International financial agency Deloitte's report into the operations of the New Zealand Racing Board report paints a bleak picture for its future.
New Zealand Thoroughbred Racing released the executive summary of what is commonly known in horse racing circles as the ''Deloitte report'' to the industry last week.
The report was commissioned by NZTR to investigate the New Zealand Racing Board's strategies, its risks and chances of success.
The May 2017 document had not previously seen daylight and had been the cause of much speculation before the release of its summary.
The report found major challenges ahead for the NZRB.
''To date the NZRB has not managed to achieve the change necessary to significantly enhance or secure the future in a very protected regulatory environment.
''While revenues have grown, profitability has not grown at the same rate. As a consequence, distributions to the codes have remained flat in nominal terms and declined in real terms. This is not a sustainable position for the codes.''
The report also noted the racing industry is already on the back foot through a lack of historical investment.
''The NZRB historic level of investment appears very low relative to its peers, which suggests that in addition to responding to these future challenges, there may well be a requirement for additional catch-up investment.''
The report identified the projected rate of return from the NZRB's new fixed-odds betting platform as being much less than it is expecting.
Last year, the NZRB announced it had negotiated with overseas companies OpenBet and PaddyPower Betfair to deliver it a new state-of-the-art betting platform.
The platform, which is set to start operating in the next racing season, was anticipated to deliver a significant lift in net profit per year to racing once fully implemented.
The platform was a key driver in the NZRB's future strategy to return more money to racing.
''Our analysis indicates the success of the NZRB initiatives are dependent on very significant changes in terms of both the number of people betting, how they bet and how much,'' the Deloitte report said.
''We question whether sufficient allowance has been made for offsetting effects and, in particular, the impact on tote betting of an acceleration in the move to fixed-odds betting and the increased competition and margin pressure that could be expected in a market dominated by this form of betting.''
The initiating of the deal to create the new fixed-odds platform was done following recommendations to the NZRB from KPMG.
Deloitte was critical of the testing it used and believed it would have an impact on anticipated rates of return.
''The KPMG stress testing does not appear to have tested the sensitivity of prospective distributions against a material ongoing decline in tote turnover and increases in operating costs.''
Deloitte developed its own model to analyse the rate of return from the new fixed-odds platform and its estimates are from $49 million to $135 million lower over the 2018-21 financial years than is currently assumed.
The report also noted the significant cost of the platform from OpenBet and PaddyPower Betfair which it estimated to be from $59 million to $72 million.
