Michelle Sheriff Committee Secretariat Primary Production Committee Parliament Buildings Wellington c/o Primary.Production@parliament.govt.nz Michelle.Sheriff@parliament.govt.nz 20 December 2017 Dear Ms. Sheriff, RE: Racing Amendment Bill 2017 Thank you for the opportunity to provide a submission into the Racing Amendment Bill 2017 (Bill). By way of background, Sportsbet is the leading online wagering provider in Australia accounting for 24 per cent of Australia s online wagering market. 1 We are an industry-leading digital e-commerce business with over two million Australian customers and more than 714 employees. The Bill, if enacted in its present form, will: (a) Have an overall detrimental impact on the New Zealand racing industry; and (b) Violate New Zealand s international trade agreement obligations, including the New Zealand Australia Closer Economic Relations Agreement, Protocol on Trade in Services (CER Services Protocol). Sportsbet is concerned that the provisions contained in the Bill are anti-competitive and protectionist in nature. We believe they constitute arbitrary and unjustifiable discrimination against offshore betting operators and therefore breach New Zealand s obligations in the CER Services Protocol. In Part One of this submission, we outline the specifics surrounding the legality of the Bill in relation to New Zealand s international trade agreement obligations. We also strongly recommend the implementation of the Bill is delayed until a more comprehensive review is undertaken (Part Two). In this context, we outline a series of recommendations for the New Zealand Government to consider as part of the review in order to address the fundamental concerns with the Bill and ensure a sustainable wagering industry that protects the interests of the New Zealand racing landscape and hundreds of thousands of New Zealand residents who enjoy wagering. 1 Based on the percentage of gross win.
PART ONE: The Bill, if enacted as drafted, will violate New Zealand s international trade agreement obligations, including the New Zealand Australia Closer Economic Relations Agreement, Protocol on Trade in Services (CER Services Protocol). In short, the provisions contained in the Bill are transparently anti-competitive and protectionist in nature, constitute arbitrary and unjustifiable discrimination against offshore betting operators and therefore breach New Zealand s obligations in the CER Services Protocol. Specifically: 1. The Bill violates New Zealand s obligations in the CER Services Protocol by treating offshore betting operators less favourably than the New Zealand Racing Board s (NZRB) Totalisator Agency Board (TAB) brand The Bill will require offshore betting operators to pay to use New Zealand racing and sporting information (an information use charge) and to pay when taking bets on racing and sporting events (a consumption charge). To ensure these charges do not target offshore betting operators unfairly, section 65AM requires the Minister to set the charges using a benchmark related to NZRB TAB s operations. Since the NZRB TAB can offer retail tote/pari-mutuel products and advertise in New Zealand, while offshore betting operators cannot, the benchmark will have the effect of treating offshore betting operators less favourably than the NZRB TAB s online Fixed Odds Betting operations (the relevant market). This violates the CER Services Protocol. Refer Appendix A. 2. The Bill violates New Zealand s obligations in the CER Services Protocol by providing the NZRB the means to arbitrarily and unjustifiably discriminate against offshore betting operators The Bill provides a pathway for the NZRB to become a designated authority with the power to administer the information use charge, determine market access rights of offshore betting operators (via powers that either permit or deny offshore betting operators use of New Zealand racing and sporting information) and access offshore betting providers commercialin-confidence information, as may be prescribed. This measure constitutes a means of arbitrary and unjustifiable discrimination against offshore betting operators and therefore violates the CER Services Protocol. This will distort the conditions of competition and protect the domestic operator, NZRB TAB, against competition from imported services. Refer Appendix B. Sportsbet s position that the Bill, if enacted as drafted, will violate New Zealand s obligations in the CER Services Protocol supports the Department of Internal Affairs Regulatory Impact Statement s recommendation NOT to adopt a consumption charge. Refer Appendix C. Sportsbet acknowledges the importance of undertaking a Regulatory Impact Statement and we support an evidence-based approach to regulations. However, the Department of Internal Affair s Regulatory Impact Statement highlighted significant data limitations, to the extent that they were unable to estimate with any certainty how much revenue both a consumption charge and information use charge would collect. Refer Appendix D. 2
