clearly indicated they do not give permission for their name to be published. Submissions containing private information or content which may be regarded as defamatory or vilifying will not be published. Queries Any queries regarding the Review, this Issues Paper or the submission process should be directed to the Director, Gambling Licences Review at the above address, telephone number (03) or forwarded by to glr@justice.vic.gov.au. Where the responses to these queries are considered to be of assistance or relevance to other interested parties, the Gambling Licences Review will, after relevant consideration, publish its response on the Department of Justice website. Consultations Following the receipt and consideration of the submissions in response to this Issues Paper, the Steering Committee and Gambling Licences Review project team may schedule discussions with interested parties who have lodged submissions. A list of organisations and individuals who are consulted on their submissions will be posted on the Department of Justice website. As outlined earlier, a separate public consultation process will be conducted in relation to submissions on the Issues Paper on gaming machine licence arrangements post

8 Current Racing Industry Funding Arrangements The racing industry has traditionally drawn the majority of its funding from payment for its racing product and wagering on its races. Prior to the establishment of the Totalisator Agency Board (TAB) in 1960, this was from on-course betting with the individual clubs totalisators or on-course bookmakers, who paid fees and a percentage of their take to the clubs. Once the TAB was established, the clubs were provided with a proportion of the revenue generated by the new off-course agencies and soon after through its off-course telephone betting service. The legislation establishing the TAB required any operating losses to be underwritten by the race clubs. The important parameters for the current funding arrangement for the Victorian Racing Industry (VRI) were established in In that year the Victorian Government privatised the former TAB by way of a public float and granted a wagering licence and gaming licence to Tabcorp Holdings Limited (Tabcorp) under the then Gaming and Betting Act A condition of the granting of the licences was that the holder must come to an agreement with the VRI. The relevant conditions were set out in the legislation and are included in the consolidated Gambling Regulation Act 2003 (the GRA). Section 4.3.8(2)(b) of the GRA states: The Governor in Council must not grant the licences unless the Minister, after consultation with the Commission 1 (a) is satisfied (i) that the current arrangements between the current licensee and VicRacing or Racing Products have been or, before the licences commence, will be, concluded to the reasonable satisfaction of the parties; or (ii) that a reasonable opportunity has been given for such a conclusion of those arrangements; and (b) is satisfied that the applicant has entered into, or made a binding offer to enter into, arrangements with VicRacing and arrangements with Racing Products that, in the opinion of the Minister, after consultation with the Commission, are no less favourable to VicRacing and Racing Products that those last in force between a licensee (other than a temporary licensee appointed under section ) and VicRacing or Racing Products, as the case requires. Reflecting these requirements, the VRI and Tabcorp formed an unincorporated joint venture. The Joint Venture Agreement (JVA) and the gaming and wagering licences are in place until midnight on 15 August Commission in this instance refers to the Victorian Commission for Gambling Regulation. 7

9 The VRI s participation in the joint venture is conducted under the auspices of VicRacing Pty Ltd (VicRacing) and Racing Products Victoria Pty Ltd (Racing Products). VicRacing holds the VRI s equity interest in the joint venture and is entitled to a 25 per cent share of the joint venture s total profit (incorporating the net profit arising from Tabcorp s Victorian wagering and gaming businesses). Racing Products supplies racing services to Tabcorp in return for racing program, product supply and marketing fees. VicRacing and Racing Products distribute this income to the three codes based on the following formula: joint venture profit, marketing fee and 25 per cent of the product supply fee are allocated to the codes based on off-course wagering market share; and racing program fee and 75 per cent of the product supply fee are allocated on a fixed basis of 73 per cent thoroughbred code, 18 per cent harness code and 9 per cent greyhound code. The principal obligations and associated fees receivable by Racing Products in respect of the supply of racing information are: to provide the agreed racing program of Victorian racing for each racing year in return for the program fee of $50 million per year (indexed from 1998 in accordance with changes in off-course net wagering revenue); to provide racing information to the joint venture necessary for wagering on Victorian, interstate and overseas races, in return for the product fee of 18.8 per cent of net wagering revenue; and to prepare and implement a marketing program for Victorian racing, in return for a marketing fee of $2.5 million per year (indexed from 1998 in accordance with changes in off-course net wagering revenue). In addition, from time to time, VicRacing and Racing Products enter into arrangements with Tabcorp for the benefit of the joint venture that have different cost sharing basis as agreed between the parties. These have included the PubTAB support scheme, special joint management fees, Sky Channel costs and pay TV contributions. The arrangements agreed in 1994 reflected a number of considerations. These included the close association and financial exposure of the Victorian racing industry with the Victorian off-course TAB from its inception in 1960, the involvement and investment by the Victorian TAB in the development of the gaming sector in Victoria and the expectation that the widespread introduction of gaming machines in Victoria would impact on wagering revenue. The net result of the 1994 arrangements is that the racing sector has a direct financial interest in Victoria s wagering licence and one of the two gaming licences (which also links with club keno). Any changes to the wagering, gaming and club keno licence arrangements post-2012 would therefore potentially have a direct impact on the funding of Victoria s racing industry, in the absence of accompanying changes to the post-2012 racing industry funding arrangements. 8

