The Starting Price Regulatory Commission Annual Report 2012 April 2013
Contents Chairman s Personal Statement 3 Starting Price Regulatory Commission Report 4 1. Revision of SP procedures 4 2. Evolution and future of the SP 4 a. Introduction 4 b. Role of SPRC 5 c. Racecourse market 5 d. Price sources 6 3. Miscellaneous 7 a. William Hill training film 7 b. Big bets 7 c. Complaints 7 Appendices 9 1. The Starting Price Regulatory Commission an outline 9 2. Course Attendance Statistics 10 3. 2012 Bookmaker Attendance Statistics 11 4. Starting Price overrounds per runner January 2002-December 2012 12 5. Rules for determining the Starting Price (SP), introduced December 2011 12 6. Glossary 14 Starting Price Regulatory Commission ANNUAL Report
Chairman s Personal Statement During the year 2012, the SPRC met regularly and harmoniously to consider a range of issues which confront the operation of the Starting Price in the UK. One of the biggest concerns was undoubtedly the decline in attendance of bookmakers at some meetings, especially those concerning all-weather races at smaller courses, with the attendant risk of having an insufficient sample for determining the SP. Throughout the year there was still a robust sample at the majority of meetings, especially the large gatherings which most interest the wider public, but the question of attracting sufficient bookmaker attendance at smaller meetings was and will remain high on our agenda of concern. As is described in the Report below, the Commission always reviews the suitability of the SP formula as an instrument for settling bets. It is now only one of several options for doing so and we have always said that we are not opposed to competition and that we encourage choice for the betting public. We regularly review our own method and seek ways to fine tune it. We also regularly ask the fundamental question of whether there is a better way to settle bets which would more truly reflect the market and get a fair balance between the interests of the punter and the bookmaker. So far we have not seen a better way to do it. The SP as currently offered is transparent, evidence driven and independently derived which means it is fair. Where technical imperfections emerge, we seek to improve them. If punters do not like the SP, they have alternatives, and we do not seek to deter them. The SP is a gold standard which is appreciated by all. If a better gold standard emerges which better suits punters and the industry, we are ready to embrace it. I conclude by stating how much I have appreciated the positive assistance of my fellow members of the Commission, the great work of our deeply experienced secretary Jim Donnelley, and particularly the constructive contribution of our technical sub-committee, which contains areas of expertise far beyond my capacity. With their ready help, I look forward to the challenges facing us in the year ahead. Bernard Donoughue 3
Starting Price Regulatory Commission Report 1. Revision of Starting Price procedures In 2011 the SPRC devoted considerable attention to the rules for determining the Starting Price (SP). The revised rules and regulations were set out in our Annual Report for 2011 and are reproduced here in Appendix 5. They involve: (i) how the sample is selected, with preference given to those bookmakers betting to customary each-way terms; (ii) sample size, with a normal minimum of 6 and maximum of 24; and (iii) the decision rule for calculating the SP, which ensures that the SP, or a longer price, will have been offered by at least half the bookmakers in the sample. They came into effect in December 2011. The transition to the revised procedures went smoothly and the validators report that in 2012 the new rules encouraged an improved level of discussion between themselves and the operators. Nevertheless it is worth noting two matters that arose. First, in some races at some meetings very few bookmakers offered customary each-way terms. For example, at the Doncaster Lincoln meeting on 31 March 51 qualified SP bookmakers were present The sample for races 1-5 varied between 10 and 20 But the number of boards offering customary terms for the last three races was 8, 6 and 6 While the minimum sample size was achieved it is disappointing that more bookmakers did not offer customary terms. Second, some bookmakers changed their each-way terms or bet to win only after originally advertising and betting to customary terms and being included in the sample. This necessitates a change to