Combining the evidence presented in this submission that the Bill, if enacted as drafted, will violate New Zealand s obligations in the CER Services Protocol, that our evidence supports the Department of Internal Affair s position NOT to adopt a consumption charge and that there is limited data to estimate revenue collection of both charges, the Bill should not proceed. PART TWO: Sportsbet strongly recommends that the Bill be delayed until the New Zealand Government undertakes a more comprehensive review. The review should specifically consider: 1. The complete removal of a consumption charge. The proposed introduction of a consumption charge, under Section 65AJ of the Bill, in effect provides for a second consumption tax. Sportsbet and other offshore betting operators already pay a consumption tax in the form of a Goods and Services Tax (GST) charged at 15 per cent of net wagering revenue for all New Zealand residents. Hence under 65AJ of the Bill, this would impose an additional and inequitable consumption charge. The United Kingdom s point of consumption tax on wagering (which Section 65AJ of the Bill is replicating) is charged at 15 per cent of net wagering revenue but, importantly, there is no VAT (GST equivalent) payable. The impact of this charge would be to impose triple taxation on offshore betting operators by requiring them to pay GST, a consumption charge and product fees. This would take the effective rate of tax to well over 50% of net wagering revenue. 2. Ensure the model implemented as a result of the Bill does not result in compliant operators being at a competitive disadvantage Sportsbet has significant concerns about the enforceability of the Bill and these concerns are exacerbated by the fact the Bill provides a competitive advantage for operators that refuse to comply. Operators that comply with the Bill will be placed at a material competitive disadvantage against those that refuse to comply. This competitive disadvantage will negatively impact consumers and will increase the likelihood of customers wagering with non-compliant operators. 3. Ensure the ability for voluntary and/or direct agreements to exist Sportsbet has never objected to the payment of product fees (via an information use charge) on New Zealand events. These long-term, legally binding, commercial agreements would more effectively serve the purpose of the intention of the Bill as well as not penalising New Zealand residents or overseas betting operators such as Sportsbet. 3
4. The removal of a designated authority s power to refuse access to particular offshore betting operators to New Zealand racing and sporting information. This measure constitutes a means of arbitrary and unjustifiable discrimination against offshore betting operators and therefore violates the CER Services Protocol. 5. The removal of a designated authority s power to delegate its powers to the NZRB. This measure constitutes a means of arbitrary and unjustifiable discrimination against offshore betting operators and therefore violates the CER Services Protocol. 6. The removal of Ministerial power to set charges for a consumption charge and information use charge. Information use charges/product fees should be voluntarily agreed between betting operators and racing and sporting bodies. Sportsbet believes a voluntary, commercial approach, provides both parties with the required drivers for a successful relationship. For New Zealand racing and sports, they are rewarded through the right to charge a commercial fee and Sportsbet (along with other offshore betting operators) the right to enter funding agreements and grow wagering on New Zealand events. However, the Bill in its current form is contrary to the interests of both New Zealand-based wagering customers and the New Zealand racing industry. The Bill s passage will mean Sportsbet would no longer have an incentive to offer and promote New Zealand events to our Australian-based customers and will remove the ability of the New Zealand racing codes to extract further discretionary spend from betting operators in the form of digital media rights and other assets, all of which would be available to the New Zealand racing industry by entering voluntary agreements. Given the Australian wagering market is more than seven times the size of the New Zealand market, the New Zealand racing codes recognise the importance of partnering with Australian wagering operators to promote their product. Through the payment of product fees from operators such as Sportsbet, it is this additional funding that would support increased investment in facilities and prize money for the New Zealand racing industry. Sportsbet has never objected to the payment of product fees on New Zealand events. We have previously (and again recently) met with individual racing code bodies to progress discussions in respect of the payment of product fees and other commercial opportunities. These long-term, legally binding, voluntary, commercial agreements would more effectively serve the purpose and intention of the Bill as opposed to providing Ministerial power to set charges, as proposed. 4
