RITA fails to hit profit targets for 2018-19 fiscal year

New Zealand’s Racing Industry Transition Agency (RITA) reported revenue of NZD$348.0m (£123.6m/€144.2m/$158.7m) for the fiscal year ending July 31, down 3.1% year-on-year, as it missed its target for pre-distribution profit.

RITA's total turnover for the 12-month period amounted to $2.77bn. That turnover figure was 1.2% above the prior year, but unfavourable results led to a lower betting margin of 12.1%, compared to 12.7% in 2017-18, meaning that revenue declined slightly.

RITA said that launch of its new Fixed Odds Betting (FOB) platform in January 2019 helped contribute to the rise in turnover. However, lower betting activity from some “high value elite customers” partially offset this increase.

The agency’s revenue of $348m was made up primarily of net betting revenue, which contributed $273.3m, down 5.0% from 2017-18. Net gaming revenue made up a further $29.0m, up 7.5%.

New Zealand racing shown overseas added a further $21.8m in revenue, 6.4% more than in 2017-18, while other revenue declined 1.2% to $23.8m.

RITA’s chief executive officer John Allen said that the decline in revenue was partially due to measures that would ensure greater long-term profit.

“The 2019 year saw significant investment that will set the business up for the future,” Allen said. “We invested heavily to ensure our betting and broadcasting businesses provide customers with a world-class experience and as a result, increase funding for New Zealand racing and sport.”

“It was always going to be a challenge to ensure that the investment required to deliver growth had minimal impact on our profitability in the short-term. The delay in the launch of the Fixed Odds Betting platform including reduced turnover due to customer disruption and anticipated revenue from offshore charges along with lower betting activity from elite customers and lower sports margins adversely impacted our overall profit result.”

RITA’s turnover-related expenses came to $69.1m, up 0.2% year-on-year. RITA said this was driven by higher overseas racing rights costs as well as revenue share fees from the new FOB platform. However, these increases were largely offset by lower marketing and sponsorship expenditure.

RITA’s operating expenses came to $142.2m, 2.5% less than in 2017-18. Of these, staff expenses were the largest cost at $61.5m, 2% less than the prior year. Communication and technology expenses increased 25.2% to $26.1m. Depreciation and amortisation costs fell 16.5% to $16.5m.

Premises and equipment expenses also declined, by 4.4% to $14.3m, as did broadcasting expenses, which declined 2.9% to $9.2m. RITA's foreign exchange loss totalled $226,000, more than six times last year’s figure, but other expenses declined 13.1% to $14.3m.

Combined expenses from both turnover and operating costs came to $211.3m, down 0.9% from 2017-18. This resulted in a net profit before distributions of $136.7m, down 6.3% year-on-year.

While the agency missed its net profit before distributions target of $173.5m, Allen said he was confident that this would not become a trend.

“We are optimistic this result will be a one-off and we will deliver on our forecasted net profit in 2019/20 of $165.8 million,” Allen said.

RITA distributes at least 80% of net proceeds in order to “encourage active participation in New Zealand amateur sport,” and in 2018-19 it distributed a total of NZD $162.0m for this purpose, opting not to lower distributions despite lower-than-expected revenue.

The agency paid out $151.5m in distributions from betting — 0.5% more than last year — of which $148.9m was paid to racing codes. A further $2.6m was paid to The Races Limited Partnership (TRLP).

RITA paid a $17.3m in distributions from gaming, though this included $6.6m to the Racing Integrity Unit, which is part of the RITA Group. When this is excluded, distributions from gaming totalled $10.7m, up 25.8%. In total, $13.0m was paid to the racing industry, while $3.8m was paid to external sporting bodies.

RITA also paid a $3.0m provision for undistributed gaming net profit, bringing its total earnings to a loss of $28.3m, 72.1% up on the prior year.

An additional $330,000 expense came from a decline in value of hedge investments intended to offset potential losses elsewhere, resulting in a total loss of $28.6m, up 80.4% from 2017-18.

The end of the fiscal year saw a drastic change to racing in New Zealand with the Racing Reform Act, which came into effect on 1 July. The reform act sets out a range of new taxes, including new point of consumption and race field fees, as well as allowing for the creation of RITA, which replaced the New Zealand Racing Board (NZRB).

Allen — who announced in September that he would stand down at the end of the year — said this new regime would bring great benefits by allowing more revenue to be distributed to good causes.

“Collectively these outcomes will annually deliver tens of millions of extra dollars to racing and sport when fully realised,” Allen said.

Following the release of RITA’s annual report, New Zealand’s Racing Minister Winston Peters said the figures show that the country’s racing industry is set to begin a turnaround and is poised for future growth.

“RITA has made serious progress implementing reforms with more measures still to come,” Peters said. “The government will soon introduce a second racing bill which focuses on the post-transition governance structure as well as measures for property consolidation.

“This industry is undergoing a period of transition. We welcome the support of all those investing in the future to ensure the racing industry is turned around from a state of decline.”