By Al Hadji, Contributor 
NOW THAT the politicians have 'released the horses from the gate' let us see what is left of the racing industry. Knowing how popular racing is in Jamaica, politicians borrow jargons from this industry to communicate more effectively with the masses. One popular jargon has been 'fly the gate' to announce the election date.
While the racing industry holds considerable potential for making a major contribution to the economy, the government provides little or no support for its continued sustainability. The racing industry's capacity to contribute to the national exchequer is taken for granted. How wrong we can be, let us count the ways! The racing industry in Jamaica provides about 45,000 direct/indirect jobs at all levels. It is capable of supporting horse breeding, food and catering businesses and you name it.
All these activities make a net contribution to the national economy. At present about 8% of the Jamaican population depends on the racing industry to earn its daily bread. We do not recognise that the impact of globalisation is not limited to trade and production only. Globalisation influences the service and entertainment industry in a big way. The racing industry is increasingly becoming a global activity and Jamaica cannot afford to operate in isolation. The government therefore needs to take early actions to re-enforce its viability by introducing necessary reforms programme.
The racing industry has two main attributes namely entertainment and gambling (see The Business of Racing - When is Less More and More Less? by Jagjit Brar, December 1991 - Southeastern Louisiana University). They are both subject to developments in other forms of entertainment (such as 'drop pan') as well as trends in the neighbouring countries and the USA. They all are likely to adversely affect the sustainability of this industry in Jamaica, as they already have.
As we are in the middle of an election year, I am not sure if the present column would influence the government's thinking towards the racing industry at this time. However, I consider it obligatory to bring the critical issues that face the sustainability of the livelihood of 8% of Jamaican population to the front burner. I believe that the issues facing this sector should be on the top of the new government's economic reform and action agenda as well as tourism strategy. We cannot afford to ignore the plight of this industry any longer.
I browsed through the election manifestos of both the major political parties. It is baffling to note that not a word has been mentioned about the urgently needed reforms to ensure the sustainability of the racing industry in Jamaica by either of the parties. Obviously the political parties are fearful to publicly acknowledge the existence and contribution that this industry makes to the Jamaican economy. Today's column shall briefly comment on issues that threaten the viability of this sector, and the consequences that confront us if no actions are taken urgently to restructure the sector and create an enabling environment to upgrade the plant and facilities. The sector is almost close to the point of no return.
In Jamaica, the racing industry is owned and fully controlled by the government. Horse Racing Promotions Limited, a successor to Caymanas Park Limited (CPL), was established in 1987 by the government. In 1990 it was renamed to Caymanas Track Ltd (CTL). CTL is the sole promoter of horse racing in Jamaica. It is directly responsible to the Ministry of Finance and Planning (MOF&P), which appoints its board and sets policy directions for its operations.
What does the MOF&P know about the racing industry is a mystery to me. One would have thought that a ministry closely linked with sports, entertainment or tourism industry would be more appropriate to mange the operations of this industry. In this case it should have been the Ministry of Tourism and Sports (MOT&S).Last year, Deloitte Touche Tohmatsu (DTT) evaluated the operations of CTL and made recommendations to improve its performance. The study found:
the plant is old which projects poor image;
there are gross inadequacies in security arrangements; and
the company has been operating over the past four years with current assets to current liability ratios between 0.33 and 0.68 which provides much less than the desired liquidity level.
This impacts the CTL's ability to elicit external financing. In other words, the financial position of the company is too weak to allow its continued sustainability. The study concluded "to provide the best Gaming Entertainment in Jamaica, the company needs to make significant investments in terms of developing the infrastructure and improving the product quality." Pundits and well wishers at times talk about woes of this industry and how much they wish that the government would take right steps to bring it back to its feet. While there are influential view holders, they seem to refrain from expressing their views to the 'powers to be' lest they lead to half-hearted oleo of experiments by the non-initiates that govern the industry rather than a full-fledged effort to reform it (as it has happened in the past!).
At one time the industry boasted about 25 large and about 30 medium or small breeding farms. This has been reduced to 3 large and 10 medium or small breeding farms. The breeders have become victims of the 'claiming system'. While the 'claiming system' may have been introduced in Jamaica with noble objectives, the way it has been implemented has produced disastrous results. While in the United States this system is being used to group or classify the horses, in Jamaica individuals with no or little money wish to join the elite of 'horse owners'. But are they able to maintain such elevation in their status? Perhaps they are keener to gain access into the stables to obtain tips! The system is being grossly misused to the detriment of this industry.
With the 'claiming system' being so prevalent, hardly one has an interest in buying a horse, rear it, groom it and be patient enough to race it. The new breed of owners does not have enough money to have a long-term commitment to the industry. Breeders unable to sell horses are themselves now an extinct breed, and their staff has long been sent home, to join the lines of unemployed. The next major impediment is the lack of adequate capital investment and necessary cash flow to assume major restructuring and maintenance of the plant.
The government being the only shareholder needs to come to grips with the financial predicament of this major industry. Either it should make the required investments or enter into some joint venture arrangement with the private sector, or fully privatise the industry. No matter who is the investor, an adequate return on investments is of critical importance for the company to be able to make necessary investments.
This leads to the most important issue of government's takeout. Brar, in the article quoted above argues, "the profitability of track operations varies inversely with the takeout rate, because lower takeout rate stimulates larger handle of which track retains a fixed proportional decrease in the price of wagering, or the takeout rate, tends to increase racetrack attendance, and therefore, the total amount of dollars available between the government, racing associations and horse racing purses." This so well summarises the win-win argument and I can hardly put it any better! I hope the policy makers do heed it. In order to encourage investments in the bauxite industry and improve its profitability and performance, the government has recently taken a well-deserved decision to do away with the bauxite levy and introduce an income tax regime. This has been a sound decision that has lead to an increase in investments in the bauxite and alumina sector. Now that the model has already been tested, it is ready for application to other economic sectors. In my view a similar regime could be developed for the racing industry. To encourage investments in the racing industry, the government must re-examine the tax structure and its total takeout on the handle. The racing commissions in the United States have heeded to this advice and the results have been a win-win situation for all the parties. Rather than imposing a whopping 30% takeout on total the handle (which includes government and promoters takeout), the government must seriously focus on the bottom line and the down the line effects of such an approach.
It should comprehensively study the options that can improve the viability of the industry and implement them before it is too late. In the interim, the government should immediately reduce the total takeout by at least 5% until a properly formulated takeout regime is developed and implemented. This, in addition to encouraging new investments in the plant, would also create a multiplier effect that would result in increased handle, increased CTL profitability and ultimately increased overall government revenue. After all, it is the government who owns the entire operations.
I shall continue this discussion next week.
Send your comments to alhadji_0@hotmail.com. Until next time, Al Hadji logs off.
