PART III: A New Body to Govern, Finance and Regulate Greyhound Racing

Chapter 10

THE FINANCING OF GREYHOUND RACING IN GREAT BRITAIN

Introduction

This Regulatory Review of Greyhound Racing was commissioned in the wake of the Seaham incident which alerted a wider public to some of the welfare issues surrounding the sport. Our Report, although initially intended to be concentrated on regulation, has necessarily covered a broader canvas; it rapidly became clear that good welfare is to a large extent derived from good regulation and good regulation is derived from having the correct governance structures in place. Our Report has therefore covered all these different aspects of greyhound racing but must also recognise that the whole proposition we have put forward is dependent upon robust, adequate and transparent financing.

It would be fair to say that nearly every witness from whom we have received evidence has been critical of the current financial structure of the sport. The Association of British Bookmakers (ABB) in its evidence described the financial relationship between the NGRC and the BGRB as "complicated" and questioned the efficiency of the system of cross-funding which exists between them. The brief analysis of the structure which follows shows that the system is indeed complex and contradictory and, in our view, ripe for reform.

The British Greyhound Racing Fund

An overview of the BGRF has been given at Chapter 7 so it is sufficient to say here that by far the largest single source of income to greyhound racing as a whole accrues from the greyhound levy paid by a minority of bookmakers, albeit including all the major companies, to the BGRF. The current rate is 0.6% of betting turnover on greyhound racing events and this generated an income of just under £11.5 million to the fund during 2006 [6]. Although turnover on greyhound racing has declined somewhat during 2007, the introduction of evening opening of betting shops and the consequent purchase by BAGS [7] of additional fixtures suggests that the income to the Fund through 2007 and 2008 should nevertheless hold up at around £11.3 million. The mechanism by which the Fund disburses its income is discussed below.

Other Sources of Income

The other main source of income accrues to the NGRC through its collection of licence fees. These include track licence fees, registrations and transfers of ownership and licence fees payable by trainers, officials and kennel staff. The largest single source of licence income, however, is the Transmission Licence fee currently paid by those tracks on BAGS and Sky TV contracts which currently pay £51 per race for regulation (to be increased to £53 with effect 1st January 2008). The Transmission Licence fee generates approximately £1.6 million per annum income for the NGRC or about 51% of its total income of just over £3 million in 2007. There is, however, some disquiet about the fairness of this charge amongst those track promoters who pay the Transmission Licence Fee and we will return to this matter later in the chapter.

Track and Personal Licences

Each of the 30 licensed tracks pays a licence fee of £155 per month to the NGRC; this raises about £54,000 per annum; this sum is to be increased to £160 per month (£1920) per annum from 1st January 2008, when it will raise £57,600 per annum. Trainers, kennel staff and officials pay annual licence fees varying from £8 for kennel hands to £47 for professional trainers (to be increased to £9 and £49 respectively on 1st January 2008). These are small sums of money which together generate around £85,000 (increasing to £93,000 in 2008) and in some categories, it is said, do not cover the cost of their own administration. This does not seem sensible but the authorities have been conscious that those who pay these fees are in many cases not well off individuals. It also appears that, because the sums are small, even doubling them would make little difference to the overall budget whilst seeming to impose an unwelcome burden on those least able to afford such additional costs.

Registrations and Transfers

The current fee for registering a greyhound or registering a transfer of ownership is £25 (less VAT) (£26 with effect from 1st January 2008); together, these raised £255,000 in 2007 based on 10,000 registrations and 2,000 transfers of ownership; assuming the same volume in both registrations and transfers, this figure is set to increase £265,500 next year. The level of registration fees charged over the years has varied considerably but it is still lower now than it was 15 years ago. We do not think that such a pricing structure is sustainable either on administrative, commercial or welfare grounds when the costs of providing and maintaining the necessary regulatory resources are increasing.

Integrity - BGRF Grant

The last major source of income to the NGRC accrues from an annual grant from the BGRF in support of the drug prevention regime, including the sampling itself, funding the Flying Squad, research and the earmarking programme. This amounts to over £1 million per annum but, as explained in more detail below, such grants must be approved by the BGRF Board which, with the exception of its independent chairman, is populated by BGRB board members and bookmakers or their representatives. The NGRC itself is not represented on the BGRF Board.