10 Funding Arrangements in other States All jurisdictions provide funding to their racing industries via levies on the state-owned TABs wagering revenues, or via legislated agreements with the wagering licence holder for a share of revenues. Victoria is unique in that the racing industry is also guaranteed a share of gaming machine revenues. The 2000 National Competition Policy Review of Gaming Machine Legislation and the Government Response In 2000 Marsden Jacob Associates undertook, for the Department of Treasury and Finance, a review of the gaming machine legislation in line with then National Competition Policy requirements. A copy of this review and the Victorian Government response can be found on the Office of Gaming and Racing site at Gambling+Policy+and+Research- National+Competition+Policy+Reports?OpenDocument&1=0- Gaming+and+Racing~&2=0-Gambling+Policy+and+Research~&3=0- National+Competition+Policy+Reports~. Of relevance to the objective of racing industry support, the post-2012 electronic gaming machine licence structure and racing industry financial arrangements, is the recommendation in the Marsden Jacob Report that: the Government and the racing industry take the early opportunity to re-negotiate the current open-ended Agreement Act to ensure the on-going support independent of the existing duopoly and financing arrangements, so that agreed new arrangements can be in place when the existing contracts/licences expire in 2012 The Government s response released in July 2001, which stated that support for the racing industry was an objective of the legislation, included the following: The Government accepts the view that other methods exist by which the objectives of the legislation can be achieved, and that another method of support provision may be desirable in achieving the objectives of the legislation. This is of particular importance in any post-2012 industry structure materially different from the current arrangements. The Government recognises the contribution the racing industry makes to the State s economy. The review should be cognisant of the impacts upon the viability of the racing industry when investigating options for the industry structure beyond The Joint Venture Agreement and Funding Levels The funding flowing from the JVA is the main source of income for the Victorian racing industry. The funding is used for development, prizemoney, incentive schemes, marketing and the operation of the racing clubs. 9

11 Figure 1 shows the overall funding the Victorian racing industry receives from the JVA and its income from other sources such as gate receipts, sponsorship and gaming machines in racing venues. Over the period to , funding resulting from the JVA increased from $149.3 million to $277.1 million in , an overall increase of 46.1 per cent, or an average annual growth of over 4 per cent. The decline in reflected the introduction of regional caps on gaming machines, the end to 24 hour trading and the implementation on 1 September 2002 of smoking bans in gaming venues. Over the period to income from the JVA has constituted around 61 per cent of total revenue. Figure 1: Payments to the Victorian Racing Industry under the Joint Venture Agreement and other income from to $m Financial year Other income Marketing Fee Product Fee Program Fee Joint Venture profits (Source: Racing Victoria, Harness Racing Victoria, Greyhound Racing Victoria) The racing industry currently receives 25 per cent of Tabcorp s profits from its gaming and wagering operations in Victoria. In , Tabcorp s PBITA 2 was $221 million for gaming and $93 million for wagering. This would indicate in excess of 70 per cent of the joint venture profit of $86.7 million was derived from gaming revenues. 3 However, the fees paid in by Tabcorp to the racing industry were $177 million, which were distributed to the three codes according to the formulae outlined earlier. Other income for the racing industry outside the Tabcorp payments, such as gate receipts, sponsorship and gaming machines in racing venues, was $166.4 million. The racing codes also receive a one per cent levy of turnover from all on-course bookmakers, which replaced the State tax on bookmakers in In this was around $5.3 million. 2 Profit before interest, tax and amortisation of goodwill including non-recurring items. 3 The exact percentage is not publicly available and therefore has been estimated using data from Tabcorp s and the racing codes Annual Reports for

