FOR IMMEDIATE RELEASE
01 AUGUST 2005
HORSE INDUSTRY HAS LITTLE TO CELEBRATE THIS FILLIES' BIRTHDAY
While fillies around the world may be feeling festive this week – celebrating their birthdays en masse on Monday – those earning a living from the breeding, training and racing industries have little cause for celebration, according to the latest research from business information analysts IBISWorld.
While horse racing is something of an institution in Australia, the industry behind the glitz and glamour is actually struggling to survive. Tough competition for the gambling dollar, virtually non-existent profits for most breeders, trainers and bookmakers, and industry rationalisation are forcing many smaller players to leave the track for good.
Despite generating around $600 million in revenue annually, conditions in the horse racing and breeding industries are tough. Millionaire trainers at major race meets might appear to be the norm, but in actual fact industry profitability has always been slim for most breeders and trainers. In fact, says IBISWorld General Manager (Australia), Mr Jason Baker, "trainers and clubs typically operate on a break-even basis".
"The industry revolves around a few professional trainers deriving the overwhelming majority of income from training fees and their share of prize money, versus a much larger number of mainly small, part-time, owner-trainers who struggle to survive financially," he explains.
Due to the cost structure and the price competition on trainer's fees, many small trainers have found it impossible to continue, unless they have other sources of income. The annual turnover in the registration of trainers is around 10 per cent per annum and this is likely to continue over the next few years – at least.
Small horse farms are also enduring difficult times, as they are often unable to match the compensation packages offered by the larger farms and studs, and therefore have trouble attracting trainers and other buyers.
"Large broodmare owners can offer services such as delaying service fee payments, foal share arrangements and marketing of the resultant progeny as "part of the package" and less-established horse farms just can't compete," says Mr Baker.
New South Wales dominates the horse breeding industry in Australia, which turns over around $613 million a year, and contributes $177.9 million to the nation's gross domestic product. It has 35.5 per cent of breeding establishments, followed by Queensland with 29 per cent, and Victoria with 21.9 per cent.
And most of the best breeding stock, especially stallions, are located in New South Wales, where the Hunter Valley is the centre of the thoroughbred breeding industry. The area is at risk, however, says Mr Baker, with soil degradation and salinity posing a significant threat. "Considerable attention, and money, will need to be directed towards this problem to come up with a resolution," he says.
On a more positive note, IBISWorld forecasts the breeding industry might be entering a new growth phase based on exports, which have shown strong growth in recent years thanks to government-funded export schemes and increased industry focus on the importance of trade.
"Lately, the top export destinations by value have been New Zealand, the United States, and Hong Kong, with the United Kingdom the top export destination based on volume. Increasingly, the industry is focusing on expanding exports to the lucrative Asian market – helped by the entry of China into the market," he says.
"Looking ahead, conditions in Asian economies will be especially important for horse exporters, with the braking Japanese economy likely to restrict export opportunities in this market," explains Jason Baker. "Another possible concern down the track is the move in South Africa to prevent further importation of horses into that country."
Industry sources believe an oligopoly situation is being developed, especially in the farming of racing horses. This may arise from the spending and negotiating power of international entrants. Consequently, fewer and fewer breeders are being able to purchase the more expensive mares to upgrade their breeding stocks, which are essential to qualify for the lucrative sales.
Currently, 70 per cent of the industry's revenue comes from sales to the racing industry, with 30 per cent from other sources, such as riding schools, farm tourism, and individuals for recreation.
"In addition, some industry participants believe the coming 18 months will be bring unsettled times, because of high service fees, a lack of new buyers, and the possibility that anticipated price increases will not eventuate. There are also concerns service fees may fall due to a looming oversupply of high-quality stallions, and that there will be some degree of rationalisation over coming years, as smaller semi-professional breeders call it quits and exit the industry completely," Mr Baker says.
And at the track itself, despite our reputation as a nation of rampant gamblers, bookmakers aren't reaping the rewards we might expect. With the average adult Aussie spending less than $20 a week gambling on the races, IBISWorld reports that current bookmaking returns do not match the personal financial risks involved.
"For those bookmakers trying to earn a living form the nags, competition is fierce. Since the early 1990s, the industry has had to contend with a huge increase in gambling options for the average punter – from gaming machines to new casinos, online gambling to sports betting."
"As a result, there are more part-time bookmarkers than ever before, and most no longer rely solely on bookmaking profits to make a crust. The returns don't match the personal risk to funds. The Victorian Bookmakers Association estimates that less than 20 bookies have an individual net revenue of $50,000 per annum."
And the future isn't looking much better, according to many in the racing industry, since the Federal Government decided in 2003 against regulating betting exchanges. These provide an online facility for punters to back horses to win against odds laid by another punter – making it possible to back a horse to lose, rather than win. Many believe betting exchanges pose an unacceptable risk to the integrity of the racing industry, and the government's decision means foreign online betting exchanges will be able to seek licenses to operate in Australia.
For more information and analysis on any of Australia's 500 industries, go to www.ibisworld.com.au
Anne Wild / Amity Roche
IBISWorld Media Relations Representatives – Anne Wild & Associates Pty Ltd
Tel: (02) 9487 3100