Q&A with HRV CEO
DAMAGE control or fact correcting tour, regardless of which way you look at it, Harness Racing Victoria's honchos have been busy this week.
HRV's woes began last Friday when the state's five kindred bodies - Victorian Harness Racing Club; Trots Clubs Victoria; Victorian Harness Racing Trainers and Drivers Association; Victorian Square Trotters Association and Harness Breeders Victoria - issued a joint statement demanding answers from the board.
Stating they have "no confidence in the Board of Harness Racing Victoria", the various associations called for board members to be replaced by declaring it is "irrational to expect the same individuals who led us into this crisis can now navigate us out of it".
The clubs listed a host of dire figures and claims to support their case - which can be read via clicking here - to which HRV has spent a week responding.
Like or hate them, HRV's answers have laid the situation bare by explaining the reality of the scenario in which the industry finds itself.
As such, National Trotguide's Paul Courts, sat with HRV CEO Matt Isaacs to ask numerous questions participants want answered....
It has been reported HRV incurred a "catastrophic" $24 million loss for the 2024 financial year, following heavy losses in 2022 and 2023, is this figure accurate, and if not, can you reveal the true 2024 figure?
The losses are detailed each year in the annual report, and the FY24 financials have not yet been audited, but a $34million loss had been forecast before more than $10 million in savings improved the bottom line. The final loss amount will include club lighting upgrades, which cost about $2million, and redundancy payments to staff.
HRV has experienced a significant amount of Government support dating back to 2017. Without that support, HRV would have made losses each year.
These losses reflect a reduction in revenue, increases in prizemoney, and investment in infrastructure, which had fallen behind industry standards.
As we’ve made clear in numerous statements, this level of loss is unsustainable and requires a significant response for the future sustainability of harness racing in Victoria.
During the three-year period mentioned above, how much has HRV lost?
HRV's historical losses, excluding government funding, between FY19 and FY23 have amounted to about $63million.
During that period, the costs of running the industry have increased, and prizemoney has risen from $41.6million to $50.7million, while HRV’s major revenue stream, the joint venture, has dropped from $39.7million to $28.4million.
Yes, the increase in stakes was welcomed by participants, but it has come as part of the industry living beyond its means, which has been a major factor in where we find ourselves now.
In 2021 HRV released its three-year strategic plan which included delivering revenue growth; increasing stakemoney; financial sustainability; growing the number of owners involved in Victorian harness racing and improving the ownership experience; positioning Victoria as the desired location for trainers and owners to race their horses; bolstering the breeding industry and growing race day attendances....Given the current status of the industry, has HRV failed in every one of its strategic priorities?
The seeds for the 2021 Trots24 growth strategy were planted in 2019, when HRV’s Board commissioned a report to profile revenue, costs and benchmarking.
It identified the sport had fallen behind other principal racing authorities for infrastructure and investment, and required significant Government intervention to bring it up to speed and ensure its viability.
The Government policy at the time was to foster viable racing industries that make Victoria the pre-eminent racing jurisdiction in Australia and increase jobs in regional Victoria.
It supported harness racing in Victoria prioritising a growth strategy to achieve the aforementioned goals and positively change the industry’s future.
That saw HRV invest in prizemoney, club infrastructure, technology to drive efficiency, and media and marketing to broaden the sport’s base and increase wagering.
That vision helped the industry produce record returns during FY22 and FY23, when wagering markets also benefitted during Covid.
However, rising inflation and out-of-pocket expenses have contributed to a wagering downturn, and the Government’s financial position requires all statutory authorities to now live within their means.
As a result, revenue has been affected and that requires a change from a positive, ambitious strategy to one of sustainability.
It’s important to note, Victoria has different operational requirements and significantly less favourable funding arrangements than other Australian harness racing jurisdictions, which are subsidised by other codes.
At what point do those who have been HRV Board members throughout this period take responsibility by acknowledging they have not managed to improve the industry and step down from their roles?
Each board member takes responsibility for every step forward and backward the industry endures.
The board has done a good job securing incremental funding from the government, without which returns to participants would have been about 10 per cent lower over each of the past five years.
Where HRV has historically fallen short is communicating the reliance on this funding to our participation base.
What key factors have contributed to these losses and what is being done internally among HRV's operating costs, outside of prizemoney reductions, to reduce further losses?
In August last year, HRV cut $6.1million from operating costs to reduce overall losses for the year. In May, another $6.6million in operational savings were announced, neither of which affected prizemoney.
While making these changes, HRV has to make sure it can run the industry in accordance with the regulations required under the Racing Act.
More changes will be made and announced to drive the industry to a sustainable footing, with HRV focused on increasing efficiency and savings to maximise returns to participants.
Why does HRV continue to rent a building in Flemington instead of utilising its own facility in Melton in a bid to cut costs?
A relocation to Melton has been investigated but would require development of office space. We don't have the ability to fund capital works and remaining at Flemington, where HRV receives a favourable industry rate, is currently the best option for the greater industry and workforce.
We will continue to review best practices.
On the subject of Melton, has HRV used the vacant land around the venue as collateral to borrow funds to the point the reported $100million "nest egg" is all but lost to the industry?
Harness racing acquired an asset in Melton some 20 years ago and carries the track and vacant land on our books.
