Can the UK Horserace Betting Right stand the test of EU law?

After years of advocating for “an intellectual property right backed up by a licensing regime that catches the payments from offshore operators”,¹ the British horseracing industry has finally found support for their position from the UK government. In March 2015, Chancellor George Osborne announced that the 50-year-old Horserace Betting Levy would be replaced with a Horserace Betting Right. The introduction of such a right is, however, fraught with legal questions from an EU law perspective. This article identifies and explores three main challenges: State aid rules, free movement rules and database rights.

The long-running Levy replacement saga

The Betting, Gaming and Lotteries Act of 1963² introduced the Horserace Betting Levy in its current form. It is a statutory levy on the gross profit of betting on British horseracing (i.e. horseracing in England, Scotland and Wales) for the benefit of the horseracing industry, collected by the Horserace Betting Levy Board (HBLB).³ Each year, a Bookmaker’s Committee recommends the categories, rates and conditions of the Levy scheme to the HBLB. The Committee consists of members representing the major operators and trade associations in the betting industry. Once the scheme is approved,⁴ the HBLB sends annual assessment notices to all bookmakers liable to pay the Levy.

Previous attempts to replace the Horserace Betting Levy have been unsuccessful. In 1991, the UK government already considered that it would be preferable if financial returns from bookmakers to racing could be made “without the need for a statutory framework”.⁵ In March 2000, the government announced its intention to abolish the Levy mechanism and recommended moving to a fully commercial funding solution that would involve the sale of pre-race data and broadcasting rights.⁶ The British Horseracing Board (BHB) formulated a plan⁷ under which those rights would be collectively marketed by itself (data rights) and the Racecourse Association (media rights) to bookmakers and media operators. The income would be distributed to a prize fund, the BHB and the racecourses. The enactment of the Horserace Betting and Lottery Act 2004 paved the way for the commercial replacement of the Levy system.⁸

The European Court of Justice (CJ), however, threw a spanner in the works. In its 2004 British Horseracing Board v William Hill Organization (BHB) judgment,⁹ it stated that data that are created, such as fixtures lists and schedules, do not qualify for the newly created EU sui generis database right. Copyright was already excluded in cases of non-original (in the sense of the EU harmonized standard of the “author's own intellectual creation”) databases by the Database Directive of 1996.¹⁰ The resulting situation allegedly left BHB and similar businesses without a right, proprietary in nature, to protect their data. This prompted fears¹¹ that the British horseracing industry would be unable to secure substantial payments for its data rights. Following lengthy discussions with the racing and betting industry and a report by an independent Future Funding of Racing Review Group, the UK government ultimately decided to retain the Levy until a secure and adequate alternative commercial funding arrangement could be found.¹²

The Gambling (Licensing and Advertising) Act 2014¹³ gave new impetus to the debate on the replacement of the Horserace Betting Levy. The Act significantly altered the regulation of online gambling in the UK. It introduced a shift from a “point of production” to a “point of consumption” model: all gambling operators engaging with British consumers must now obtain a licence from the UK Gambling Commission, regardless of whether they are British-based or offshore-based. The government launched a series of consultations on how it could bring the collection of the Levy in line with this new “point of consumption” regime. Under the current system, introduced long before the arrival of remote betting services, only onshore bookmakers taking bets on British horseracing are liable to pay the Levy. With large bookmakers moving their operations offshore since 2008, the Levy yields (with a typical annual value of around £100 million) dropped significantly (to £67 million in 2013).¹⁴

The Department for Culture, Media and Sport (DCMS) proposed two options: (1) reforming and extending the Horserace Betting Levy (to offshore operators) or (2) replacing the Levy with a Horserace Betting Right. Only one week after the consultation on the betting right option closed in March 2015, it was announced¹⁵ that legislative proposals would be introduced to establish the Horserace Betting Right. Apparently a careful analysis of the responses to the consultation was no longer necessary to persuade the government of the merits of this form of intervention.

The Horserace Betting Right

No timetable has been set for introducing new legislation and various details still need to be considered. Yet it is clear that the Horserace Betting Right will impact on all licensed operators offering bets on British horseracing to British consumers. They will be required to obtain an authorization in exchange for a financial contribution. According to the consultation document ,¹⁶ the right would be vested in a racing authority named in statute and created before Royal Assent. The racing authority would set the terms and conditions of authorization, including fees that are “fair, reasonable and non-discriminatory”. The legislation, however, would define the activities on which funds raised through the Betting Right could be spent. According to the DCMS, these activities could include:

• compiling the fixture list;
• regulation and integrity;
• prize money and related incentives;
• veterinary research and education;
• equine and participant welfare; and
• industry recruitment, training and education.¹⁷

This indicative list is more precise than the open-ended statutory purposes of the current Levy. According to the 1963 Betting, Gaming and Lotteries Act, the Levy may subsidize (a) the improvement of breeds of horses, (b) the advancement or encouragement of veterinary science or veterinary education and (c) the improvement of horse racing. The broad discretion in the expenditure of the funds, which as we will see below never faced a test under EU law, enables the HBLB to allocate most of the funds to race prize money. For the financial year 2014-2015 the majority of the Levy yields was used for prize money (64%) and race day services (20%).¹⁸