Heavy going before Tote sale clears final fence

With all the bids now in for the bookie, the Government has some difficult decisions to make

After weeks of smoke and mirrors and rumours the final field has been declared for the Coalition "Strapped for Cash" Tote Privatisation stakes.

This race is no lively sprint involving, as it does, a Government that is in desperate need of money, trying to reconcile all sorts of competing interests in an event whose outcome will prove hugely controversial whoever wins. Just look at the problems the previous government had when it tried to do the same thing, only to end up giving it up as a bad job.

For a start, the Tote plays a crucial role in supporting racing, which is in the midst of a cash crisis of its own and is not without powerful friends who could create trouble in the Tory party if they so desire. At the same time, any deal will have to satisfy the EU's rules (and regulators) on state aid (a sticking point when the last government tried to arrange a sweetheart sell-off to racing interests). Disappointed losers will no doubt be swift to cry foul to anyone who will listen, if there's any hint that the final deal breaks any rules.

Yesterday the Tote had its say, with a plan to transfer its business to a charitable foundation, with the taxpayer getting an unspecified dividend when the deal is done. The racing industry loves the idea, with the Jockey Club already having vocally spoken in support. "It satisfies all the criteria, providing funding for racing and a return for the taxpayer," said Simon Bazalgette, its chief executive.

When told the bookies rate the chance of success at no better than 25-1, he said: "That looks like an awfully big price to me. I think you might be surprised."

Racing has a stronger hand in this than it might appear to have at first glance. The Tote enjoys a privileged position at nearly all of Britain's 60 racecourses: its windows usually occupying the best, most prominent sites on course. The Tote doesn't make a profit at all those tracks.

However, the Jockey Club (which owns prestige tracks such as Cheltenham and Newmarket, where the on-course Totes do make money) has already indicated that the Tote can't take this position for granted if its owner is someone of whom it disapproves. Then there's Turf TV, which supplies pictures from most of the biggest tracks to the Tote.

The Jockey Club holds the whip hand in that venture and could make life extraordinarily difficult for a new owner as a result.

That presents a problem for Betfred, which is thought to be willing to meet the £250m asking price.

Betfred vehemently opposed the formation of Turf TV, set up in opposition to the bookmaker-controlled media rights company SIS with the aim of squeezing more cash out of the betting industry.

Perhaps that is why the Bodog, the internet betting company which isn't in the running, rates the Reuben Brothers as favourite. The owners of Northern Racing, whose tracks include Chepstow, Newcastle and Uttoxeter, haven't endeared themselves to racehorse owners however (another powerful interest group), who have loudly criticised prize money levels at Northern's tracks.

Chris Bell, the former Ladbrokes boss who has private equity backing for his bid, has strong connections with both Government and racing, with the furore over his comments about one race a day being fixed a few years ago now largely forgotten.

But pools operator Sportech should not be ruled out. Its bid involves racing powers such as Trevor Hemmings, the grand national winning owner and Piers Pottinger, the PR man who is also no stranger to the winners' enclosure when jockeys take to the track in his colours.

Both Martin Broughton, another business luminary and Andy Stewart, also a prominent racehorse owner, will have their supporters too. And who could rule out Paddy Power, which has been growing at breakneck pace in Britain even as its Irish business suffers the chill wind of the recession in its home territory.

Paddy Power's flair for publicity and its string of eye-catching PR stunts have offended many. But it has not really rattled the cages of anyone within racing, which is a very important point.

Overseas operators such as France's PMU, South Africa's Phumelela and even Churchill Downs in the US may struggle to make the final cut, though. As one betting industry source explained: "It won't really look that good if the Government sells to a foreign operator from a country which shuts out British betting companies." Which is worth noting, because this is a very political sale process, one way or another. In the year to April, the Tote made profits of £13.3m on revenues of £2.8bn and contributed £11.3m to the horse racing industry, which is lobbying hard for a greater contribution from the betting industry towards its costs.

That is another issue on the desk of Culture Secretary Jeremy Hunt, as is the migration of Britain's online betting industry to Gibraltar.

Both these will affect the price of the Tote. If Mr Hunt decides bookies should pay more to racing through the statutory levy, the Tote will be worth less. The offshore issue is even more vexed: that's a lot of tax that has been lost and it will not look good if Mr Hunt allows the Tote to be sold to a bookie that then shifts just about the last remaining online business in the UK to sunnier climes.

Industry experts still feel that the Tote will be sold, one way or another, although they doubt the foundation plan, which looks great in principle but won't provide much in the way of returns to the tax payer. It's rather like the idea of turning Northern Rock back into a building society rather than selling it to a bank.

But almost everyone of the other options come with drawbacks. And then there's the question of keeping a new owner to pledges to support racing, which employs an awful lot of people in Tory heartland territory.

The best bet is for this saga to drag on for a very long time.

Not a sprint, nor anything like it, more a long distance steeplechase through the mud at Uttoxeter.

Why take a dip in the pool?

Pool betting is the mainstay of the Tote's business, and what makes it distinct from every other bookie in Britain.

With a regular bookie you know what the payout will be when you make your selection. If, for example, you put £20 on Surefire Winner, a 5-1 shot, you will receive £100 in winnings if it comes in, plus your stake back.

Pool betting works differently. When you put your £20 on Surefire Winner, the money is put into a massive pool of money made up of everyone who places a bet on a particular race. At the end, all the money in the pool is divided up between all the winners, less a deduction to cover The Tote's costs.

The payment is declared as a dividend to a £1 stake. Let's say the Tote pays out on Surefire Winner at 5-1. It would declare a divided of £6 (a £1 stake plus £5 or returns). You would still receive £100.

Why bet with The Tote when you don't know what the returns will be? Well, you can sometimes get better payouts. Some races are highly profitable for bookies – for example handicaps with high numbers of runners. But the Tote's deduction is a fixed percentage whatever the race, so it can pay in these circumstances to bet into the pool.

Outside of Britain, Ireland and Australia, pool betting is the norm rather than the exception.

What else does The Tote run?

The Tote also has a fixed odds betting business (like those of Ladbrokes or William Hill) and operates a chain of around 500 betting shops. It has a telephone and internet betting business as well. It runs a number of "speciality" bets such as the television-linked "Scoop 6" on Saturday, which is heavily promoted by Channel Four.

Runners and riders

7-2 Reuben Brothers

4-1 Sportech

5-1 Betfred

5-1 Chris Bell

6-1 Martin Broughton

6-1 Paddy Power

12-1 Andy Stewart

20-1 PMU (French)

25-1 Phumelela (South African)

25-1 Charitable Foundation (Tote management)

25-1 Gala Coral

25-1 Churchill Downs

Odds by: Bodog ( www.bodog.co.uk)