However, in 2019, a government policy change meant proceeds from any land sale by a government department or agency had to be returned to consolidated treasury funds. This means HRV could not sell the land and pocket the proceeds.
The board, before my time, fought hard to find an exemption to the government policy, which wasn't granted, but HRV will be able to extract a value exchange for an unused portion of the vacant land.
This will help address HRV’s long-term debt, a significant portion of which stems from the original purchase of Melton land and track development. As such, harness racing in Victoria won't carry debt, a saving of nearly $2million a year in interest.
The remainder of the land’s value will be granted to HRV from the government in solvency funding, which will help transition to a sustainable industry by FY27.
As a result of the losses and borrowing against assets, is HRV virtually insolvent and unable to meet its debt obligations?
The transfer of the Melton land will help erase HRV’s historical debt, and we have an undertaking of support from the Minister for Racing Anthony Carbines.
However, the government's expectation is for the industry to become sustainable as soon as possible.
The Board’s plan is to return to a position of living within our means with no additional funding from Government, other than the solvency funding as part of the land transfer.
Would selling the land allow HRV retain a sizable amount to aid the industry's future?
HRV would be expected to get a greater value if it was able to sell the land on the open market and is still in negotiation with Government as to what will be the value of the land transfer.
Does Melton run at a loss or is it providing harness racing with a solid income away from wagering as predicted upon its opening?
Melton Entertainment Park, as a hospitality facility, has shown improved financial performance across FY24.
The significant increase is in part a concentrated cost focus from management and a result of more favourable supplier agreements, which had previously been limiting for the business after being signed long-term by previous administrators.
This resulted in its biggest contribution to harness racing in Victoria via an operating profit. We believe we can continue to grow the venue with its focus on racing, functions and gaming.
There is a belief HRV's employment costs have "ballooned by an astonishing 71 per cent", has the governing body become over-employed while failing to gain maximum output from staff?
The increase you’re referring to is comparing FY17 with FY23.
Fifty-eight per cent of the increase relates to inflation and other regulatory enterprise bargaining agreement increases, which, as a statutory authority, are outside HRV’s control.
Twenty-two per cent reflects an increase in integrity and animal welfare.
And the remaining 20 per cent were for new roles, increases above inflation and redundancies.
HRV has removed 27 positions, 20 per cent of its organisation, since the beginning of FY24. As an example, the executive has reduced from seven to four.
Given the importance of integrity, what do you say to those who believe HRV has been "reckless" in "funnelling vast sums" into that department?
HRV unapologetically defends our stance on integrity. Without integrity we don't have an industry.
A lack of integrity would only erode trust in our customers and stakeholders, and we are proudly an industry leader in this field.
Sticking with prizemoney, should participants brace themselves for another stakes cut?
At the moment, HRV returns 66 per cent of its revenue in prizemoney, which is higher than the other two codes in Victoria.
We will need to address this, and further announcements will be coming, but what we want to do is structure prizemoney to ensure we are using it as efficiently as possible. We want to get work with industry to get the balance right at both the highest level and at the lower rating tiers.
Marquee events are considered important when it comes to the industry attracting wider coverage, but should the top end of the stakes be cut before the bottom? For example, Catch A Wave will contest a $200,000 A G Hunter Cup just as he would a $400,000 version, however, $4500 stock being asked to compete for $3500 will affect a lot more participants and likely result in a far greater rate of people leaving the sport....
We are looking for the best way to distribute stakes appropriately to support key events and lower-rated racing. Striking the right balance will always be done in consultation with kindred bodies.
Previous prizemoney announcements and changes followed meetings with Harness Breeders Victoria and the Victorian Trainers and Drivers Association, and we look forward to continuing to work with stakeholders to ensure the optimal allocation of prizemoney.
Reduced stakes are bound to have a flow-on effect, such as poorer yearling sales, lower breeding numbers, ownership and so on, is that taken into consideration before cuts are made?
Absolutely, those areas are all taken into consideration as part of harness racing’s broader ecosystem, which we need to monitor while transitioning to living within our means.
Outside of HRV office staff and stakemoney cuts, are there other cost saving plans in motion, such as closing some tracks or hosting less race meetings each week?
Nothing is off the table, because we have to find the most efficient and cost-effective way to operate the industry while maximising returns from wagering.
It is important for HRV to race as often as possible, because income streams are reliant upon our market share percentage, and we will continue to work with participants and clubs to do that efficiently and effectively.
Moving away from spenditure, harness racing's income has been in decline as a result of wagering turnover dropping, but what has HRV done to establish other revenue streams?
HRV invested significantly to grow wagering, including through media and marketing channels. The reality is the amount of revenue generated from that hasn’t produced a return on investment.
Ultimately, harness racing as a code has to evolve to be able to stand on its feet. That’s the challenge for the industry, including HRV.
We want our industry to work with us to improve our image and innovate our product, which will broaden our base, increase our market share and produce greater returns for participants.
Can you categorically say harness racing in Victoria is capable of returning to better days or is the industry destined to continue shrinking?
With a phased approach, which is supported by Government, we have every reason to be optimistic.
Our first step is sustainability by rebasing our costs while maximising returns.
What will ultimately see harness racing in Victoria thrive is the ability of the industry to come together, be pro-active, lean into change and unite around the sport we all love.
