Australian horserace betting operators are crying into their Fosters on the news that the industry’s largest whale has swum overseas, taking his betting bounty with him. Zeljko Ranogajec (pictured right), whose betting slips are estimated to have accounted for 8-10% of Tabcorp’s horseracing turnover and up to a third of Betfair’s, has reportedly relocated to the Isle of Man following a late-2011 dustup with the Australian Taxation Office over whether his betting earnings should be considered professional income. Thoroughbred Racing South Australia CEO Jim Watters told The Advertiser that Ranogajec – often referred to as the ‘Loch Ness Monster’ for his reluctance to be photographed – was “such an important factor we think the loss will be around $2m per year in revenue for us.” Harness Racing SA CEO John Lewis said Ranogajec’s departure marked a “significant setback.”
Ranogajec headed a shadowy group known as the Punters Club, consisting largely of math-inclined gambling geeks, reportedly including high-stakes poker player David Steicke. The Club is believed to have contributed over $1b annually to Aussie TAB outfits’ turnover but generated significant controversy last year when it was reported that Tote Tasmania was offering lucrative rebates to such whales while slashing odds on rank-and-file punters to balance the books.
WINNING BY LOSING
In February, the Weekend Financial Review printed a lengthy exposé on Ranogajec’s betting exploits in America. Ranogajec allegedly convinced US pari-mutuel operators to provide his syndicate with substantial rebates in return for adding his billions into their pools. While Ranogajec’s operations in Australia appear to have been based on winning his wagers, the US side actually earned more from losing bets. According to Ranogajec’s own testimony in a court case involving a former bookmaking associate, the plan was: “You bet to lose, so that you actually turn over more money and the win comes from the rebates … If you bet $100 and lost $5, but you get a 10 per cent rebate, you still make 5 per cent.” Ranogajec estimated he’d earned about $52m over a three-and-a-half-year period betting on US races, but just 15% of that sum came from picking winning horses.
Ranogajec’s US cash cow was turned into ground beef after its operations attracted the attention of then New York State Attorney General Eliot Spitzer. Capital Play, a bookmaker that counted Ranogajec’s syndicate as its sole client and financial backer, was subsequently barred from most major US racetracks. Ranogajec ultimately filed a civil suit in Australia against Capital Play’s Karl O’Farrell after the bookie/employee refused to hand over $2.5m in rebates Ranogajec claimed to be owed. In a rather audacious display of naiveté, Ranogajec told the court his syndicate – which is believed to employ 300 people to place thousands of bets in the final minutes before the race gates open – was a “punters club” or a “collection of individuals” rather than a business concern.
With America no longer the land of opportunity, Ranogajec turned to his home state of Tasmania. In just four years, TOTE Tasmania (TT) saw pari-mutuel turnover triple, but the lucrative rebates – averaging 10.5% – meant profits were scarce; just $1.5m in 2011. Dick McIlwain, CEO of Tatts Group, which purchased TT for $103m in December, was no fan of TT’s business model. “They gave all the profits away. They rebated the backside out of the business until there was nothing left. The ordinary punter is subsidizing these guys.”
Other pari-mutuel operators also offer rebates, but most of these are thought to be more in the range of 5-6%. McIlwain said TT had been the victim of a “fight to the bottom” between operators seeking to lure whales by offering the most lucrative kickbacks. (Rakeback wars, anyone?) McIlwain attributes part of the blame for this sorry situation with “dimwit governments” aka Australian legislators who authorized rebates. As for the Punters Club, it has reportedly wound down its Aussie operations, but it’s hard to believe this “collection of individuals” won’t reassemble somewhere else.