7. Development of a regulatory framework that provides a level playing field for offshore betting operators including permission to advertise in New Zealand and allows for voluntary information use charges to be agreed directly between offshore betting operators and New Zealand racing and sporting bodies (for e.g. NZRacing (thoroughbreds), Harness Racing New Zealand and NZ Greyhound Racing). This proposal, to develop a regulatory framework, presents a possible solution to ensuring New Zealand meets its international trade obligations. A key element of meeting those obligations is that New Zealand should treat Australians no less favourably than treatment accorded in like circumstances to New Zealanders (and vice versa). As noted above, arrangements in Australia facilitate commercial agreements between betting operators and racing and sporting bodies in relation to product fees. Put simply, Sportsbet can and does make financial contributions via the payment of product fees to Australian racing and sporting bodies concerning bets placed on their events. We have shared detailed information about similar opportunities with the New Zealand racing codes and have been engaged in productive discussions about extending this to New Zealand events. In addition, the development of a regulatory framework should remove advertising restrictions for offshore betting operators. In short, under existing New Zealand law, offshore betting operators are simply accorded treatment less favourable to the NZRB TAB as they are not permitted to advertise in New Zealand. Sportsbet therefore recommends and supports the introduction of a more equitable, sustainable model. If you have any questions or need any further information please do not hesitate to contact me on +61 (03) 8630 6120 or ben.sleep@sportsbet.com.au. Yours faithfully, Ben Sleep Chief Financial Officer and Regulatory Affairs Director, Sportsbet CC: Hon Julie Bishop MP, Minister for Foreign Affairs Hon Steven Ciobo MP, Minister for Trade, Tourism and Investment Ann Sherry AO, Australian Co-Chair, Australia-New Zealand Leadership Forum 5
APPENDIX A THE BILL VIOLATES NEW ZEALAND S OBLIGATIONS IN THE CER SERVICES PROTOCOL BY TREATING OFFSHORE BETTING OPERATORS LESS FAVOURABLY THAN NZRB TAB New Zealand s International Trade Obligations The Bill s Departmental Disclosure Statement states that: Because the Bill has extra-territorial effect, New Zealand has international obligations relevant to the Bill. These were identified in discussions with the Ministry of Foreign Affairs and Trade (MFAT). The most relevant obligations are contained in the Protocol on Trade in services to the New Zealand Australia Closer Economic Relations Trade Agreement (CER Services Protocol). 2 The Department of Internal Affair s Regulatory Impact Statement, in its analysis of policy options concerning both a consumption charge and information use charge on offshore betting operators, also states: The main agreement in this respect is the Closer Economic Relations (CER) Agreement with Australia. Article 5 of the CER Services Protocol requires New Zealand to treat Australians and the services they provide no less favourably than the treatment accorded in like circumstances to New Zealanders and services provided by New Zealanders (and vice versa). Article 8 of the CER Services Protocol provides that New Zealand must not introduce any measure that constitutes a means of arbitrary or unjustifiable discrimination against Australians or a disguised restriction on trade between New Zealand and Australia in services. 3 Differences in the treatment of the NZRB TAB and offshore betting operators Under New Zealand s Gambling Act 2003 and Racing Act 2003, the New Zealand Racing Board, through its Totalisator Agency Board brand, is the sole authorised provider of racing and sports betting in New Zealand. 4 The Department of Internal Affair s Regulatory Impact Statement states: There is a specific prohibition on remote interactive gambling (e.g. over the internet) unless it is conducted by the Lotteries Commission or authorised under the Racing Act 2003, which is the authority under which the NZRB operates its online betting service. 2 Departmental Disclosure Statement, Racing Amendment Bill 2017, 21 July 2017, pg.40. Refer: http://disclosure.legislation.govt.nz/assets/disclosures/bill-government-2017-288.pdf 3 Department of Internal Affairs [DIA] (2017) Regulatory Impact Statement [RIS], Offshore Racing and Sports Betting. Refer: http://www.treasury.govt.nz/publications/informationreleases/ris 4 Op cit. DIA RIS (2017) pg.40. 6
