Nagging doubts

Lawyers for horse racing organisations are outraged by the OFT’s investigation into the sector. Jon Robins canvasses opinions on both sides


The bad feeling and suspicion of foul play generated by the Office of Fair Trading’s (OFT) three-year investigation into horse racing would be more than enough for a Dick Francis-style thriller based on the competition-buster’s work. Last week tempers were particularly frayed as the great and the good of racing put the finishing touches to their own responses to the OFT’s preliminary finding that its governing bodies were anticompetitive.

An “alarmed” Jockey Club has hit back and declared that the consequences of an unregulated “free-for-all” would be “the destruction of the sport in the form to which it has evolved over some 400 years”.

The heavily trailed and withering response from the British Horseracing Board (BHB) is expected to accuse the OFT of deliberately ignoring information, or having “selectively relied on the evidence of certain parties”, namely the bookmakers and the large racecourses.

The scene for this bad-tempered fallout was set back in April when the OFT announced its provisional decision (a so-called Rule 14 Notice) to the sport’s two ruling organisations – the BHB, which is the governing body, and the Jockey Club, which is the regulator – that their ‘orders and rules’ breached the Competition Act 1998.

“I don’t know how many racecourses the men from the ministry visited in those 36 months, or even who they spoke to,” pondered the former Sports Minister and Labour MP Kate Hoey last month. “But it’s clear from their report that they gained no real understanding of what makes racing such a popular sport and how it’s evolved to run as it does.” Government ministers should tell the OFT to “back off” before they did “immense damage to the industry”, she concluded.

David James, chairman of the Racecourses Holding Trust, was even more blunt when he predicted that racing would be “a dead duck” within four years if the OFT line was followed.

The dispute represents a new stage in that old staple debate of sports law conferences: how do the principles of competition law deal with the increasingly commercial interests of sport? Racing’s governing bodies are arguing that the Competition Act has a pretty limited say, if any, in running this sport.

“Our initial response was that, for whatever reason, the OFT has completely misunderstood the nature of sport in general and horseracing in particular,” comments Angus Murray, an associate at Charles Russell who has been working on the Jockey Club’s response. “They’ve regarded it as an industry rather than a sport and they’ve applied simplistic supply and demand principles which might apply to analysing an industry situation.”

Not surprisingly it is a concern echoed by the BHB. “In broad terms, we argue that the OFT has misunderstood the nature of the sport; they’ve incorrectly applied the law and it follows that if they had correctly applied the law and understood what they were dealing with, there would have been no finding of infringement at all,” says Guy Leigh, a partner at Addleshaw Goddard, which represents the BHB. “We’re not saying that they can’t look to see if there has been an infringement, we’re saying that they’ve come to the wrong conclusions in spite of a vast array of evidence presented to them.” The BHB will also argue that there have been “procedural defects”, as Leigh puts it, in relation to the way in which the OFT looked at that evidence.

As Murray sees it, the OFT has come equipped with its own “agenda” and its approach has been more akin to prosecuting counsel rather than impartial regulator. “We can’t understand the motives and the only thing we can think of is they’ve got an agenda of their own to recover some of the ground they lost on the collective selling case against the Premier League,” he says. “Otherwise I’m struggling to see quite where they’re coming from.”

There are obvious echoes of the OFT’s investigation a couple of years ago into the Premier League’s right to collectively sell its own media rights. The OFT contended that the league acted as a cartel, denying individual clubs the opportunity to exploit their own TV rights, but it lost the argument in the High Court.

So what were the OFT’s controversial conclusions on horse racing? According to the watchdog, the sport’s ‘orders and rules’ infringe competition by limiting the freedom of racecourses to organise their races, fixing the amounts racecourses must offer owners to enter their horses in a race and monopolising the supply of race and runners’ data to bookmakers.

Neil Baylis, head of the competition group at Nicholson Graham & Jones, takes the objections of the BHB and the Jockey Club with a pinch of salt. As for the specific suggestion that the OFT has been ‘selective’ with evidence, he reckons that it is “the inevitable response of people who can see things aren’t going their way”.

“The OFT see their role as implementing legislation, and if they believe there’s an infringement they’re duty-bound to do something about it,” he says. Baylis has been advising the National Greyhound Racing Club, which has taken an understandable interest in the outcome of the dispute.

So will the OFT back down? “It’s very likely that they’ll now reach an infringement decision, and it’s likely to be a quite robust one at that, because I don’t see how it can go back on what they’ve been saying,” Baylis reckons. Although the OFT analysis might be hard-hitting, he does not see it as “unreasonable or irrational”, as some commentators would have it.

