The eagerly awaited decisions on 30th March 2012 by the High Court in Sportsbet v New South Wales and Betfair v Racing New South Wales clarifies the constitutionality of the New South Wales race fields regime.
The Court dismissed both appeals. This confirms the validity of the race fields regime and the approvals issued by the relevant racing control bodies.
Background
Since 1 September 2008, it has been an offence under section 33 of the Racing Administration Act 1998 (NSW) (the RAA) for a wagering operator to use NSW race fields unless that wagering operator has:
- been authorised by the relevant racing control body: (Racing New South Wales (RNSW), Harness Racing New South Wales (HRNSW) and Greyhound Racing New South Wales (GRNSW)); and
- complied with any conditions attached to the approval.
RNSW and HRNSW issued approvals to wagering operators, including:
- Betfair: a betting exchange licensed in Tasmania; and
- Sportsbet: a corporate bookmaker licensed in the Northern Territory.
The approvals included a condition that a fee of 1.5% of turnover be paid when the wagering operator's turnover in any given year exceeds $5 million (in the case of RNSW) and $2.5 million (in the case of HRNSW). By way of contrast, the approvals issued by GRNSW included a condition requiring the payment of a fee equivalent to 1.5% of turnover or 10% of gross revenue, whichever is the lesser amount.
The Trial Decisions
Betfair and Sportsbet commenced Federal Court proceedings against RNSW and HRNSW, challenging the imposition of the 1.5% turnover-based fee on the basis that it was discriminatory and protectionist in breach of section 92 of the Australian Constitution.
Betfair argued that the payment of a fee calculated on the basis of turnover was unconstitutional because it imposed a greater burden on its profit than it did on the New South Wales totalisator operator, TAB Ltd (TAB). This was viewed by the Full Court as being the case because its business model is based, in part, on smaller margins and requires higher turnover to achieve equivalent revenues when compared with other models (i.e. bookmakers or totalisators). The primary judge dismissed this claim on the basis that, while Betfair had demonstrated that the use of a turnover benchmark was discriminatory, it had not demonstrated that it was of a protectionist kind.
Sportsbet argued that the entire legislative scheme was invalid because it burdened interstate trade by requiring a fee to be paid for the use of New South Wales race fields. While the primary judge rejected this argument with respect to the RAA and the Racing Administration Regulation 2005 (NSW) (the RAR), the judge found that an arrangement existed between RNSW, HRNSW, TAB and the NSW racing clubs which effectively meant that the NSW operators paid no fee. This caused the approval granted by Sportsbet for 2008 to be declared invalid by the primary judge. The primary judge refused to extend this ruling to the 2009 approval. These discussions were appealed to the Full Court of the Federal Court.
The Full Court Decisions
In the Betfair case, the Full Court dismissed Betfair's appeal. The Full Court held that the primary judge was correct to conclude that Betfair had not made out its case under s 92 of the Constitution by failing to demonstrate that a competitive advantage had been conferred on intrastate operators by using turnover as a benchmark.
Because there was no express discrimination in the RAA or its application (ie. all wagering operators paid a fee of 1.5 percent of turnover), the Court considered that it was necessary for Betfair to demonstrate that the scheme, in practice, provided a competitive advantage to intrastate operators. The Court held that Betfair had failed to establish this on its case.
In the Sportsbet case, the Court upheld RNSW's appeal. The Full Court held that, among other things, the race fields regime introduced by the RAA and the RAR was valid as it imposed a burden equally on all operators. The Court found that there is nothing inherently objectionable under the Australian Constitution where legislation introduces a requirement to pay a fee by all operators (interstate and intrastate) and where that fee overlaps with a fee already payable by intrastate operators, to a course of conduct which grants relief to those operators in respect of the fee to which only they had been subject.
Moreover, the Full Court held that the regime's validity was not affected by virtue of separate action being taken in good faith which had the effect of causing intrastate operators to be compensated in respect of the financial burden that would result from the legislation.
To a considerable degree, the Full Court rejected the primary judge's reasoning because the matters found by the primary judge, particularly those regarding the arrangements between TAB and RNSW, were not argued by Sportsbet in the original proceedings.
These decisions were appealed to the High Court.
High Court decisions
In the Betfair appeal, the High Court held that Betfair had failed to demonstrate that the fee conditions imposed a discriminatory burden of a protectionist nature. The Court referred to the case pleaded by Betfair and noted that s 92 of the Constitution addresses the effect of a law on interstate trade, not the prejudice that law causes to particular traders (even though they may be located interstate).
The Court further held that Betfair had not demonstrated that the likely practical effect of the imposition of the fees would be the loss of market share or profit, or to impede it from increasing that share or profit.
In the Sportsbet appeal, the Court considered the practical effect of the race fields regime on interstate trade having regard to the wagering turnover threshold and commercial arrangements between the relevant racing control bodies and the TAB.
In a manner similar to its consideration of the Betfair appeal, the Court considered that the evidence provided related to the comparative position of the business operations of Sportsbet and its NSW based competitors. It stated that this was not the appropriate benchmark and that it was more appropriate to address the effect on interstate trade.
As to the turnover threshold, the Court held that the wagering turnover thresholds were not discriminatory measures of a protectionist kind. Both intrastate and interstate operators were entitled to the benefit of the threshold and the burden of the fees was imposed uniformly. In any event, there was no necessary connection between the location from which a wagering operator conducted its business and the turnover of that business.
In considering the arrangement between RNSW and the TAB, the Court agreed with the conclusion of the Full Court, namely that it constituted settlement of a dispute and did not give rise to a discriminatory advantage in favour of the TAB, as an intrastate trader.
Implications
Racing bodies will consider that the High Court decisions render constitutionally valid:
- the race fields regime;
- the calculation of race fields fees by reference to turnover; and
- the making of payments or concessions to intra-state operators to compensate for the payment of race fields fees.
Although this is the effect of the findings of the High Court in respect of the NSW race fields legislation, it relates only to the 2008 approval and does not necessarily apply to all race fields regimes and all approvals. A different factual context may apply, depending on the circumstances.
However, any challenge of this nature is likely to be strongly contested.
Where to from Here?
In light of the decisions on 30th March 2012, there is the potential for Australian racing bodies to re-evaluate their race fields regimes. This may include amending the basis for calculation of race fields fees so that they are calculated by reference to turnover. The Victorian government has already indicated its intention to facilitate a similar model to that of the NSW racing bodies.
It is also quite possible that there will be considerable pressure for the amounts of the race fields fees payable to be increased significantly. However, any decision should be counterbalanced by the inherent risk that any increase will affect the willingness of wagering operators to pay those fees and make other financial contributions to the relevant bodies. Indeed, wagering operators may choose to give greater preference to other sports.
We consider that this decision is likely to result in the current linkage between product fees and integrity to be loosened. Initially, one of the key objectives of the race fields was to ensure that interstate wagering operators assisted in maintaining the integrity of racing. Now that the race fields regime will be viewed as having been held to be constitutionally valid by the High Court, racing bodies may consider that these arrangements can stand alone. Accordingly, although integrity arrangements will continue in place, we predict that they will not be as interdependent on product fee arrangements as has been the case to date.
The assistance of Nicholas Rozenberg, Solicitor, of Addisons in the preparation of this article is noted and greatly appreciated
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