Offshore operators are not required to be specifically authorised (as the NZRB is) because they are considered outside of the scope of the Acts since they are located in other jurisdictions. Gambling by a person in New Zealand conducted by a gambling operator located outside of New Zealand is excluded from the prohibition on remote interactive gambling. 5 This means the Racing Act 2003 and the Gambling Act 2003 operate together at the centre of New Zealand s statutory framework for regulating gambling 6 and that statutory framework positions the NZRB as both the leader of the racing industry, charged with ensuring its long-term viability, and as a commercial betting entity. 7 The effect of New Zealand s statutory framework means that the NZRB, through its TAB brand, operates a monopoly retail service that offers Tote or pari-mutuel products to New Zealanders and an online betting service that offers Fixed Odds Betting (FOB) products to New Zealanders. This means there are two distinct products (markets) which NZRB provides, among others: (1) Monopoly retail tote/pari-mutuel products; and (2) Online FOB products. 8 In its media release dated 15 May 2017 the NZRB acknowledges this distinction announcing: its investment in a New fixed odds betting platform ; the investment will enhance NZRB s current fixed odds betting business ; and that The new FOB offering will complement our already competitive Tote. 9 Under New Zealand s legislative framework offshore betting operators are prohibited from providing retail tote/pari-mutuel products in New Zealand but offshore betting operators are able to compete in the online betting market by offering FOB products to New Zealanders (the relevant market). In addition, under existing New Zealand law, offshore betting operators are accorded treatment less favourable to the NZRB TAB as they are not permitted to advertise in New Zealand. 10 The Bill s safeguard measure to ensure it does not target offshore betting operators unfairly doesn t account for the restrictions imposed on offshore betting operators The Bill s Explanatory note states: The Bill has a safeguard in place to ensure that it does not target offshore betting operators unfairly. The total proportion of revenue or profit required to be paid by offshore betting operators should not exceed the equivalent proportion of revenue or profit that the Board pays to New Zealand racing and sports organisations. 11 5 Ibid pg.40. 6 Op cit. DIA RIS (2017) pg.41. 7 Ibid pg.12. 8 Tote betting, otherwise referred to as pari-mutuel betting, is where all bets are combined in a pool. A dividend is then calculated by dividing the pool, less a commission, by the amount of money placed on the winning selection. Fixed Odds Betting is where the price offered at the time the bet is accepted, is fixed. 9 NZRB Media Release, 15 May 2017. Refer: https://nzracingboard.co.nz/content/nzrb-approved-deliver-newfixed-odds-betting-platform-openbet-and-paddy-power-betfair 10 Op cit. DIA RIS (2017) pg.8. 11 Racing Amendment Bill, Explanatory note, pg.2. Note Board refers to NZRB. 7
The safeguard referred to is section 65AM which is intended to safeguard against New Zealand violating its international trade obligations in the CER Services Protocol as a result of levying a consumption charge and information use charge on offshore betting operators. The Bill s explanatory note states: New section 65AM sets out the basis on which the Minister must set betting information use charges and consumption charges. The clause also provides for matters concerning the process for setting those charges. Under the provision, the Minister must use the proportion of the Board s total racing and sporting revenue or profit that the Board pays to New Zealand racing and sports organisations each financial year as the benchmark for setting the charges. The Minister must try to ensure that the rates set for the 2 charges do not result in offshore betting operators paying, by way of those charges, any greater proportion of their total revenue or profit from betting operations involving New Zealand than the benchmark proportion referred to. 12 This safeguard is flawed. Unlike the NZRB TAB: 1. Offshore betting operators do not have market access to, and are prohibited from, offering retail tote/pari-mutuel products in New Zealand; and 2. Offshore betting operators do not have equivalent market access rights and are prohibited from advertising in New Zealand. Since the NZRB TAB can offer retail tote/pari-mutuel products and advertise in New Zealand, while offshore betting operators cannot, the benchmark will have the effect of treating offshore betting operators less favourably than the NZRB TAB s online FOB operations. This means the Bill, if enacted as drafted, will violate New Zealand s obligations in the CER Services Protocol. 12 Racing Amendment Bill, Explanatory note, pg.5. 8