the sample subsequent to the operators sending their first show. This business decision by bookmakers is relatively straightforward to predict and therefore validators are extra vigilant when selecting a sample for any such race. 2. Evolution and future of the SP a. Introduction Punters now have a variety of betting platforms. As well as traditional off-course shops these include: telephone, online (including betting exchanges), tablets, mobile and spread betting. Not surprisingly such variety leads to questions about the strength of the on-course market and therefore the future of the SP. The SPRC has touched on this issue in most Annual Reports in the last five years. But during 2012 it became clear that a comprehensive review of issues around the SP was required. The SPRC therefore established a sub-committee under the independent chairmanship of Lord Lipsey to consider this issue in depth. It received strong intellectual and practical support from representatives of the operators, AMRAC and SIS, and the Press Association to initiate this review. A preliminary discussion of it was then held by the SPRC in November, but many issues are still to be debated more fully in 2013. The broad conclusion is that, though the market place continues to evolve, there is no obvious major way or need to strengthen the Starting Price system. It continues to represent a fair basis on which punters can choose to have their bets settled, though they also have an increasing choice from a range of alternative prices. 4 Starting Price Regulatory Commission ANNUAL Report
The SPRC will continue to discuss and monitor all the issues set out below. We describe these issues to demonstrate to our stakeholders that the SPRC is not complacent about the future of the SP, is aware of developments in the betting industry, and will examine and implement any practical improvement to the SP system. Probably two matters are crucial. First, on-course bookmaker attendance remains problematic at some meetings, particularly all-weather winter meetings. Second, does the decision rule which determines the SP continue to provide a fair balance between punters and bookmakers? The decision rule is as follows. For each horse in a race the prices on offer by all bookmakers in the sample are ordered into a list from longest to shortest. The list is then divided into two equal halves and the SP is the shortest odds available in the half containing the longest odds. The SP or a longer price will have been offered by at least 50% of the bookmakers in the sample. There are many alternatives: e.g. the mean (average) of sample prices; the median (middle price from sample with an odd number); the price available at one third or two thirds of bookmakers in the sample. This issue will again be examined in 2013. b. Role of SPRC The Technical Sub-Committee recommended that the SPRC review its mandate. For example Is it appropriate to extend the mandate to include measurement of additional or alternative markets? Is it appropriate to extend the mandate to include Betting Shows? Any evolution of the SP ought to be compatible with a viable Betting Shows mechanism acceptable to the bookmaking industry and to punters regardless of any SPRC involvement in Betting Shows. An SP regularly different from final betting shows is not viable. Currently the operational objective is to return an SP wherever possible. After review the SPRC may decide that integrity of the SP is better served by not returning an SP in certain prescribed circumstances, e.g. when on-course bookmaker attendance is inadequate. c. Racecourse market Sample selection The SPRC will need to keep under review its sample selection rules. Presently this is driven by SPRC requirements to measure sample participants offering each-way terms equivalent to those prevailing in primary off-course markets. Priority is given to bookmakers offering customary or near-customary each-way terms. This may result in SP s being returned from a small sample despite relatively large bookmaker attendances at some races (see Section 1). Bookmaker attendance At some meetings, particularly winter all-weather, bookmaker attendance levels may lead to small samples which might not represent a viable betting market or meet the sample selection rules. Each-way terms In some races the disparity between the prevailing each-way terms in the sample and those of bookmakers laying SP bets may eventually result in off-course bookmakers not offering the SP on such races. A possible evolution is returning separate win and place SP s but this would require a major paradigm shift by both the racecourse and off-course bookmakers and the way they do business with punters. It would also require major investment in the requisite technology. 5