Administration Charges

The BGRB and NGRC administrative budgets are prepared by a finance committee comprising an NGRC steward and its Chief Executive, sitting with a BGRB director and the BGRB General Secretary. Administration costs for both bodies are met from income from licence fees and the process thus agrees the fee levels necessary to meet the administration budget costs. The combined budget for 2007 was £1.29 million for the NGRC plus £619K for the BGRB, totalling £1.91 million. This process does not involve the BGRF.

The BGRB/BGRF Budget Process

Each year, in August, the BGRF meets to decide the Fund's budget for the following year. This is based on an assessment of likely income, the Fund's own administrative expenditure and a prudent policy on reserves. The remaining "disposable income" figure is then notified to the BGRB.

The BGRB budget process starts in September. The Chairman issues guidelines as to the parameters and priorities which he believes should shape the Board's approach and bids are accordingly made by the three standing committees which are Welfare, Racing and Commercial. We are informed that, in general terms, the standing committee budgets are broadly comparable in size; the welfare budget covers diverse issues, racing includes prize money and commercial includes marketing and grants to stadia. These bids are then submitted to the BGRB Budget Committee which comprises the Chairman and both Independent Directors.

The Budget Committee makes a provisional allocation which is then discussed further with the Committee chairmen and adjustments made where necessary with any increases in one area having to be offset by decreases in another. When finally agreed between the Committees and the Budget Committee, the recommendations are put to a special BGRB Board meeting which is invited to approve the package as a whole.

Once the budget has been agreed by the BGRB, it is forwarded to the BGRF Board for approval. By convention, the six bookmaker members of the BGRF Board approve the budget without substantial amendment, although they may seek to ensure that there is no or minimal dilution of expenditure on issues to which particular importance is attached; in particular, they have helped to ensure that welfare spending has risen and sought to satisfy themselves that there is adherence to proper financial disciplines.

As noted above, the NGRC receives the funding for its integrity programme through this process, with the actual sum being bid for via the Racing Committee to the BGRB Budget Committee and thence to the Board. Although the NGRC has no representation on the BGRF Board, the Senior Steward is a member of the BGRB Board and the NGRC Chief Executive is a member of the BGRB Racing Committee. Thus, although always a minority voice, the opportunity for the NGRC to contribute to the budget-building process is there, even if it is not actually part of the BGRF final decision-making.

Summary of Current Position

The current position, therefore, is that monies derived from the NGRC licensing programme are used to fund part of its regulatory costs and also the administration costs of the NGRC itself and the BGRB. The allocation of funds derived from the greyhound levy, including the integrity grant to the NGRC, is, in effect, decided by the BGRB and approved by the BGRF Board. The BGRF Board has seven seats out of fourteen allocated to the BGRB and all seven are occupied by people who are also BGRB Board members. The NGRC is thus in a position whereby it not only funds the administration of the BGRB but must also submit any other bids for funding, which must necessarily be met from the BGRF (such as a drug testing budget) through the BGRB Committee structure and, ultimately, be approved by a BGRF Board on which it has no representation and of which the BGRB holds 50% of the seats. What this means in effect is that the Regulator must both fund the administration of the regulated and rely on the support of the same body before it can obtain the additional funds it needs from time to time to carry out its primary function.

Even if this institutional influence of the regulated over the Regulator were never to be exercised, it is hard to see how the much vaunted independence of the regulator is enhanced by this opaque and conflicted funding structure. In fact, we have evidence which suggests that it is not unusual for this influence to be brought to bear, either directly or implicitly, where an aspiration of the regulator is perceived to be in conflict with the commercial interests of the sport.

We do not believe that this funding mechanism can be justified under the modern principles of regulation and governance, in particular the principles of transparency and accountability. It is, among other things, for these reasons that we have recommended a single governing body for the sport and it is clear to us that a radical change in the way in which funding is managed is required. We make proposals for a different structure below.

