(b) Funding
133 The facts are largely not in dispute.
134 The Victorian racing industry is a successful and prestigious industry. It contributes to the economy of Victoria, the culture and employment of the State and to Australian racing as a whole.
135 The bulk of the funding to the Victorian racing industry comes from contributions that Tabcorp are required to make under a joint venture with the racing industry. (It will be necessary to return to consider some details of that joint venture in greater detail later in these reasons.) So, for example, in the 2009-2010 financial year, the financial contributions to the racing industry in Victoria were as follows:
1. of Racing Victoria Limited's total annual revenue of $286,220,975, Tabcorp contributed $206,498,000;
2. of Harness Racing Victoria's total annual revenue of $71,916,000, Tabcorp contributed $49,988,000; and
3. of Greyhound Racing Victoria's total annual revenue of $46,697,000, Tabcorp contributed $37,444,000.
Tabcorp's contributions are used, among other things, to provide prize money for events which is necessary to attract participants.
136 The funding model has been and remains highly successful and, in part for that reason, the Court was told is to be continued after Tabcorp's licence expires in 2012. It is also a funding model adopted in other Australian jurisdictions and internationally.
137 The possibility of funding the Victorian racing industry through contributions from wagering was one of the reasons for establishing a government owned off-course totalisator agency board (the TAB) in the 1950s, a position not unique to Victoria. From that time, totalisator exclusivity and retail exclusivity were features of the TAB's operation and formed part of the recommendations of the Martin Royal Commission that led to the establishment of the TAB.
138 From the establishment of the TAB until the 1990s, all of the net profits of the TAB were distributed back to race clubs. In 1994, the TAB was privatised. Tabcorp was incorporated and issued with the licence to conduct off-course pari-mutuel wagering: see [16] above. The evidence of Mr Ross Kennedy, Executive Director Gaming and Racing in the Department of Justice, which was not challenged, was that:
In 1994, as part of its program to retire State debt, the Government decided to float the TAB as a public company. This prompted debate between the Government and the racing industry as to who owned the businesses conducted by the TAB. The controlling bodies claimed ownership of those businesses on behalf of the racing industry on the basis that the industry had underwritten the TAB and had permitted the TAB to use wagering revenue, that would otherwise have been payable to race clubs, to fund further investment in the businesses of the TAB, including its growing gaming operations.
Ultimately, the Government, through the Office of State-Owned Enterprises, within the Department of Treasury, and the controlling bodies negotiated an agreement that would make the floating of the TAB possible. … [A] Memorandum of Understanding between the Government and racing industry, dated 15 March 1994, … sets out the terms of the agreement reached. The beginning of the Memorandum sets out the purposes of the new arrangements, including as follows:
1. The Racing Industry, the Totalizator Agency Board of Victoria ('TAB') and the government Desire to secure the financial strength and future of the Racing Industry, and to ensure that Wagering, Gaming Sportsbook and keno, being businesses conducted by the TAB, achieve their full potential.
…
3. The Government desires to realise the value of the Wagering and Gaming businesses by receiving at least $600 million through the public float of the businesses conducted by the TAB.
…
6. The Government recognises the importance of the Racing Industry to the Victorian economy and in recognition thereof will deal with the Racing Industry in good faith in respect of the corporatisation and privatisation of the business activities undertaken by the TAB.
Having reached agreement with the racing industry, the Government incorporated Tabcorp as the entity to purchase the businesses conducted by the TAB, and to acquire the wagering and gaming licences needed to conduct those businesses. …
The Government also introduced new legislation to give effect to its decision to float the TAB. … As indicated in [the Second Reading speech on that legislation given by the Treasurer dated 28 April 1994], the Government was seeking, through the float, to generate revenue to retire State debt, yet, in doing so, it was also concerned to ensure an ongoing source of revenue to the racing industry and to maintain standards of integrity and probity (see pages 1313 to 1314). In relation to the [Memorandum of Understanding], that underpinned the floating of the TAB, the Treasurer said:
New arrangements have been entered into with the racing Industry designed to secure the financial health of the industry and to provide for a large degree of self-determination in relation to racing and wagering. No longer will the racing industry be subjected to excessive and prescriptive regulation which even dictates the time on which individual races must start. The government will maintain regulation in respect of matters of public interest and probity. The industry will have a participating interest in the Victorian wagering and gaming operations of the privatised TAB through a proposed joint venture, providing a more secure level of income into the future than would be available under a continuation of the current arrangements.
