04 Jun 2009

Do race clubs compete?

by Linda Evans, Lyndall Stoyles

Whether parties are competitors will be particularly important when considering mergers, exclusive dealing or licensing arrangements within the racing industry.

The Trade Practices Act (TPA) regulates a broad range of behaviour of participants in the racing industry. It regulates what competitors can and cannot agree upon. It also regulates whether competitors may merge or combine in some way.

A key question in the assessment of whether behaviour will or will not be permissible under the TPA is whether or not the persons engaging in the conduct are competitors.

Regulation can have a significant effect on the extent to which people compete. This has some interesting implications in an industry such as the racing industry which is subject to somewhat unusual regulation.

Racing regulations

Racing regulations determine the dates on which a racecourse can hold races for a particular code of racing. In areas where there is more than one race course for a code, the racing regulator will typically permit only one of those racecourses to hold a race on any particular day. A race calendar will be determined by the regulator and race days allocated to each racecourse. This ensures the racecourse can attract the best races for their race day.

Without this regulation, the racecourses within an area would be expected to compete and compete quite vigorously to attract customers by holding the best races. This competition is essentially removed by the regulation which sets the race calendar in a way so that races are not held on the same day in one area.

So if, for example, the two principal horse racing clubs in Sydney were to merge, we would expect that this would be unlikely to substantially lessen competition in markets for conducting race meetings in Sydney, or markets for providing thoroughbred racing services in Sydney or providing services to race clubs in Sydney. The reason for this is that the two principal clubs are unlikely to compete for these services because the racing regulations prevent them from holding races on the same day.

Another example of how regulation affects the degree of competition in a racing market is in relation to advertising restrictions. Until recently, NSW legislation prohibited interstate totalisator operators and bookmakers from advertising within NSW. The purpose of the regulations was to discourage interstate operators from taking bets from NSW residents on races being held outside the state to avoid loss of revenue for the NSW Government. What this then meant was that interstate operators were not as competitive within NSW as one would expect they would have been if they had been allowed to advertise in NSW. The ACCC recognised in its decision to oppose the 2006 proposal by Tabcorp to acquire UNiTAB that the extent of interstate competition from totalisator operators and bookmakers was limited. One reason for this was the existence of the State prohibitions on interstate advertising.

A final example of how regulation may affect the degree to which people compete is the law passed in Western Australia in 2007 to make it an offence to bet with a betting exchange. This legislation was successfully challenged by Betfair on constitutional law grounds. However, if it had not been successfully challenged, Betfair would have committed an offence each time it accepted a bet from a person resident in WA. This would have significantly reduced the extent to which Betfair and other betting exchanges could compete for customers in WA.

What does this mean for the racing industry?

What this means for those involved in the racing and gaming industry is that while decisions made in other industries may be relevant to some degree, this industry has some quite particular regulations which will affect the extent to which people compete and ultimately the impact of the TPA upon them.

This will have a particular impact on them when considering mergers and acquisitions within the racing industry or exclusive dealing or licensing arrangements such as arrangements to grant exclusive rights to broadcast races.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.