An Alternative Approach to the Funding of Greyhound Racing

It is, we believe, axiomatic that greyhound racing, like any other sport, should be responsible for paying for its own regulation and that the costs of that should be spread fairly across the different sectors; that is not self-evidently the case at the moment. At the same time we recognise that some have a greater capacity to pay than others but that cross-subsidy is to be avoided or at least reduced to the greatest extent possible. It will be to the great and continuing advantage of greyhound racing if Government accepts our recommendation that it should remain a largely self-regulating sport, albeit within a statutory framework; as recent examples show, the institution of a full statutory regulatory regime is a very expensive business indeed.

Licence Fees: The Transmission Licence vs Track Licence

Although the NGRC is heavily reliant on the Transmission Licence Fee for its funding, it is the view of those who pay it and, we believe, some bookmakers, that the Fee is in fact a cross-subsidy which unfairly impacts upon the payers. They would prefer to see a mechanism under which the cost of regulation was more closely correlated with the degree of regulation actually required by each track. To an extent, the Transmission Licence Fee already does this because it is charged on a per-race basis and thus those who race the most, pay the most.

However, because it applies only to those whose races are televised, the charge is concentrated on some tracks and not others, thus introducing a cross-subsidy element in the cost of regulation. We have some sympathy with this point of view and will suggest that a higher annual track licence fee plus a per-race charge on every race, televised or not, should be manageable and spread the load both more equitably and more proportionately.

We do of course recognise that some tracks would incur new and increased costs as a result and that others would benefit through a reduction in their costs. The relative affordability of this proposal therefore is an important consideration because, although a rebalancing of the regulatory cost is a fair and reasonable thing to do, we have no wish to impose excessive charges on smaller tracks which have either no or very little volume of off-track betting and a limited ability to meet the extra cost.

Thus, whilst we accept that a full cross-subsidy such as currently exists is inherently unfair on those who pay, we also recognise that the capacity to pay for regulation is not uniform across all tracks and must, we believe, be taken into account under any replacement system. We thus conclude that, whilst those with the greatest capacity to pay (largely as a consequence of having televised racing contracts) should not be required to pay the whole cost, they should nevertheless be required to pay more than those without access to such sources of additional income.

We therefore recommend that the track licence fee should be restructured to include two elements: a flat fee of £3,500 per track per year; and, in addition, a regulatory charge based on the total number of races run at each licensed track, of which there are now 30. The regulatory charge would be two-tiered with those on BAGS and/or Sky TV paying at a higher rate for televised races with all other races, wherever they occur, being charged at a lower rate.

From the figures available to us, we estimate that approximately 76,000 races will take place next year (2008). About 27,120 of these will be televised either by BAGS or on Sky TV; the remaining 48,880 will not. Thus, if the televised races were charged at a fee of £25.50 per race (half the current Transmission Licence Fee rate) and the remainder were charged a regulatory licence fee of £11 per race, the total raised would substantially replace the Transmission Licence fee [8].

On average, a track currently paying nothing for regulation apart from the current Track Licence Fee would pay a new regulatory charge of between £130-£140 per fixture under the proposal outlined above. It must be for debate within the industry and its governing body whether these ratios are right and whether the differential impacts are acceptable, particularly to those tracks adversely affected. However, the principle of raising the Track Licence Fee to a more realistic level and including within it a contribution to the overall regulatory cost, seems to us to be a much fairer way of generating the necessary funding whilst reducing cross-subsidy to a level consistent with capacity to pay. However, if this approach, or something akin to it, is not adopted then either the Transmission Licence Fee will have to be retained or perhaps another, equally radical, alternative will need to be found.

Together with the changes recommended below, such a mechanism would yield the overall sum required for regulation currently derived from the Transmission Licence Fee and be adjustable annually in accordance with the actual number of races to be run. The example we have quoted assumes 76,000 of which just under 36% are televised but, if the ratio changed, it would be necessary to adjust the per-race charges accordingly.

Either way, we would not expect those paying the lower rate to recoup such extra costs through reductions in their prize money payments. We would equally hope that some of the savings which would accrue to the other tracks would be passed on to owners and trainers through increased promoter contributions to prize money.