Decision rule As set out in the introduction to this section, the SPRC will keep the decision rule used to compute the SP under review. bookmakers may be increasingly disinclined to stand at lesser meetings. This again raises the issue of targeted payments to bookmakers where there would otherwise be a danger that no SP could be returned. The SPRC will keep this matter under review. d. Price source Racecourse bookmakers Racecourse bookmakers are currently the sole source of prices included in the SP. Bookmakers no longer operate standalone books with hedging limited to other racecourse bookmakers. Prices are influenced by office money and the exchanges. Some bookmakers have associated LBO, online and telephone operations. It is arguable that racecourse bookmakers no longer form a discrete on-course market but are course representatives or agents of a much wider betting industry. With so many platforms available to the racegoer, racecourse bookmakers may lose their position as layer of choice to punters attending race meetings, further reducing liquidity. Consequently racecourse The Tote Until recently the Tote was a standalone quasigovernment organisation operating at all BHA sanctioned meetings. Further, the Tote declares separate win and place dividends which cannot be directly included in the SP. Off-course bookmakers Currently very few off-course bookmakers offer their own prices in the few minutes before the off. The vast majority offer betting shows from the Operators and the SP. If more firms start offering their own prices this might signal a move away from the SP. 6 Starting Price Regulatory Commission ANNUAL Report
Betting exchanges It is sometimes asserted that exchange prices should be incorporated in the calculation of the SP. But exchanges and the SP are different: Exchanges offer separate win and place prices Exchange customers lay standalone bets and do not offer to lay every horse in a race There is no general guarantee that a horse can be laid at an advertised price Anyway, it is plausible that exchange information is already, partially at least, reflected in the SP: Morning trades on the exchanges influence the opening price Off-course bookmakers use exchanges to hedge their liabilities. This influences exchanges prices and, in turn, on-course prices On-course bookmakers also hedge with exchanges and, in some cases, simply arbitrage between the exchange price and the on-course price b. Big bets SP validators ceased collection of big bets on 1 January 2012. This was not an official SPRC function or responsibility. This caused adverse comment in the media. PA stopped working on these from 12 January 2012 The operators (SIS and TurfTV) started working on Big Bets from 5 March 2012 Full cost of the operation funded by the operators (SIS and TurfTV) c. Complaints One important role of the Commission is to be the receiver of formal complaints about the workings of the SP. There were no formal complaints from the public in 2012. 3. Miscellaneous a. William Hill training film William Hill produced an in-house training film including material at Sedgefield racecourse. A brief section discussed how betting shows and SP s are produced. With SPRC & Operators permission this included filming the Operating staff and SP Validator working at the show and validation screens and a short interview. The SPRC are pleased that its work is propagated more widely. 7
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Appendix (1) The Starting Price Regulatory Commission an outline 1. Purpose The Starting Price Regulatory Commission (SPRC) is an independent body responsible for the integrity of the Starting Price (SP). A substantial number of bets on British horseracing struck with bookmakers in betting shops and other off-course outlets are paid out according to the SP. The job of the Commission is to ensure that the returned price accurately reflects the price available on-course at the off. 2. Background Starting Prices have been returned using the on-course market since the 18th century. With the growth of markets for betting off-course, it became essential that the SP s accurately reflect the on-course market and that they are seen to be independent of the bookmakers who accept off-course bets. Governance therefore is of the greatest importance. The Starting Price Liaison Committee of 1994 was turned into the SP Executive in 1999, before the creation of the current body, the Starting Price Regulatory Commission (SPRC) in 2004. The first set of operating rules for the SP was issued in 1998, and then updated in the following year. Following a review of the SP by Arthur Andersen, an accountancy firm, in 2000, further revisions were made. There were also revisions in 2006. The current set of Operating Rules and Procedures was issued following a review by the Commission in 2011. 