Does this Mean Clarity for Wagering Operators in Australia? Will There be a Round 3?
Executive Summary
Today's decisions by the Full Court in Betfair Pty Ltd v Racing New South Wales 1 and Racing New South Wales v Sportsbet Pty Ltd2 are a significant event in the discussion relating to the validity of Australian race fields legislation. In its decision, the Court has acknowledged the validity of the New South Wales race fields regime by refusing to declare as invalid and contrary to the Constitution either the race fields regime or the approvals granted to wagering operators.
As a result, unless an appeal is lodged successfully to the High Court, or further court proceedings are commenced, wagering operators are required legally to pay a fee in respect of the use of New South Wales race fields calculated on the basis of 1.5 per cent of turnover.
What are the decisions?
In the Betfair case, the Court dismissed Betfair's appeal. The Court held that the primary judge was correct to conclude that Betfair had not made out its case by failing to demonstrate that a competitive advantage had been conferred on intrastate operators by using turnover as a benchmark.
In the Sportsbet case, the Court upheld Racing NSW's appeal.
The Court held that, among other things, the race fields regime
introduced by the Racing Administration Act 1998 (NSW)
(the RAA) and the Racing Administration
Regulation 2005 (NSW) (the RAR) was valid as
it imposed a burden equally on all operators. Its 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.
Background
Since 1 September 2008, it has been an offence under NSW law for a wagering operator to use NSW race fields3 unless that wagering operator has been authorised by the relevant racing control body and complied with any conditions attached to the approval.
Racing NSW and Harness Racing NSW issued approvals to wagering operators, including:
- Betfair, a betting exchange licensed in Tasmania; and
- Sportsbet, a corporate bookmaker licensed in the Northern Territory,
which included a condition that a fee of 1.5% of turnover be paid when the wagering operator's turnover in any given year exceeded $5 million (in the case of Racing NSW) and $2.5 million (in the case of Harness Racing NSW).
The Trial Decisions
Each of Betfair and Sportsbet subsequently commenced Federal Court proceedings against Racing NSW and Harness Racing NSW, which challenged the imposition of the 1.5% turnover-based fee on the basis that it was discriminatory and protectionist in breach 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). 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 RAR, the judge found that an arrangement existed between Racing NSW, Harness Racing NSW, 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.
Betfair Appeal
While the Full Court found that the primary judge had erred by finding that Betfair was limited by the way that it had pleaded its case, the Court nevertheless agreed with the primary judge that there was a failure to demonstrate the requirements necessary to bring a claim successfully under section 92 of the Constitution.
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 there was an effect on it that provided a competitive advantage to intrastate operators. The Court found that Betfair had not done so.
The Court suggested that Betfair could have done the following:
- demonstrated that the fee which is imposed at a uniform rate on all wagering operators is likely to operate in fact to prejudice Betfair's low margin operation more than the other operators; and
- demonstrated that it was likely that one of the following had
occurred:
- punters would be deterred from placing bets with Betfair;
- Betfair would lose any market share to TAB; or
- Betfair would suffer a net revenue loss whether or not it chose to pass on the fee or not.
Sportsbet Appeal
The issues in the Sportsbet appeal were more complex, with Racing NSW appealing the elements of the decision against it and Sportsbet appealing the elements of the decision against it.
The Full 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) where that fee overlaps with a fee already payable by intrastate operators, to a course of conduct which grants relief to those intrastate operators in respect of the fee to which only they had been subject.
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 Racing NSW, were not argued by Sportsbet in the original proceedings.
As there was not sufficient evidence before the Court, it is unclear whether a similar conclusion would be reached if it could be established that the effect of the regime was to discriminate against interstate operators.
Conclusion
The decisions in Betfair and Sportsbet provide further guidance as to the manner in whichcourts will interpret the protection afforded by section 92 of the Constitution. The decisions will be seen as strong wins for the NSW racing industry in seeking to introduce a race fields regime and seeking to impose conditions on the basis of turnover.
It is probable that both Betfair and Sportsbet will consider seeking leave to appeal the Full Court to High Court (Australia's highest court). In any event, it is possible that other operators will take into account the comments made by the Full Court about the limitations in the evidence adduced by Betfair and Sportsbet in these proceedings.
Accordingly, this is very unlikely to be the end of the road for legal challenges in respect of the Australian race fields regime.
1 Betfair Pty Limited v Racing New South Wales [2010] FCAFC 133
2 Racing New South Wales v Sportsbet Pty Ltd [2010] FCAFC 132
3 A race field is any information which identifies, or is capable of identifying, the names and numbers of horses or dogs participating in a thoroughbred, harness or greyhound race.