Personal Licences

In 1989 a Professional Trainer paid a annual licence fee of £85 (£49 in 2008) and a Greyhound Trainer paid an annual fee of £99 (£43 in 2008); the fees now paid by Assistant Trainers/Head Kennel hands (£11), Kennel hands (£9), Local Officials and Paraders (both £9) have risen only £3 per category in the last 19 years.

The reason given for this decline in the real cost of personal licences is that the NGRC is a not-for-profit organisation and as such, when it had surplus cash through extra income derived from the BAGS service, it was decided that the NGRC should not retain the surplus but should pass it back in the form of reduced licence fees. Thus it, the NGRC, was instructed to reduce both the licence fees to trainers and the registration fees, which were also much higher in the 1990s than they are today. This was an interesting decision, given that there has been an undercurrent of criticism that the Regulator is and has always been underfunded. There can be no doubt that such funds could have been put to good use by the Regulator and the decision not to deploy the surplus of cash which arose some years ago into better regulatory resources was clearly a deliberate one. It is hard to escape the conclusion that interests within the industry at the time must have been keen that should not happen - another example, perhaps, of undue influence by the regulated over the Regulator. It is, of course, always going to be difficult to recover ground lost in this way but the opportunity has now arisen to redress the situation and we believe that the industry must take it.

One of the more obvious difficulties is, we understand, that trainers in particular acknowledge that they paid more for their fees years ago than they do now and may even accept that they should pay more now but, it is argued, cannot afford to do so.

Having tried hard to fathom where the profitable economics of greyhound training lies, we have some sympathy with their position. Nevertheless we believe that the amount of money raised in fees from this sector is disproportionately small and that licence charges should be adjusted upwards so that a minimum of £120,000 is generated from this source annually. Based on the figures in the NGRC 2008 Budget, that could be achieved by charging a net fee £63 per year for a Professional Trainer's Licence; £57 for a greyhound Trainer's Licence; £15 for those whose 2008 charge will be £11 and £12 for those to be charged at £9. Given that a pint of lager typically sells for £3, we do not feel these proposals are excessive in real terms even if the percentage increases look high.

Training Fees

Although training fees are not a source of income to the NGRC, we are conscious that the increases we recommend above will come under scrutiny in terms of the ability of those affected to pay them. We have heard evidence that training fees vary widely and, in some cases, are charged at less than £4 per dog per day. We do not believe that this amount can possibly be sufficient to maintain adequate standards of greyhound welfare, provide good kennel infrastructure and pay kennel staff. Indeed, we are told that some kennel staff are paid less than the national minimum wage which, if true, is not only illegal but unacceptable.

We therefore recommend that, as a licence condition, the Regulatory Board should consider setting a minimum daily charge below which licensed trainers may not offer their services to owners, having first taken cognisance of any possible competition law implications. It is for expert opinion to decide what this figure should be but we would see £5.50 or £6.00 per dog per day as a possible starting point. We are aware that fees vary nationwide and that whilst £5.50 per day may look quite modest in Southern England, it looks expensive in less prosperous parts of the country. However, the minimum wage is a national benchmark, notwithstanding regional variations in income and, on balance, we would apply the same principle to kennelling fees.

Registration Fees

It has been put to us by several witnesses that the low cost of registering a greyhound is itself part of the problem of oversupply. Evidence from Dogs Trust tells us that there is a well established relationship between the perceived value of an animal (not just a greyhound) and the attitude of its keeper. High value animals tend to be treated more carefully and their welfare better protected. Looked at simply from the perspective of purchase price, it is evident that some greyhounds are of intrinsically higher value than others. If those bought cheaply at sale or auction start off as low value animals, a registration fee of £25, or even £26, does little or nothing to enhance that value to the owner or owner/trainer.

We believe that the structure and purpose of the registration fee needs to be re-examined and that there should be a link between that fee and the principle that owners are responsible for their greyhounds in retirement.

