Divestment - Inventing the wheel

It is an established fact that if we do not know where we are coming from, it is difficult to determine where we are going. The history of the promoting of racing in Jamaica as a commercial activity is a recent phenomenon, and its structure should form the basis for any decisions on the way forward.

If we start with the formation of Racing Promotions Limited (RPL), we will recall that this company was conceived at a time of crisis in racing. The conduct of racing had deteriorated to such an extent under the previous promoter, Caymanas Park Limited, that an instant decision had to be taken to avoid a complete shutdown. A private company was quickly formed in 1975 to manage the racetrack as a non-profit organisation. The authorised share capital of the company was $1,000, but only $600 was issued, and was equally divided among the Jockey Club and the five organisations in racing representing breeders, owners, trainers, grooms and jockeys.

The racetrack was leased from Caymanas Park Limited in 1975, with an option to purchase during the two-year period. RPL exercised this option in December, 1976 and purchased the racing complex for $3,240,000 financed as follows:

1. Loan from First National City Bank, $1,990,000

2. Loan from Government of Jamaica, $1,250,000

3. Comfort letter to RPL from the Government of Jamaica in regard to operating capital.

Inadequate capital base

This agreement with Government was critical to the operations of RPL because of the inadequate capital base. The loan from First National City Bank was denominated in United States currency, and was therefore influenced by the many fluctuations in the exchange rate. In fact, by the end of 1980, with all the regular payments which had been made, the principal had been increased to almost twice the original loan.

With hindsight, it was predictable that RPL could not operate on a viable basis. From its inception the company was undercapitalised. It was immediately placed in a debt situation by the purchase of the racing complex and the crippling US dollar loan. The Government failed to carry out its intention to provide working capital assistance. The bookmaking activities had expanded, and they now handled 80 per cent of the total sales generated by RPL.

Although there was an agreement to pay a rights fee of 4.5 per cent there was constant resistance and a reluctance to pay. This, coupled with the suspicions about actual sales, led to an unhealthy relationship between the promoter and the bookmaker, a relationship which still persists today.

Following a study on horse racing in Jamaica done by John J. Shumaker of Penn National Turf Club in 1983, the recommendation was that Government acquire RPL and restructure the company for IMMEDIATE (my emphasis) divestment. In a letter dated March 14, 1983 sent to the prime minister and minister of finance and planning by the chairman of the Jamaica Racing Commission and the Betting Gaming and Lotteries Commission, the concerns and recommendations were clearly emphasised.

The main concerns identified included:

i) The manner in which the promoting company, RPL, is constituted and managed.

ii) The insufficiency of funds given by Government to enable the industry to be operated on a viable basis.

iii) The unsuitability of the Caymanas Park racing complex and the problems which are likely to be encountered if races continue to be run at this location.

The study recommended the following:

(a) The promoting company should be restructured whereby all taxes and loans owing to the Government as at March 31 are capitalised and converted to equity

(b) Local and overseas investors should be invited to buy shares in the restructured company.

The study emphasised that the annual allocation of money to racing by Government from the proceeds of betting was insufficient to meet the industry's needs, especially in view of the weak capital base of the promoting company. The situation was counterproductive in that it restricts growth and the betting revenue to Government. The study looked at the cost of refurbishing the existing racetrack and came up with a recommendation for the construction of a new racetrack to be financed from the sale of the current plant and the injection of new equity. This recommendation was also confirmed by Price Waterhouse in the report which they presented to Government.

This was 27 years ago and we are still attempting to invent the wheel.

The Government changed in 1989 and divestment was put on hold following the lobbying of the anachronistic democratic socialists. This group of dinosaurs have been quiet of late and we all hope that they have finally been put to sleep.

The question of a tote monopoly has again been raised. The consequences of this and its impracticality in our peculiar situation has not been fully thought out. What the industry needs to insist on is the full remittance of all taxes and levies paid by the industry to be returned to it with a time table for restructuring to a sustainable level of viability. This was all part of the recommendations of 1983.

Why do we have to invent the wheel all over again?