12 Joint Venture Agreement Funding Levels and the Victorian Racing Codes The formula for the distribution of the JVA funding levels amongst the three racing codes thoroughbred, harness and greyhound and the respective industry arrangements for the development of the individual codes and deployment of funding is outside this review. Figure 2 presents as background information the distribution of this funding to the three codes. The thoroughbred code is the largest in the state and therefore is allocated the largest amount of the revenue. The harness racing and greyhound codes have also had a steady increase in their revenues, partially due to the growth in overall revenues, but particularly as a result of the increases in their respective off-course wagering market share. Figure 2: Payments to Victorian Racing Codes: to $m Financial year Thoroughbreds Harness Greyhounds (Source: Racing Victoria, Harness Racing Victoria, Greyhound Racing Victoria) The Victorian Racing Industry and Government Funding The funding arrangements established in 1994 with the support of the Victorian Government provide the major funding for the Victorian racing industry. In addition, the Victorian Government provides funding directly to the racing sector through the Living Country Racing Program and the Racing Community Development Fund. The Living Country Racing Program was introduced by the Victorian Government in The Program provides funding to country racing clubs for minor capital works that improve local racing venues and encourage communities to view racecourses as community assets. Since the Program was introduced, $2.4m has been allocated to 95 racing clubs for 195 projects at country race courses across Victoria. The Racing Community Development Fund was established in The source of funding is the compensation paid by the Victorian Government for the increases in the 11

13 health benefit levy on electronic gaming machines in 2001 and These increases in the levy have a direct impact on the Victorian gaming returns of Tabcorp and therefore the funding flowing to the Victorian racing industry from the joint venture agreement. To date, the Victorian Government has provided $23.5m to offset the impact of increases in the health benefit levy. This funding is now channelled through the Racing Community Development Fund. The purpose of the fund is to support a range of industry development and participant welfare projects. The Victorian Racing Industry: Economic and Regional Dimensions The Victorian racing industry is a major industry sector and Victoria benefits significantly from the employment, tourism, taxation and capital investment associated with the racing sector. The racing industry has commissioned a number of reports into the size and scope of the industry in Australia and Victoria. In December 2001, the Australian Racing Board released a report on the size and scope of the Australian thoroughbred industry. 4 It estimated that the Australian racing industry created a gross economic impact of approximately $7.7 billion. In Victoria, it was estimated that it had a gross economic impact of around $2.2 billion, or 28.1 per cent of the total for Australia. The report also estimated that the racing industry in Victoria created around 22,000 full time equivalent jobs and generated direct spending of around $1.5 billion. A November 2000 report by IER Strategic Planning 5 of the impact of thoroughbred racing estimated that the direct economic impact of the thoroughbred industry in regional Victoria was around $117 million, or 24 per cent. It also estimated that 35 per cent of jobs directly created by the thoroughbred industry were in regional Victoria. A study by IER Strategic Planning 6 for Harness Racing Victoria estimated that the gross economic impact of the harness racing industry in Victoria was $578.8 million in The report estimates that the industry created around 11,000 full time and part time jobs and resulted in $438.1 million in direct spending. The report also estimated that 76.5 per cent of the direct economic impact occurred in regional Victoria and that 62.2 per cent of the jobs created were also in regional Victoria. IER Strategic Planning was also engaged by Greyhound Racing Victoria in 2002 to assess the size and scope of the greyhound industry in Victoria. It was estimated that the gross economic impact in Victoria was $178.8 million in 2002, with more than 64 per cent generated in non-metropolitan areas. The report estimates that around 17,000 people were employed in a full-time, part-time or causal capacity in the industry, with the majority (56 per cent) residing in metropolitan areas. The direct spending and investment was estimated to be around $127 million, with 63 per cent occurring in regional areas. 4 Australian Racing Board, Size & Scope of the Australian Thoroughbred Racing Industry, December IER Strategic Planning, The Victorian Thoroughbred Racing Industry, November IER Strategic Planning, Size and Scope of the Victorian Harness Racing Industry, February

14 The VRI has commissioned IER Strategic Planning to conduct a revised survey and produce and updated report on the size and scope of the Victorian racing industry. The Review understands that this report will be released in the near future. Trends in the Victorian Racing Sector The funding arrangements put in place in 1994 have resulted in Victoria s racing sector preforming strongly compared with other States and Territories. In relation to the thoroughbred sector, the Australian Racing Board releases annually a range of annual data that demonstrates the significantly stronger performance of the Victorian thoroughbred sector compared with other States and Territories. Table 1: Selected Thoroughbred Racing Industry Statistics for Victoria, New South Wales and Queensland Prizemoney 1999/00 $m 2004/05 $m Per cent change Victoria New South Wales Queensland Number of thoroughbred registrations 1999/ /05 Per cent Change Victoria New South Wales Queensland Number of race meetings 1999/ /05 Per cent change Victoria New South Wales Queensland Number of races 1999/ /05 Per cent change Victoria New South Wales Queensland