It has been suggested that registration fees should be increased substantially with an element being put aside and retained towards meeting, or at least mitigating, the cost of re-homing the greyhound on retirement. We have given this proposition careful consideration, not least because of the degree of support in principle which it has attracted from various quarters. However, we have doubts whether the scheme would work in practice and there are two main reasons why. The first, based on the principle that the "owner is responsible for the greyhound", is that we believe that such a mechanism could and probably would incentivise some owners to abdicate their responsibility for making appropriate arrangements for his/her greyhound on retirement. Some might take the view that they had paid their "retirement deposit" at registration and thus the challenge of actually making the necessary arrangements when the time came could safely be left to someone else. It follows that the bigger the sum involved, the bigger would be the temptation to do just that. The second reason is that we think that such a system would be extremely difficult to manage in practice.

We are nevertheless attracted by the proposition that the registration fee should be substantially increased, perhaps to £150, but that a percentage of that money, say 70%, should be returned to the owner when evidence is received that the greyhound has been sold or its future has been appropriately determined in accordance with the provisions of Rule 18. The effect would not only be to increase the net cost of registration to the more realistic level of £45 but it would also add real but recoverable value to each individual greyhound as well as generating a funding source from interest received which could be used to support the extra cost of such a programme.

It is also possible that potential owners would be deterred from buying large numbers of greyhounds of doubtful quality if they had to pay a significant fee to register the animals which quite possibly exceeded the purchase price. Furthermore, given that each greyhound would have a realisable value on proof of sale or retirement, such a scheme would also provide an incentive to owners and owner/trainers to comply with the relevant regulations for the notification of such events.

We recognise, of course, that there would be an additional administrative cost because it would be necessary to keep a separate account for registrations and transfers, given that some 12,000 [9] of these events occur annually and that money would be going out as well as in. However, we believe that such a registration programme, linked to retirement, could have significant welfare benefits for greyhounds and that it, or something very like it, should be put in place by the new governing body as a high priority.

Total Licence Income

If the proposals above were to be adopted, income from licence fees would match the current figure of just over £1.91 million, comprising £1.33 million from track licences including regulatory fees, £120,000 from personal licences and £459,600 from registrations and ownership transfers. Given that the new 2008 rates for personal licences and the Transmission Licence were announced early in November 2007, it is for consideration that our recommended fee structure should be introduced in January 2009.

Future Administration Costs

We do not assume that short term savings in the current cost of the administration of the NGRC and the BGRB can be taken. However, it seems likely that a single governing body will be able to achieve synergies which do not currently exist (for example, one chief executive and co-located premises) and will perhaps spend less on legal and associated fees than is currently the case and which would, in future, be better deployed elsewhere. This should create the headroom necessary to fund the additional field staff required.

The British Greyhound Racing Fund - A Proposal

The BGRF is something of an enigma. We have described it in outline earlier in this Report and reflected there the very positive evidence we have received about the efficiency with which it functions. However, we have also heard it described as "dysfunctional" which view, we think, reflects more upon its spending decisions and the processes that lead up to them rather than the mechanics of its operation. For example, the recent evidence we have seen of internecine backbiting in the run up to the setting of the 2008 budget during October has been disheartening and demonstrates beyond doubt why the current governance and regulatory structure needs to be reformed.

The BGRF is a limited company in its own right and is thus a quite separate entity from either the NGRC or the BGRB. In addition to an independent chairman, it has a Board of 13 Directors, seven of whom are nominated by the BGRB and who are also members of the BGRB Board. The remaining six directors are nominated by the betting industry. The Board meets four times each year and there is in addition a BGRF Board Committee which also meets four times per year. The Board Committee comprises the chairman sitting with three BGRB nominees and three betting industry nominees. This Committee meets to consider such smaller requests for expenditure as may be submitted between full Board meetings (up to £200K for a single item or a maximum of £500K for the whole meeting).

The GBGB structure which we have recommended has, for sound governance reasons, moved away from the concept of a stakeholder Board as the governing body of greyhound racing to a more independent Board whilst maintaining a strong but minority stakeholder presence. Therefore, unless radical change is made to the current budget process and structural relationships described above, it is possible that any progress made towards establishing the necessary degree of independence on the part of the governing body could be frustrated.