APPENDIX B THE BILL VIOLATES NEW ZEALAND S OBLIGATIONS IN THE CER SERVICES PROTOCOL BY PROVIDING THE NZRB MEANS TO ARBITRARILY AND UNJUSTIFIABLY DISCRIMINATE AGAINST OFFSHORE BETTING OPERATORS Section 65AD of the Bill seeks to create two new designated authorities to administer both a consumption charge and information use charge respectively. The Department of Internal Affairs will be the designated authority for both schemes but under section 65AE, the Department may delegate any of its functions or powers to another entity. Under section 65AE(3) the Bill expressly names the NZRB as a possible delegee. The authority which administers the information use charge will have enormous, unfettered powers, including the power to dictate who is entitled to use New Zealand racing and sporting information. Section 65AF provides: (1) Every offshore betting operator must, before using New Zealand racing and sporting information in the conduct of the operator s betting operations, obtain permission from the designated authority and enter into an agreement in accordance with section 65 AG (a betting information use agreement). 13 In short, section 65AF(1) gives the authority the right to arbitrarily pick and choose which offshore betting operators can offer betting services on New Zealand events and which cannot. Since the Bill identifies the NZRB as a possible authority this means the NZRB would effectively have the power to decide which of its competitors are allowed to use New Zealand racing and sporting information and which are not. In addition, offshore betting operators who are granted this market access must also, under section 65AG, provide the authority with prescribed information. This in effect would force offshore betting operators to provide NZRB, a competitor, with commercially sensitive information. The Department of Internal Affair s Regulatory Impact Statement confirms that NZRB expects to be the authority, stating: The NZRB s Statement of Intent 2017-2019 indicates an investment by the NZRB of $0.5-1.0 million in administering a system of offshore charges. 14 In anticipation, the NZRB s 2017 Annual Report cites the Racing Amendment Bill 2017 under the heading 2017 Highlights and also states: The Bill received broad cross-party support and has been referred to the Primary Production Committee and is a positive step in the process towards having the new legislation in place during the 2017/18 year. 15 [Emphasis added] 13 Ibid. pg.8. 14 Op cit. DIA RIS (2017) pg.59. 15 NZRB Annual Report 2017, pp. 4-12. 9
Put simply, the Bill s provisions to allow a pathway for the NZRB to be a designated authority, provide that authority with the power to arbitrarily grant market access via the use of New Zealand racing and sporting information and giving that authority access to competitor s commercially sensitive information, is a clear conflict of interest that allows for arbitrary and unjustifiable discrimination by the domestic operator against offshore betting operators. The Bill will therefore include a measure that constitutes a means of arbitrary and unjustifiable discrimination against offshore betting operators. This will distort the conditions of competition and protect the domestic operator, NZRB TAB, against competition from imported services. This means the Bill, if enacted as drafted, will violate New Zealand s obligations in the CER Agreement. 10
THE DEPARTMENT OF INTERNAL AFFAIR S REGULATORY IMPACT STATEMENT: IMPLICATIONS OF NEW ZEALAND VIOLATING ITS INTERNATIONAL TRADE OBLIGATIONS APPENDIX C Sportsbet s position that the Bill, if enacted as drafted, will violate New Zealand s obligations in the CER Agreement supports the analysis, conclusions and recommendations made by the Department of Internal Affair s Regulatory Impact Statement. The Department of Internal Affairs did NOT recommend the adoption of a consumption charge to be levied on offshore betting operators. 16 The Department opposed the proposal of a consumption charge on offshore betting operators because, in combination: The consumption charge is extra-territorial. The charge by its nature will require the creation of legislation with extraterritorial effect. 