December 2012

RACING QUEENSLAND

LIMITED

PROPOSED APPROACH TO INDUSTRY

INFRASTRUCTURE STRATEGY

Table of Contents

1. Background ............................................................................................................................. 1

2. Proposed Infrastructure Strategy Approach ....................................................................... 12

3. Phase 1 Projects ................................................................................................................... 18

4. Future Projects ...................................................................................................................... 24

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1. Background

1.1 Introduction The racing industry is a substantial contributor to the economy in Queensland. Directly, the industry is responsible for $855 million in economic spend or GSP, and when induced and indirect impacts are included, the Queensland racing industry contributes just over $1.44 billion towards GSP.

Source: IER Pty Ltd, 2009, Size and Scope of Racing in Queensland, p. 60

Source: IER Pty Ltd, 2009, Size and Scope of Racing in Queensland, p. 61

Furthermore, it sustains the fulltime equivalent employment of more than 30,000 Queenslanders in fulltime, part-time and casual employment in the industry. Essentially, for every $1 million of expenditure generated by the industry up to 22 fulltime positions are created or sustained. In real terms, it is likely that the 22 fulltime positions actually reflect more than 46 individuals working in fulltime, part-time and casual positions. To put this level of employment in perspective, the racing industry is an employer of considerably more individuals than the electricity, gas and water supply sector (20,900) and just below the communications sector (33,300).

Racing Queensland Limited (RQL) and the Queensland racing industry operate within a complex industry structure that poses its own challenges and requirements. The key elements of the structure are as follows:

RQL is the licensed control body for the Queensland industry, responsible for establishing and maintaining, the policies, funding and licensing arrangements, the Product & Program, and the safety and integrity of the industry. RQL is licensed under the Racing Act 2002 and is a company limited by guarantee.

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RQL interacts with the other Principal Racing Authorities (PRAs) through

national boards, which sets the rules of racing and seeks to coordinate national initiatives.

Racing Information Services Australia (RISA), which provides a wide range of

services to the thoroughbred racing industry and commercialises the racing product, is owned jointly by the PRAs.

Funding for the industry comes principally through a Product & Program Agreement with Tattsbet. Under race information legislation, which has been implemented by all states and territories, each PRA now charges wagering operators for the use of their information for the purpose of race wagering. Whilst RQL receives revenue for the use of its information, it also incurs costs, which are deducted from the Product & Program fee associated with Tattsbet’s use of interstate information.

RQL funds the racing industry’s owners, trainers, jockeys, drivers and breeders through various initiatives with prizemoney and breeding schemes.

RQL funds race clubs through the payment of a subsidy in the form of an industry contribution for the race club to hold the race event.

The size and scope of the racing industry is summarised below:

Source: IER Pty Ltd, 2009, Size and Scope of Racing in Queensland, p. 6

The activities of the racing industry generate more than $140 million in taxation revenue for the State and Federal Government.

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Employment in Racing

Source: IER Pty Ltd, 2009, Size and Scope of Racing in Queensland, p. 6

There are a number of participants in racing both directly and indirectly, as well as many volunteers who provide their services to regional race clubs. The structure of the industry is summarised on the next page.

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Current Industry Structure

Product CoTattsbet

RQL

ARB

Greyhound

Harness

Clubs Contribution

Distribution of

Prizemoney

Non-TAB

Clubs

Minister

responsible for

Racing

Office

of

Racing

Racing Act

2002

TAB

ClubsRISA

(National)

Principal Racing

Authorities

(PRA’s)

Race

Information

Legislation

Other

Wagering Operators

Country Racing

Committee

Race

Information

Legislation

Thoroughbred

HRA

GAL

RISE

(National)

GRARUN

(State of QLD)

Peak QLD Industry

Bodies

Ad

min

istr

atio

nL

eg

isla

tio

nF

un

din

g

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Our vision and priorities for the industry centre on five key objectives:

1. Industry viability 2. High participation, engagement and skills 3. Safety, integrity and sustainability 4. High quality infrastructure 5. Enhanced product and intellectual property

1.2 Whole of Industry Funding Approach

The fundamental basis of the Industry Infrastructure Strategy (IIS) is that the

investment be viewed as providing infrastructure necessary to the growth and sustainability of the industry. This includes the infrastructure needed not only to support the actual race day delivery of racing, but also the infrastructure investments needed to ensure the long-term viability of the extended industry and, in particular, provide infrastructure that will stimulate industry growth. To achieve the above aims, the infrastructure investment must be looked at in this light. Many of the proposed investments will have a side benefit of adding extra/increased revenue opportunities to clubs, as well as profit improvement from decreased maintenance costs of currently deteriorating assets. However, any benefits achieved in these ways are secondary to the primary purpose and justification of the strategy. In 2005, the revenue received from wagering was diverted from the clubs to RQL and the Queensland Government in the form of wagering tax. This revenue (in the FY2010 was approximately $136 million and $40 million respectively) left the clubs, using thoroughbred clubs as an example, with a combined race day revenue of approximately $52 million. The intent as described by the Racing Act 2002 was that the diverted funds would be used as appropriate, for prizemoney, but also for capital development and subsidies to clubs to assist with the maintenance of racing facilities. In FY2010, the clubs incurred approximately $15 million in racing facility repairs, maintenance and depreciation, yet the subsidies were less than half this amount.