In 2006 the Fund disbursed £11.135 million. The main areas of expenditure were Prize Money Support at £3.081 million; Welfare (however defined) at £2.92 million; Grants to Stadia at £2.013 million; Integrity spending at £1.68 million; and Marketing at £1.056 million. The remainder was spent on Trainers Assistance, £175,000; IT Development, £125,000; and Breeders Prizes & Miscellaneous, £102,240.

We are not qualified to comment authoritatively on whether these priorities are correct or not, although given the state of IT facilities in an organisation which is, or should be, dependent on effective and efficient systems, the sum of £125K seems woefully inadequate. Furthermore, we cannot escape the overwhelming weight of evidence which holds that capital grants to stadia (50% of total capital cost), recommended by the BGRB's Commercial Committee, supported by the BGRB's stakeholder Board, albeit after endorsement by the Budget Committee, and finally approved by a stakeholder-led BGRF Board is less than transparent. Even so, the RCPA have argued cogently that it is necessary to maintain these grants in order to provide the top-class facilities needed to attract paying customers to watch greyhound racing and thus to help the industry survive and prosper.

We have also heard evidence which maintains that grants should not be used for the refurbishment of restaurants, bars, car parks and other customer-oriented facilities at all. It is held that these are part of the costs to be expected in running a business based on sport and entertainment and that there are, in any case, higher priorities to which the funding available from the voluntary levy should be applied. On balance, we agree with this general proposition and would prefer to see grants made available only for projects which were directly associated with improving or updating the environment and conditions for the racing greyhound. For instance, traps, track surfaces, veterinary facilities, air conditioning at track kennels and the kennelling facilities themselves would be examples of what might fall into this category.

We have heard other evidence which suggests that grants should not be made at all but that such funding should take the form of interest-free loans, such as are available from the Horserace Betting Levy Board to horse racecourses.

This is not as simple as it might at first sight appear because the apparent parallel does not actually exist. The HBLB's Capital Fund derives from the sale of racecourse properties some years ago (United Racecourses Ltd) and is truly a pool of cash which is maintained by making loans which are then repaid, whilst simultaneously accruing interest on any sum which may from time to time be on deposit. There is no such fund available to greyhound racing; it must instead meet such commitments as it deems appropriate out of a voluntary annual revenue stream supplied by the betting industry. It could, in theory, accrue such a fund if it chose to do so by "putting aside" sums of money each year and building a capital fund of its own. However, this is neither tax efficient nor, given the demands on the funding that is available, a practical alternative.

However, the reality is that the money accruing to the BGRF is given on a voluntary basis by bookmakers and there is no statutory limitation on what that funding may be used for; instead, the authority lies with the Board of Directors from time to time appointed to allocate the funding as they see fit, following the budgetary process described above.

It is our view that the GBGB, as the new governing and regulatory authority, should have full control of, and responsibility for, its own income and expenditure. That would allow the Board, like the board of any normal commercial organisation, to decide its own priority areas for expenditure and to allocate its resources accordingly.

We would therefore recommend that, in due course, the BGRF be disbanded and that monies accruing from the greyhound levy should be made available to the GBGB, thus providing it directly with two main sources of income: the voluntary levy and the fees raised from licensing discussed above.

We are of course aware of the need to preserve the commercial confidentiality of those bookmakers who currently contribute to the Fund and recognise that some or all of them would object to making payments directly to the GBGB and would thus not do so. We would therefore envisage that an accountancy firm of the bookmakers' choosing should be appointed to receive the income from contributing bookmakers and then disburse it to the GBGB.

The accountants, together with the GBGB and the bookmakers' representatives, would also need to replicate the process whereby the likely income for the following year is assessed so that the Board could set its budget.

We think that the voluntary nature of the contribution made by the bookmakers entitles them to transparency in how that money is expended and an input into the decision-making process. Therefore, we recommend that the GBGB Chairman's Executive Committee, or its Finance sub-committee [10] , should make an annual presentation to the bookmakers' representatives before submitting the budget to the main board for approval, thus enabling the contributors to satisfy themselves that the processes and priorities are fair and reasonable before the budget is finally set. There is, of course, no reason why ad hoc meetings should not be called at any time should the need arise.