The government would like to place on record its appreciation of the racing industry's professional approach to negotiations that resulted in this mutually beneficial outcome which secures the future of the racing industry and unleashes a new, dynamic and rapidly growing private sector company.
(Emphasis added.)
The "joint venture" provided for the provision by the racing industry of a racing program and information, the payment by Tabcorp of various fees to the industry and the joint management of the joint venture by Tabcorp and the racing industry.
139 Taken at its highest, the State submitted that the contributions by Tabcorp to the racing industry were largely derived from its pari-mutuel wagering business. Mr Kennedy and Mr Douglas Freeman, General Manager, Finance, of the Wagering Division of Tabcorp, both gave evidence that pari-mutuel wagering was able to provide greater revenue certainty to the racing industry compared to other forms of wagering because the "take out" from the pool of bets on a particular bet can be fixed in advance regardless of the outcome of the event. Further, the evidence established that retail wagering accounts for the majority of Tabcorp's wagering business and that Tabcorp has an established network of off-course retail outlets, some staffed and some self-service.
140 The State submitted the present arrangements for funding the racing industry were a continuation of this historical funding model. As will become apparent, that submission fails at a number of levels.
141 First, although there were, and still are, benefits obtained from the funding model, the evidence did not disclose whether the funding of the racing industry was presently adequate, inadequate or in excess of what was "adequate". Put another way, the evidence did not establish what was the necessary level of funding, and whether that level of funding could only be secured by maintenance of the Impugned Provisions.
142 Indeed, Mr Kennedy was called to give evidence by the State and the VCGR. He told the Court that he was not an expert on the commercial arrangements in place between the controlling bodies and was not privy to them. In cross examination, he accepted that the State had nothing to say about the adequacy or sufficiency of the contribution made to funding the Victorian racing industry by registered Victorian bookmakers.
143 Moreover, the State submitted that the conferral of exclusivity on the TAB (and then Tabcorp) was a means to ensure the ongoing funding of the racing industry in Victoria. It did not submit, and the evidence did not establish, it was the only means or a necessary means. In fact, the State submitted that "it [was] difficult to quantify what would be the consequence to the funding of the racing industry if Tabcorp's retail exclusivity were removed". The highest the State could and did put it was that the existing levels of funding and the viability of the industry would be put at risk. That is insufficient justification for the maintenance of the Impugned Provisions: cf Clark King & Co Pty Ltd v Australian Wheat Board (1978) 140 CLR 120 at 191 and Uebergang v Australian Wheat Board (1980) 145 CLR 266 at 306-307. On any view, Tabcorp's position is fundamentally different to that of the Wheat Board.
144 Secondly, much of the evidence adduced by the respondents was historical. For the reasons stated earlier, the relevant date for construing the Impugned Provisions is the date when the "betbox" was removed by the VCGR, being the event which underpinned the constitutional challenge. The need to consider the Impugned Provisions at a particular time is reinforced by the State's submission that "to the extent that the [I]mpugned [P]rovisions result in retail exclusivity, for most of their history they have operated primarily to restrict the activities of intrastate operators who may have wished to compete with the TAB" (emphasis added). In that context, it must be noted that the betting industry now is very different from the days described by Frank Hardy in Power Without Glory. No longer is the concern about competition from SP ('starting price') bookmakers operating in local laneways.
145 Thirdly, and in any event, even if the evidence supported the factual contention that the funding model was necessary to support and fund the Victorian racing industry (which for the reasons stated earlier it did not), that approach was rejected by the High Court in Betfair v Western Australia at [108] when it stated:
In its submissions Western Australia also contended that any practical effect of the impugned legislation in protecting the turnover of in-State operators from diminution as a result of competition from Betfair, with consequent prejudice to the returns to the racing industry and in-State revenue provided by it, could not be protectionist in nature. But a proposition which asserts that an object of revenue protection of this kind may justify a law which discriminates against interstate trade is contrary to authority [Bath v Alston Holdings Pty ltd (1988) 165 CLR 411 at 426-427; Sportodds Systems Pty Ltd v New South Wales (2003) 133 FCR 63 at 80]. And it is contrary to principle, for such a justification, if allowable, would support the re-introduction of customs duties at State borders.