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There is often some contention from those with only a surface knowledge of the economic complexities of the racing industries, that clubs should be required to standalone in respect to their financial viability. This expectation is unrealistic and naive. In the above example of FY2010, 77% of the industry revenue had been

removed legislatively from the clubs and diverted to either RQL or Government Revenue. It is clear that the expectation was that this revenue would have to be returned to the clubs and/or industry in one form or another to support the ongoing financial viability of the delivery component of the industry. The clubs, notwithstanding the removal of prizemoney responsibility, could not be expected to survive with this level of revenue reduction without ongoing subsidy. There can be no argument that RQL and the Government have an ongoing responsibility to invest in the industry. In the case of RQL, this investment must firstly focus on the appropriate distribution of the industry revenue to support not only the future investment needs, but also the more immediate financial health of the industry. In the Governments case, after 10 years of wagering tax return with very little direct reinvestment, there would clearly be an interest in reinvesting in the racing industry to ensure the continuation of the wagering revenue, but also to promote an industry that provides tens of thousands of jobs and up to $1 billion in GSP. In the past, it is clear that, with hindsight, the strategies used by RQL to determine priorities and strategies for the investment within the industry have failed to provide the benefits required. Clubs have been carrying the burden of industry viability for some years. Clearly, it was never intended that clubs be relied on to be able to invest in the major infrastructure necessary to address whole of industry viability or growth. This is the clear responsibility of the recipients of the major revenue streams, namely RQL and the Queensland Government. Notwithstanding, most clubs have been making some infrastructure improvements to the extent that they are able. The Brisbane Racing Club (BRC), as an example, has invested approximately $16 million in racing related

infrastructure in the last three years. These investments are primarily funded by the use of cash reserves and/or sale of assets. Necessarily though, the clubs investments will be focused on local issues given they have no capacity to take an industry wide view. As such, business cases covering the projects that are produced under this strategy will highlight areas of potential benefit to clubs from the projects, but this will be a secondary consideration in the assessment of the project needs. The primary justification will be the role and need of the investment as set out in this overarching strategy. Instead, business cases will focus on the role and need of the project on an industry wide basis, and must be viewed in this capacity. Further, not all projects will have a direct revenue generation outcome. Infrastructure in the racing industries is needed not only in the customer interface areas, but also in the production and delivery segments of the industry.

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1.3 Industry Funding Arrangements

The key source of funding for the industry is the Product & Program Agreement. Under the agreement, RQL provides Tattsbet with access to the racing program, both Queensland and national, and in return is paid a fee of 39% of race wagering revenue (i.e. race turnover less payouts). Only races in the TAB program are wagered on and hence generate revenue for the industry. RQL utilises its share of the fee to fund its operations, including the cost of integrity services, all prizemoney, and capital works development and pays subsidies to the TAB clubs and Non TAB clubs. While only TAB races generate revenue for the industry, RQL provides funding to all race clubs in one form or another. The industry funding arrangements is highlighted in the following Industry Financial Flow document highlighting the three key areas being the investment in the industry, the core racing industry and the final expenditure in the industry.

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1.4 Race Clubs Administration and Funding

RQL is focused on improving financial returns to the broader industry and developing a tier of racing within each region that has the potential to maintain a vibrant, viable industry and contributes further in the following areas:

Industry Contribution (formerly operational subsidy)

Training track subsidies (State Government)