The BGRF - An Interim Position

We realise that, if adopted, the reforms and restructuring we have recommended through this Report will take a good deal of management time, money and organisational effort to deliver. As a consequence, we believe that, whilst the full integration of the financial management of the sport should take place along the lines we have described, to make so many radical changes simultaneously may render an already difficult task much more complex. Furthermore, and as importantly, it may provide opportunities for obfuscation and delay in executing what we perceive to be essential first step of establishing the GBGB as a single governance and regulatory organisation.

Noting the nature of the Fund, we also accept that many bookmakers will wish to see that the new structure is functionally efficient and transparent and that the monies provided through their contributions are used cost-effectively and to the benefit of greyhound racing. In short, the new structure will need to demonstrate, not only to those who contribute to the Fund but also to a wider public, that it can manage the sport competently and effectively and that their expenditure decision-making processes and prioritisation are financially sound.

BGRF Board

We therefore recommend that, for an interim period from the formal establishment of the GBGB, the BGRF should continue to operate but in a reduced form with re-ordered priorities; the length of this period would need to be agreed between the two Boards but should not, in our view, be unduly long and should not exceed 2 years. We are not convinced that the current spending on the maintenance of separate office space can be justified under the new arrangements and thus recommend that the BGRF administration should be co-located in-house with the GBGB headquarters although, for the time being, separate from its management structure and with its own finance/accounting package and mail handling facilities, needed to maintain the commercial confidentiality of the donor bookmakers.

Taking the current Board Committee as a model, we recommend that the full Board of 14 should be reduced in size by 50% and should reflect the current balance of the Board Committee; that is, an independent chairman sitting with 3 members nominated by the GBGB (to include one regulatory director) and 3 members nominated by the betting industry.

Spending - Welfare

We are advised that the current Board is already reviewing its spending priorities and we welcome this. We are not privy to the budget allocations recently agreed but make the assumption that Welfare will once again be among the largest areas of expenditure. This must be right and we have been told that there is no bar to an increased allocation within the existing budget if that can be justified. However, we know that there has been discussion about what legitimately constitutes expenditure under the heading of Welfare and believe that a clear policy on what is and what is not permissible should be devised and published in the BGRF Annual Report.

Spending - Integrity

We believe that the Integrity budget, including the drug testing programme, remains a high priority and one in which the betting industry has a legitimate interest. We are told that there have been recent disagreements between the NGRC, the BGRB and the BGRF about the budget allocation in support of this area of expenditure. We are not qualified to comment on the relative merits of the argument but are of the view that a comprehensive, well publicised drug testing programme is not only vital to the integrity of the sport but also to its public persona and reputation.

In general, and if practically possible, we believe that expenditure on Welfare and Integrity should be top-sliced from the budget and the needs of these crucial areas should be met ahead of other priorities. We recognise that this is a matter for the BGRF Board but would expect it to take account of the views of this Report and of the GBGB Board in reviewing this proposition.

Spending - Prize Money

We have heard directly contradictory views on the importance of prize money and the size of the annual contribution from the Fund. There are those who believe that the Prize Money Support contribution is crucial to the health of the sport at grass roots level and those who believe it makes little difference. Either way, at just under £3.2 million, it was the largest single allocation from the BGRF in 2006. However, since the total prize money paid in 2006 was a little over £16.4 million, this contribution still amounts to less than 20% of the whole.

What we have noticed is that, very much like horse racecourses, any increased support contribution from the centre is often matched by a reduction in the executive contribution made by the racecourses themselves so that there is no real net benefit to the grass roots from an increase in the central grant. This is to be regretted and should, we believe, be a factor in the decision-making process through the Committee stage when recommendations as to the prize money support allocation are being developed - if it is not already.

There is more than one mechanism which can be applied to a prize money distribution formula. A grant conditional upon a matched guaranteed ratio is one; and a "merit table" system is another, which takes into account contributions by the executive and the amount of sponsorship raised by each racecourse in deciding individual prize money support allocations. Both are worth considering in this context but, with the BGRF contribution hovering at around 20%, it is important not to overstate the importance of this issue.