3. Composition The Board of the Commission consists of up to four independent Non-Executive Directors. Lord Donoghue, a former minister at the Ministry of Agriculture, Fisheries and Food, chairs it. Currently his fellow directors are Professor David Metcalf, Emeritus Professor at the LSE and an ex-racecourse steward and Lord Lipsey, a former director of the Tote. Jim Donnelley of the Press Association acts as company secretary. The Board meets at regular intervals throughout the year (five times in 2012), with executives of the operators organisations SIS and AMRAC in attendance plus a representative of AGT. In addition there were a number of ad hoc meetings. Olswang LLP continues to be the Commission s legal advisors. 4. Company Status The Commission is a non-profit organisation operating on a cost recovery basis. 9
Appendix (2) Course Attendance Statistics Racecourse Attendance Month Attendance Actual Fixtures 2012 2011 Ave. Daily Attendance Actual Fixtures Ave. Daily January 180,516 97 1,861 181,388 100 1,814 February 116,635 76 1,535 166,155 97 1,713 March 444,139 109 4,075 415,227 109 3,809 April 436,792 103 4,241 642,788 132 4,870 May 564,407 145 3,892 647,026 157 4,121 June 948,225 145 6,539 926,478 145 6,390 July 698,707 126 5,545 1,033,543 147 7,031 August 863,589 156 5,536 749,561 149 5,031 September 437,687 108 4,052 409,951 112 3,660 October 337,543 115 2,935 364,378 112 3,253 November 274,756 94 2,923 297,568 105 2,834 December 278,619 95 2,933 317,180 104 3,050 Total* 5,581,615 1,369 4,077 6,151,243 1,469 4,187 (-9.3%) (-6.8%) (-2.6%) *Statistics do not include Epsom Derby Day customers on the Hill Day by Day Comparison Total Attendance Actual Fixtures Average 2012 2011 2012 2011 2012 2011 Monday 325,064 521,378 168 197 1,935 2,647 Tuesday 369,644 411,497 175 185 2,112 2,224 Wednesday 579,229 604,224 213 227 2,719 2,662 Thursday 651,948 720,605 213 233 3,061 3,093 Friday 1,032,401 1,131,821 225 233 4,588 4,858 Saturday 2,126,585 2,242,468 260 272 8,179 8,244 Sunday 496,744 519,250 115 122 4,320 4,256 10 Starting Price Regulatory Commission ANNUAL Report
National Hunt and Flat Comparison Total Attendance Actual Fixtures Average 2012 2011 2012 2011 2012 2011 Jump 1,983,604 2,233,733 513 570 3,867 3,919 Flat Turf 3,287,385 3,598,309 540 595 6,088 6,048 Flat AWT 284,668 294,219 313 301 909 977 Mixed 25,958 24,982 3 3 8,652 8,327 Afternoon and Evening Comparison Total Attendance Actual Fixtures Average 2012 2011 2012 2011 2012 2011 Afternoon 4,638,624 5,029,128 1,035 1,100 4,482 4,572 Evening /Twilight 942,991 1,122,115 334 369 2,823 3,041 Total Attendance Actual Fixtures Average 2012 2011 2012 2011 2012 2011 Jump Evenings 155,330 189,428 59 63 2,633 3,007 Flat Turf Evenings 655,035 787,051 135 162 4,852 4,858 AWT Evening 132,626 145,636 140 144 947 1,011 Total Attendance Actual Fixtures Average 2012 2011 2012 2011 2012 2011 Jump Afternoons 1,828,274 2,044,305 454 507 4,027 4,032 Flat Turf Aft. 2,632,350 2,811,258 405 433 6,500 6,493 AWT Afternoons 152,042 148,583 173 157 879 946 Mixed Afternoons 25,958 24,982 3 3 8,653 8,327 Appendix (3) 2012 Bookmaker Attendance Statistics Tatts = 26,160 (2011 28,517) Rails = 9,503 (9,870) Minor = 6,526 (7,241) Total 42,189 vs a 2011 total of 45,628 11
Appendix (4) Starting Price overrounds per runner from January 2002 to December 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 January 2.04 1.62 1.60 1.49 1.49 1.62 1.69 1.61 1.62 1.61 1.59 February 2.14 1.69 1.53 1.54 1.45 1.62 1.73 1.74 1.59 1.59 1.63 March 1.87 1.72 1.50 1.49 1.41 1.68 1.76 1.61 1.62 1.52 1.61 April 1.90 1.85 1.52 1.50 1.41 1.73 1.76 1.63 1.56 1.62 1.60 May 1.91 1.71 1.54 1.55 1.45 1.77 1.80 1.67 1.57 1.61 1.56 June 1.85 1.73 1.62 1.51 1.48 1.79 1.80 1.70 1.67 1.67 1.60 July 1.91 1.62 1.65 1.54 1.54 1.73 1.78 1.74 1.65 1.64 1.70 August 1.88 1.73 1.64 1.51 1.65 1.78 1.79 1.72 1.65 1.65 1.74 September 1.72 1.57 1.45 1.41 1.45 1.70 1.61 1.62 1.58 1.53 