So how will the Jockey Club make its case that the multimillion-pound industry that is racing today is primarily a sport? Well, for a start, it argues that it does not even fall under the remit of the Competition Act in the first place, as it is neither “an undertaking” nor an “association of undertakings”.

“The Jockey Club does not represent the commercial interests of the participants in the sport. As regulator it has responsibilities to, and protects the interests of, the sport of racing itself,” argues Murray. He also says that EU case law has already dealt with the fact that sporting rules – those necessary to control and organise the sport – are not susceptible to competition law.

“The OFT has taken a simplistic and misguided view that racing is an industry and that racecourses offer ‘British racing opportunities’ – offers to owners to run their horses in races,” he contends. “The OFT has then applied elementary principles of supply and demand to this proposition. But the concept of ‘British racing opportunities’ is completely wrong. Racecourses play an important part by providing a suitable venue for a race, but you can’t have a race with one horse, or without the participation of many other parties such as owners and riders. The sport of racing under rules, however competitive, is an interdependent activity.”

To the outsider, it would seem that the BHB’s control over the staging of races and the level of prize money is self-evidently restrictive practice. Addleshaws’ Leigh, however, does not see it that way. “I would have thought that, in the context of sports, providing fixtures is something that has to be done centrally. It’s clearly a restriction on conduct, but I wouldn’t have thought the average person would think it’s an infringement of competition law or even something that’s necessarily wrong.”

Nor does the BHB fix prices as the OFT suggests, he argues. “It does have a significant role in relation to prize money, but prize money is not price, prize money is a way of attracting horses and a way of reducing the cost of racing to an owner,” he says.

The OFT has not just been looking at the racing industry’s establishment. The £307m attheraces consortium, backed by BSkyB and Channel 4, has also been the recipient of a Rule 14 Notice in a separate investigation. The consortium was launched last year and, according to the OFT, the 49 courses involved have acted anticompetitively in the collective selling of media rights.

Adrian Barr-Smith, a sports law partner at Denton Wilde Sapte, has been advising the Racecourse Association in relation to the investigation. The “cynical view” is that the OFT is giving racing’s ruling bodies such a grilling that its investigation into attheraces is an attempt “to spread the pain a bit”. “I don’t know if that’s accurate or not,” he says. “But it does take out one element of what might be a plank for a judicial review of any decision which would seek to say this was motivated by a desire to just heap pain on to the BHB.”

Barr-Smith draws a distinction between the attheraces scenario and competition law objections to collective selling in football. “The OFT has picked on a fairly unusual target in the sense that there are rules that require racecourses to sell their rights, and historically they’ve all sold them independently,” the lawyer explains. “The only reason why they got together originally is because it’s the only way to create a new product like an interactive broadband television service over which you can place bets. This is competition to the established bookmaking interests, who are well established, well heeled and who pay the industry a large sum of money.”

Of course, the current spat between the OFT and the BHB and Jockey Club comes with a long history. The horseracing establishment has been at loggerheads with both the racecourses and bookmakers for years over the control of racing. Racecourse owners argue that the sport has fallen behind the likes of football in terms of maximising commercial success.

So what do the racecourse owners make of the OFT’s analysis? Unsurprisingly, they are largely supportive of the prospect of enforced liberalisation (with the obvious exception of the Racecourses Holding Trust, which is owned by the Jockey Club).

Howard Cartlidge, head of Olswang‘s competition group, is advising Northern Racing, one of the larger racecourse groups, as well as the attheraces consortium. There is a “slight disconnect” between the two sides of the debate, he observes. “The BHB is saying that the OFT wants chaos, a free-for-all, but I don’t think the racecourses want a complete free-for-all either. They recognise the need for some centralised oversight, but they just think that it’s too centrally controlled at present.”

The OFT analysis is a statement as to the illegality of the present arrangements, he says, and now it is up to the BHB to come up with some options. “At present there’s no sign that the BHB is much interested in doing that,” he says. “Their approach is very much that the OFT is wrong and they’re going to fight them to the end.”

The bookies take a similar line. It was William Hill that started the ball rolling when it complained that the BHB was in breach of a dominant position in the supply of electronic data, such as the details of meetings, times, runners and pre-race information. So what is the bookie’s present view? “I’m not hugely concerned,” comments David Harding, chief executive of William Hill. “We complained to the OFT about the collective selling when the racecourses and the BHB pooled their collective rights for the sole purpose of forcing up the price that they could charge the bookmakers.” Since then the BHB agreed a five-year deal with bookmakers that could be worth as much as £575m by the time the contract expires in 2007.

“We believe that sport and gambling are not industries that lend themselves to the complete free-for-all of competition law,” says Harding. “There are issues of keeping gambling crime free and protecting the integrity of the sport which do require some central coordination. So it’s a question of swinging the pendulum a little bit closer towards competition.”