17 The consumption charge must comply with New Zealand s international obligations. It must be fair and cannot unjustifiably discriminate. [The charge] must be fair and, in particular, must align with New Zealand s international trade obligations, including the CER with Australia. Under the CER, offshore operators [sic] cannot be treated in any way that is unjustifiably restrictive or discriminatory. Should not penalise offshore operators unfairly in comparison to the NZRB. 18 There is an inherent inconsistency between the proposed consumption charge and the existing legislative framework. This inconsistency requires major regulatory reform which the Minister for Racing has rejected. Seeking payment of a consumption charge for bets placed by New Zealand residents with offshore betting operators requires a choice to be made about the extent to which New Zealand law does or does not regulate these bets because by its very nature a consumption charge relates to an activity being consumed in New Zealand. The Minister for Racing has indicated that he does not wish, at this time, to consider the option of amending legislation to authorise offshore operators to offer gambling services in New Zealand, whether by a licencing regime or some other type of system. Doing so would end the NZRB s position as the only authorised provider of racing and sports betting. It would be possible to amend the Racing Act to legislate for a consumption charge on offshore bets while leaving the status of offshore betting unchanged in the Gambling Act 2003. 16 Op cit. DIA RIS (2017) pg.66. 17 Op cit. DIA RIS (2017) pg.4. 18 Op cit. DIA RIS (2017) pp.35-38. 11
This could, however, arguably result in an awkward balance between the two Acts. In order to implement a consumption charge, offshore betting would be regulated by the Racing Act. However, in order to avoid having to authorise offshore operators to provide gambling services in New Zealand, or to classify the activity as illegal (which it would be if it is within scope but not authorised), offshore betting would continue to be unregulated by the Gambling Act 2003. Taking this sort of dual approach could prove to be an additional barrier to encouraging voluntary compliance by offshore operators, who may argue that direct regulation of their activity under the Racing Act 2003 should be matched with direct regulation (i.e. authorisation) of their activity under the Gambling Act 2003, plus removal of the current ban on them advertising in New Zealand. 19 Since offshore operators are NOT treated like NZRB, there is a high risk of non-compliance. This option is considered to carry a higher risk of non-compliance. One factor that could contribute to such an outcome is resistance from offshore operators to complying voluntarily, particularly if they are not permitted to operate in New Zealand on a similar basis to the NZRB, e.g. at least via the removal of the current advertising ban which applies to them. 20 This means a consumption charge will NOT achieve the returns it seeks. The proposed consumption charge carries a high risk that it may not achieve the returns that were estimated. 21 19 Op cit. DIA RIS (2017) pp.40-41. 20 Op cit. DIA RIS (2017) pp.5-67. 21 Op cit. DIA RIS (2017) pg.67. 12
APPENDIX D THE DEPARTMENT OF INTERNAL AFFAIR S REGULATORY IMPACT STATEMENT: LIMITATION OF DATA The Department of Internal Affair s Regulatory Impact Statement highlights the significant limitation of available data. This limitation meant the Department was unable to estimate, with any certainty, how much revenue both a consumption charge and information use charge would collect. The Department of Internal Affair s Regulatory Impact Statement states: The methodology and findings of the various studies that were used vary significantly, meaning that the resulting estimates are subject to significant margins for error. it is not possible to state with certainty how much money might be collected and available for ultimate distribution to the New Zealand racing and sports sectors. 22 The limitations of the data were so significant that the Department s Regulatory Impact Statement was unable to even demonstrate whether the online offshore gambling market was either increasing or decreasing: estimating the scale of online gambling by New Zealanders on offshore websites is difficult as there is no single authoritative data set The error margin on these figures is likely to be around ±20 per cent A common feature of most of the gambling surveys reviewed by Infometrics is that participation in online offshore gambling is increasing Auckland University of Technology (AUT), used data from the National Gambling Survey and suggests that the participation in offshore online gambling fell Another, more recent, Ministry of Health funded study the Health and Lifestyle Survey for 2016 shows preliminary results which are consistent with the AUT study, specifically, that there has been no increase in participation since 2014 the Ministry of Health has stated that there has been no significant increase in New Zealanders seeking help for problems associated with any type of offshore gambling from Ministry-funded gambling harm services over the period from 2012 to September 2016 The fact that these findings show declining trends rather than increases is a reminder that the overall estimates used by the Working Group are subject to significant margins for error. 23 22 Op cit. DIA RIS (2017) pp.1-2. 23 Op cit. DIA RIS (2017) pp.1-15. 13