15 Number of individual runners per season / /05 Per cent change Victoria New South Wales Queensland (Source: Australian Racing Board, Australian Racing Fact Book ) In , attendances at Victorian thoroughbred races were million, with around 492,000 attending the 9 days of the Spring Racing Carnival. Of this, around 626,000 people attended 413 country race meetings. 8 There are 66 thoroughbred race tracks in Victoria, with 62 in regional areas. The 52 harness race meetings at Mooney Valley in Melbourne attracted 67,000 in , down from 141,600 attending 55 races in Regional harness races attracted 250,000 people to 446 races, up from the 222,300 that attended the 437 races in There are 38 harness race tracks in Victoria, with all but Mooney Valley located in regional areas. The 176 metropolitan greyhound races in attracted 38,846 people, up from 25,886 in The 678 regional races attracted 110,053, down from 120,901 at 672 races in There are 14 greyhound race tracks in Victoria, with 12 in regional areas. The key driver and indicator of the trend in the racing sector is the level of prizemoney and returns-to-owners. Prizemoney is primarily determined by the level of funding for the industry as a whole. Increases in revenues from wagering have driven growth in the level of prize money on offer in Victoria. The level of returns-to-owners (RTOs), being the funds that can be distributed to racehorse owners by way of prizemoney, starters subsidies and other payments, are directly related to the relative health of the industry. The level of RTOs and relativities to RTOs in other jurisdictions directly influence the level of ownership investment which in turn shapes the size and quality of the racehorse and greyhound populations and the annual race meeting calendar in which they participate. Entrants per race, the number of races and the general quality of race fields are critical variables that affect the level of wagering turnover which generates the industry revenue that is reinvested into RTOs after meeting essential industry costs. It should be noted that aggregate RTOs represent less than 40 per cent of the total cost of racehorse ownership and around per cent of owners do not recover their costs. 7 Number of individual runners is the number of horses that have entered into at least one race in the state in that year. Runners that have raced in more than one state are counted in each state total. 8 Statistics from the Australian Racing Fact Book and from Country Racing Victoria s website at 9 Harness Racing Victoria, Annual Report and Annual Report Greyhound Racing Victoria, Annual Report and Annual Report

16 A total of $135.4 million was paid to thoroughbred owners in in prizemoney and incentive payments. This is up from $119.2 million in and up from $66.9 million since the start of the JVA. Harness racing prizemoney has increased from $23.9 million in to $27.8 million in Greyhound prize money has increased from $17.1 million in to $17.9 million in Both the harness and greyhound codes also offer incentive schemes to owners, such as the greyhounds Greyhound Owner Breeder Incentive Scheme, and rebates on some expenses, such as liability insurance. What are likely to be the major economic, demographic and social trends impacting on the overall level and structure of racing sector activity in the future? Do the studies undertaken to date of the impact of the Victorian racing industry provide a comprehensive and accurate view of the significance of the racing industry to Victoria? What other factors or information should be taken into account? Post-2012 Racing Industry Funding Arrangements One of the guiding principles for the Review of Electronic Gaming Machine, Club Keno and Wagering Licences and Funding Arrangements for the Racing Industry-Post 2012 is the Government s commitment to a viable and growing racing industry. This commitment was recognised in the Government s response in July 2001 to the National Competition Policy review of the electronic gaming machine legislation. The current funding arrangements have resulted in a level and growth in funding that has provided the basis for Victoria having a growing and strong racing sector. The levels of funding flowing from these arrangements are based, in part, on the returns to one of the two gaming operator licensees. In turn, these returns have been influenced by the trends in the gaming sector and will be influenced by any changes in the short and medium-term environment for the gaming sector. For example, the introduction of a complete smoking ban within enclosed licensed premises (with some exceptions) from 1 July 2007 is projected to lead to a decline in player loss and therefore returns to the gaming machine licence holders (and the return to the VRI), venues and State taxation. The broader issue is whether in relation to the post-2012 funding arrangements, the objectives and further growth for the Victorian racing industry should continue to be dependent, in part, on the overall levels and trends in gambling expenditure. 15

17 Given the outlook for the racing industry, what should be the medium term objectives for a viable and growing Victorian racing industry? What should be the broad arrangements, including financial arrangements, that underpin these objectives and ensure that the industry has access to sustainable funds and a viable future? Should the post-2012 funding for the Victorian racing industry continue to be directly linked to access to wagering and gaming expenditure? Are the factors that influenced the structure for the funding of the racing industry in the early 1990 s still relevant for the post-2012 environment? What other revenue structures can or should the racing industry access? What are the net benefits of the current arrangements? What would be the benefits of other arrangements? What should be the nature and length of these arrangements and should any new features or obligations be included in these arrangements? Glossary GRA JVA Racing Products RTOs TAB Tabcorp VCGR VicRacing VRI Gambling Regulation Act 2003 (Vic.) Joint Venture Agreement between the wagering licensee and VicRacing and Racing Products Racing Products Victoria Pty Ltd Returns to owners, i.e. funds that can be distributed to racehorse owners by way of prizemoney. Totaliser Agency Board Tabcorp Holdings Limited Victorian Commission for Gambling Regulation VicRacing Pty Ltd Victorian Racing Industry 16