1.68 October 1.74 1.55 1.47 1.45 1.52 1.59 1.61 1.57 1.48 1.43 1.62 November 1.73 1.57 1.49 1.43 1.72 1.64 1.69 1.61 1.55 1.54 1.68 December 1.79 1.68 1.58 1.48 1.79 1.85 1.70 1.60 1.64 1.62 1.81 Annual average for 2012 is 1.65. Appendix (5) Rules for determining the Starting Price (SP), introduced December 2011 The Starting Price for each horse is the market price at the off generally available to good money on the boards of those bookmakers in a sample whose each-way terms for a given race most closely reflect the each-way terms on offer for that race in the off-course retail market. a. Decision rule for calculating SP For each horse in a race the prices on offer by all bookmakers in the sample are ordered into a list from longest to shortest. The list is then divided into two equal halves and the SP is the shortest odds available in the half containing the longest odds. The SP or a longer price will have been offered by at least half the bookmakers in the sample. b. Selected definitions i. Bookmaker A bookmaker is defined as an on-course bookmaker betting in accordance with the Gambling Commission s Licence Conditions and Codes of Practice. For the purpose of SP sample selection, these rules categorise bookmakers as SP Qualified or Non-Criteria. An SP Qualified bookmaker displays prices against every runner for at least ten minutes before the scheduled off time of each race and continues to do so up to the off. A Non-Criteria bookmaker may not display prices in this way. 12 Starting Price Regulatory Commission ANNUAL Report
ii. Good money Generally that offered by a Starting Price Qualified Bookmaker who, in the judgment of the SP Validator following consultation with the Betting Operator, is prepared to lay a single bet to lose at least 500 on each horse in a scheduled race at that meeting. c. Each-way terms The sample is selected (see below) partly on the basis of each-way terms offered. Customary each-way terms are: Race type and number of runners All races with fewer than 5 runners Fraction Places of win odds N/A - All races with 5,6,7 runners 1/4 1,2 All races with 8+ runners 1/5 1,2,3 except those below Handicaps, Nursery and Rated Stakes Handicaps - Races of 12-15 runners 1/4 1,2,3 - Races of 16+ runners 1/4 1,2,3,4 Criteria each-way terms offer 1/5 of the odds in Handicaps, Nursery and Rated Stakes Handicaps (first four places) in races with 16-21 runners. Non-Criteria each-way terms vary. Some bookmakers may, for example, only offer one sixth of the win odds in some races. d. Sample selection The maximum sample size is 24 and the normal minimum is 6. If there are fewer bookmakers available, as often occurs at winter all weather meetings, the minimum sample size can be lower, but never fewer than 3. The sample is selected on the following order or precedence: SP qualified bookmakers offering customary each-way terms SP qualified bookmakers offering criteria each-way terms SP qualified bookmakers offering non-criteria each-way terms SP qualified bookmakers offering win-only terms Non-criteria bookmakers e. Monitoring The purpose of the SP rules is to ensure that the SP remains robust and is impartial to both punter and bookmaker. It follows from the sample selection rules that the sample may alter in successive races at the same meeting. The Validators and Operators were all given intense briefings concerning the rules and have a SP Validator Procedure document for consultation. The revised rules for determining the SP came into force in December 2011. 13
Appendix (6) Glossary AGT Administration of Gambling on Tracks Limited Police the administrative aspects of the ring, such as pitch allocation, late payments, disputes, etc AMRAC Gambling Commission Press Association Sport RDT SIS SP Amalgamated Racing. Betting shop service provider of pictures and data to the betting industry Police the regulatory aspect which forms part of a licence condition for the bookmakers Manages and employs the validation team Racecourse Data Technologies. A computer systems and software company Satellite Information Services. Provider of picture and data services to the betting industry The Starting Price for each horse is the market price at the off generally available to good money on the boards of those bookmakers in a sample whose each-way terms for a given race most closely reflect the each-way terms on offer for that race in the off-course retail market 14 Starting Price Regulatory Commission 2012
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