146 The respondents submitted that that passage in Betfair v Western Australia was limited to protection of State revenue. I reject that submission. What the High Court says in this passage from the reasons in Betfair v Western Australia is not limited to protection of State revenue. That is made clear by the reference to the following passage in Sportodds at [79]-[80] (cited by the High Court in Betfair v Western Australia at [108]):
… In any event, the objective referred to in the Second Reading Speech would seem to be the protection of the 'racing industry' in New South Wales. This may be a legitimate objective, notwithstanding that it may have different consequences and effects from the objective of regulating a social evil as discussed above. In Cole v Witfield (sic) (1988) 165 CLR 360 the High Court accepted that the protection of Tasmanian crayfish stocks was a legitimate objective in circumstances where the exploitation of those stocks was non-discriminatory. Further material in this case might establish that the relevant 'racing' industry (whether in relation to horse racing, trotting or greyhound racing) is open to persons from all States and Territories whether as competitors, bookmakers or punters. If this is the case then the 'protection' of the 'racing' industry might be understood as referring to the appropriate funding of racing venues and events so as to attract appropriate interest, both intra-state and interstate. One means of such funding might well be imposing charges and taxes upon bookmakers, totalizators and others who profit from betting on those events. This may be an appropriate objective. There is no obvious reason why bookmakers in other jurisdictions should not pay their fair share of those charges and taxes if they profit from gambling on those events. Obviously this needs to be explored in considerable detail. The nature of the industry, how it is regulated in different jurisdictions, and what arrangements for funding racing events would all need to be explored. The question of whether these arrangements should also be applied to other sporting events not directly connected to horse and greyhound racing would also need to be considered. There may be other essential considerations of which we are totally uninformed. We certainly do not say that further investigation would necessarily establish that this relevant objective, if it exists, is a 'legitimate' one. It is simply that it may be.
147 Tabcorp addressed the question of funding under a broader umbrella. It submitted that the Impugned Provisions, read in the context of the legislative structure of which they form part, seek to achieve an object of "promoting a vibrant and successful racing industry, including by materially funding that industry through the totalisator, which generates a stable, commission-based and adequately high source of revenue that is not contingent on outcomes" (emphasis added).
148 The evidence relied upon by Tabcorp established that:
1. it is necessary for the gambling industry (including Sportsbet) to make contributions to the racing industry in order for that industry to be vibrant and successful;
2. payments towards the racing industry by Tabcorp are an essential part of keeping the racing industry vibrant and successful; and
3. the position of the Victorian racing industry (as the foremost in Australia and amongst the best in the world) could not be maintained without substantial funding of the kind that it presently receives.
149 As will be apparent, the fact that there was a need for contributions and that funding by Tabcorp was an essential part of keeping the racing industry vibrant and successful were not in dispute. However, what the evidence did not address was whether the level of funding presently contributed by Tabcorp was the necessary level of funding, and whether the necessary level of funding could only be secured by maintenance of the Impugned Provisions. Instead, Tabcorp adduced evidence to establish that:
1. competition by Victorian corporate bookmakers may have an impact on the level of funding for the Victorian racing fraternity;
2. significant competition between the totalisator and the corporate bookmakers in the 2000s resulted in opportunity cost and although Tabcorp's revenues have not declined, they have not increased at the rates that existed prior to the increased competitive activities of corporate bookmakers;
3. corporate bookmakers' turnover has increased significantly following the development of different bet types;
4. as the price of betting lowers due to competition, this has an effect upon funding of the racing industry;
5. until recently, there was no established mechanism for ensuring that corporate bookmakers contributed any funding to interstate racing industries; and
6. while through the introduction of race fields fees, the Australian racing industry has taken some measures to address the issue of corporate bookmakers in the market, the fees paid by the corporate bookmakers constitute only a small proportion of the industry's current funding.
150 As said earlier, that evidence fails to establish the necessary level of funding and whether that level of funding can only be secured by maintenance of the Impugned Provisions. In fact, in some critical respects, the evidence establishes the reverse - that some aspects of the funding model have been changed without the demise of the racing industry.
151 The respondents have failed to establish that the burden that the Impugned Provisions impose on interstate trade and commerce is appropriate and adapted to achieving the funding objective or even the broader objective of promoting a vibrant and successful racing industry, including by materially funding that industry through the totalisator, which generates a stable, commission-based and adequately high source of revenue that is not contingent on outcomes. The respondents did not establish that the Impugned Provisions are capable of being seen as likely to achieve those identified purpose(s) and, further, did not establish that there were no alternative means to achieve those identified purpose(s) which involve no, or a lesser, burden on interstate trade and commerce than the means adopted. Put another way, there was no evidentiary basis to make the necessary findings that the funding of the racing industry was imperilled by the striking down of the Impugned Provisions. That conclusion is not surprising. A person can use a mobile phone in a public bar to place a bet with Sportsbet but cannot use a "betbox".