Spending - Racecourse Improvements

We have already expressed our views about the allocation of grants to stadia and the purposes for which they are applied. We believe that a full review of the policy is needed and that grants should be directed towards projects which are directly of benefit to the greyhound. Some or all of such projects may also be attributable to "Welfare". In 2006, £5,983,880 was distributed by the BGRF under the combined headings of Welfare (£2,902,880) and Racecourse Improvements (£2,013,310) [11] . From the listings, it would appear that less than £250,000 from the latter allocation was spent on grants for such greyhound-related items as starting traps, track work, kennels, hare rail etc. There may be a case for dividing the expenditure under this item and allocating most or all of it either to welfare (to include relevant research), integrity or prize money to ensure that these more important priorities are satisfied first. This will be for the GBGB Board to take a view on as it forms recommendations for the BGRF Board to consider.

Other Heads of Expenditure

We observe that there is a significant grant allocation towards marketing and that lesser amounts go towards IT development, assistance to trainers and breeders prizes amongst other modest items. These are matters for the Board to prioritise but we believe that IT development might be more appropriately allocated between the welfare and administration budgets depending upon the application in question.

Grants - General

There is some opacity on where money granted by the Fund to support capital projects actually goes. Although we have no doubt that the majority of such grants are properly spent, we are advised that there is no mechanism for detailed checking and that it is possible therefore for some of the monies to "leak" into other areas of expenditure. If true, this is unacceptable, if not fraudulent, and we strongly recommend that proper safeguards be put in place as a matter of urgency to ensure proper accountability for all monies disbursed by the Fund.

We are aware that the grant structure currently provides for a 50:50 matched funding contribution to a particular project. We see no reason why the Board should not be free to exercise discretion in deciding the size of any grant, perhaps taking account of the cost of the project considered against its merits, ie, whether it is an essential or just a desirable improvement and the benefits which would accrue. Whilst recognising that such flexibility would probably start by leading to every bid being for 100% grant funding, a more sophisticated system would actually allow the Board to decide each case on its merits. We think this idea is worth pursuing.

Conclusion

We strongly recommend that these proposals are accepted because we believe that a more transparent and less contentious budget process would result. The GBGB would be in a position to set its own income targets in terms of licence fees and, once the expected income from the levy was known, to decide in the best interests of the sport how the totality of income would be deployed against priorities decided by the Board and, in the interim, agreed by the BGRF.

Once such a process was established, it would be for the various interests within the sport to make their respective cases for access to the available funding, just like any other commercial organisation - as we note above.

Such a mechanism would, in due course, transfer control of the funding to the sport's governing body. We think that is as it should be - but only when the governing body has the degree of structural independence and freedom from stakeholder control that we have recommended elsewhere in this Report.

We recognise that contributing bookmakers have a legitimate interest in the disbursement of the monies they pay into the Fund and would expect that the interim arrangements we have proposed will be sufficient to ensure their continuing confidence that such monies are being appropriately and responsibly spent. They will also note that we have provided for their continuing involvement when the final stage of integration is achieved. We think that the wide ranging reforms we are proposing will, if accepted, lead to a more efficient and accountable industry. According to the 2006 BGRF Annual Report, only some 37 bookmaking firms contribute to the Fund. They are to be applauded for accepting their moral responsibilities in so doing But it is a sad reflection that the number is so low, given the popularity of the product and the affordable level at which the contribution is currently pitched.

This should also provide an opportunity for that majority of bookmakers who decline to contribute to the Fund, despite benefiting from the tax reduction from which it initially derived, to review their position, accept the modest, tax deductible, cost and follow the recommendation of their trade associations to contribute to the Fund. They should do so in the knowledge that their money should not be used to refurbish car parks and bars but will be applied mainly to greyhound welfare and integrity measures, both of which are high on the betting industry's agenda.

Under such re-ordered priorities, it should be possible to see contributing more as a matter of enlightened self-interest than unwelcome imposition.

[6] BGRF Annual Report 2006

[7] See Chapter 2

[8] 30 tracks x £3,500 = £105,000 + (27,120 x £25.50) + (48,880 x £11) = £1,334,240

[9] Approximately 10,000 registrations and 2000 transfers

[10] See Chapter 9

[11] BGRF Annual Report 2006