Race fields fees based on 1.5% of turnover: All bets are off? - NSW Race Fields Legislation - Constitutional Challenge by Betfair and Sportsbet - Round 1
By Jamie Nettleton, Partner
16 June 2010
Today's Federal Court decisions in the fiercely contested matters of Betfair v Racing New South Wales & Anor[1] and Sportsbet v State of New South Wales & Ors[2] are milestones in the ongoing dispute between wagering operators and Australian racing control bodies concerning the manner in which race fields fees can be imposed validly.
In summary, the Court found:
- in favour of Sportsbet by:
- declaring invalid the race fields approval issued by Racing New South Wales (RNSW);
- declaring invalid the race fields approval issued by Harness Racing New South Wales (HRNSW): and
- ordering RNSW to refund $2,061,000 plus interest to Sportsbet, being the fees paid by Sportsbet up to 30 June 2009 (the date of expiration of the approval) in respect of the race fields approval issued by RNSW.
- against Betfair by dismissing its application. In making its decision, each of the parties has been granted leave until 23 June 2010 to bring any further application arising out of today's decision. This will give Betfair an opportunity to rely upon the same grounds as Sportsbet and to seek orders consistent with the orders awarded to Sportsbet, namely that the race fields approvals granted by RNSW and HRNSW are invalid.
Despite the apparent inconsistency in the orders, one thing is clear: the Court refused to find that the NSW race fields legislation is invalid.
Background
Since 1 September 2008, it has been an offence under NSW law for a wagering operator to use NSW race fields[3] unless that wagering operator has been authorised by the relevant racing control body, RNSW, 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,
which 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). In 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 smaller amount.
The Proceedings
Each of Betfair and Sportsbet subsequently commenced Federal Court proceedings against RNSW and HRNSW, 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 and Sportsbet, among other matters, sought declarations that:
- the race field fee condition of 1.5% of turnover was invalid in that it was contrary to the Constitution; and
- RNSW and HRNSW repay any amounts which were paid pursuant to their approvals.
Sportsbet sought an additional declaration that various sections of the NSW race field legislation were also invalid.
Betfair is no stranger to mounting constitutional challenges of this nature having challenged successfully in the High Court prohibitions in Western Australian legislation, which were directed specifically at betting exchanges.[4] The High Court found the prohibitions to be discriminatory in their application and not reasonably appropriate to deal with the issue being addressed by the legislation.[5]
While his Honour Justice Perram found largely in favour of Sportsbet, the position in respect of Betfair was not so clear.
A. Sportsbet's claim
At the time RNSW and HRNSW imposed the fee on Sportsbet, the Court inferred that the control bodies understood that, in effect, NSW wagering operators and the TAB would not be paying the fee because their turnover was either below the threshold required or the fees paid would be refunded.
While the Court stated that the imposition of a race field fee on all wagering operators regardless of their location may be permissible, the approval granted to Sportsbet was invalid due to its practical application constituting a protectionist burden. This occurred due to the regime resulting in preference being given to NSW-based wagering operators who were not required to pay a fee. The imposition of the fee resulted in trade between the Northern Territory, where Sportsbet is licensed, and NSW not being absolutely free, which it is required to be.
Accordingly, the approvals issued to Sportsbet by RNSW and HRNSW were declared invalid and RNSW was ordered to refund $2,061,000 plus interest to Sportsbet, being the fees paid by Sportsbet under the approval.
B. Betfair's claim
The 1.5% fee had a discriminatory impact on Betfair because the fee had a larger effect on its commission than it had on the totalisator activities of the TAB. However, the Court found that Betfair had not demonstrated that the fee was discriminatory in a protectionist sense, which is required to establish that its imposition was unconstitutional. Therefore, the Court was not willing to declare that the approvals issued to Betfair by RNSW and HRNSW were invalid. Accordingly, Betfair's application was dismissed.
Had Betfair used the same arguments as Sportsbet, namely that the fee condition was invalid because any fees paid by the TAB were repaid to it and that other NSW wagering operators were not required to pay the fee because their turnover fell below the threshold, then the Court may have declared the approvals issued to Betfair to be invalid.
Given the apparent contradictory findings, the Court has:
- granted the parties leave to file applications arising out of the decision on or before 23 June 2010; and
- ordered that the order dismissing Betfair's application not be entered without his leave.
In light of this, we expect Betfair to bring a further application, which seeks to characterise the fee imposed on it as being discriminatory and a protectionist burden, so that it may receive similar declarations to Sportsbet.
Conclusion
Obviously, these decisions have significant implications for the funding of Australian racing and the ability of Australian racing bodies to impose fees based on 1.5% of turnover. In particular, we anticipate:
- Considerable scope exists for further constitutional challenges to race fields approvals in all States, particularly where payments are subject to thresholds and where rebates are offered to intrastate operators, such as the local totalisator.
- Other interstate wagering operators may now consider seeking:
- a declaration that any approvals issued to them by RNSW and HRNSW are invalid; and
- repayment of any fees paid to RNSW and HRNSW.
- RNSW and HRNSW are likely to consider appealing the Sportsbet decision (which must be done within 21 days).
The Full Court of the Federal Court's decision in round 2 of this battle will be awaited with much anticipation by wagering operators and racing control bodies alike.
The assistance of Cate Sendall, Solicitor, of Addisons in the preparation of this article is noted and greatly appreciated
[1] Betfair Pty Ltd v Racing New South Wales & Harness Racing New South Wales [2010] FCA 603.
[2] Sportsbet Pty Ltd v State of New South Wales, Racing New South Wales & Harness Racing New South Wales [2010] FCA 604.
[3] A race field is any information which identifies, or is capable of identifying, the names and numbers of horses or dogs participating in NSW-licensed races.
[4] Betfair Pty Limited v Western Australia (2008) 234 CLR 418
[5] See Addisons' Focus Paper for further information: Internet Regulation - End of Cross-Border Restrictions on Gambling Activities?