Jockey riding fees

Drivers fees

Industry participant insurance

Broadcast costs for TAB and non-TAB clubs

RISA costs Race clubs would not be sustainable without the financial support from RQL. However, it is RQL’s view that the most cost effective and productive way of funding racing and training operations is through the local club structure. RQL in the last few years embarked on a strategy to centralise the operations away from clubs. This strategy was fully implemented at both the Sunshine Coast and Rockhampton Thoroughbred venues, as well as Albion Park combined harness and greyhound venue, and Capalaba greyhound venue. In each case the implementation of the centralisation strategy has led to an improvement in facilities at each venue, but an associated explosion in costs. In most cases the cost has increased in excess of 100% over the previous cost to the industry. Demonstration of this effect can be seen in examination of the Rockhampton and Sunshine Coast venues, both previously centralised by RQL. RQL in this last financial year incurred an annual operating cost for these two clubs of approximately $2.7m. RQL has now handed back operational responsibility for these functions, and will provide subsidy to the clubs, to fulfil the same functions, of $1.5m. When these examples are examined in detail it is clear that a local delivery method is both more productive and economical. The industry cannot afford the level of cost associated with a centralised approach, and as such the new Board of RQL has concluded that the experiment with a centralised approach has failed. RQL is therefore in the process of dismantling the structures, and returning to a local delivery structure utilising the club’s in most cases. In concert with this approach, RQL is working with the clubs to enhance the accountability and responsibility structures, and on programs of improved financial management and incentive based funding arrangements. 1.5 TAB Clubs

Along with the Industry Contribution as listed above RQL contributes to TAB clubs in the form of capital works and distributes approximately 85% of the net annual Tattsbet product fee as prizemoney for TAB races run at TAB clubs.

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Other revenue streams for TAB clubs include, but are not limited to:

Training track subsidy

Admissions

Sponsorship

Broadcast rights

Bar and Catering

Training fees/rental

Membership

Tote

Bookmakers fielding fees

Private Functions

1.6 Non-TAB Clubs

Under the Racing Act 2002, RQL is required to pay 5.32% of the net annual Tattsbet product fee as prizemoney for non-TAB races conducted by non-TAB clubs. RQL pays over and above this required contribution annually which is $6.5 million. Other revenue streams for non-TAB clubs include, but are not limited to:

Industry Contribution (formerly Operational subsidy)

Admissions

Sponsorship

Bar and Catering

Training fees/rental

Membership

RQL prior to the March 2012 State Election had published an Industry Infrastructure Plan, renamed Industry Infrastructure Strategy (IIS), it intended to execute. This IIS was based around the allocation of $110 million pledged by the then State Government. The $110 million was to be funded by a redirection of 50% of the estimated wagering tax collected by the government (estimated at $20 million per annum) for five years, as well as the $10 million provided to the greyhound industry as compensation for the resumption of the greyhound facility at Parklands on the Gold Coast.

As part of the 2012 election process, the incoming Liberal National Party (LNP) Government pledged the continuance of the $110 million funding program, but other than the projects identified for the Gold Coast Turf Club, no individual project was committed. As such, RQL has been reviewing the program to establish whether the identified projects and financial commitments are still considered the best and most appropriate use of the funds. The program has also been reviewed in the context of an overall strategy.

This report provides an overview of the RQL review, as well as an overall plan to move forward, together with a request for funding approval for those projects identified as Phase 1 projects.

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1.7 Current Status

At the time of the State Election a number of projects identified in the IIS had begun, and some funding had been drawn down. A snapshot of the status of this funding and projects is included below:

IP - TOTAL INFRASTRUCTURE PROJECTS

FUNDS RECEIVED ACTUAL COST FUNDS FOR THE FULL PROJECT

DESCRIPTION PCTD INSTALMENT TOTAL TO 30/06/12 REMAINING BUDGET % COMPLETE

Mackay 7,443,426 7,443,426 6,772,632 670,794 7,442,986 91.0%

Gold Coast 524,350 3,500,000 4,024,350 628,506 3,395,844 35,477,647 1.8%

Beaudesert 769,448 3,949,287 4,718,735 780,509 3,938,226 7,271,512 10.7%

Cairns 107,494 750,000 857,494 143,621 713,873 1,966,833 7.3%

Rockhampton 86,889 110,000 196,889 130,408 66,481 1,605,000 8.1%

Logan 480,536 1,379,222 1,859,758 570,233 1,289,525 24,000,000 2.4%

Townsville 91,340 91,340 91,340 - 12,348,584 0.7%

Ipswich 35,435 35,435 35,435 - 6,000,000 0.6%

Deagon 700,798 700,798 700,798 - 2,000,000 35.0%

TOTAL 2,796,291 17,131,935 19,928,225 9,853,482 10,074,743 98,112,562 10.0%

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2. Proposed Infrastructure Strategy Approach 2.1 Introduction

The overall approach to infrastructure planning has changed with the new RQL board. There is no longer a belief that a total plan, allocating the entire $110 million of funding should be developed and published.

Rather, a rolling plan of infrastructure requirements is produced, with specific phases of funding requests as required. An overview of the Phase 1 requests is included in this report. The detailed analysis of each project is contained in the detailed business case documents relevant to each project.

The program contained in this strategy will be able to be tailored to the exact amount of funding available (being 50% of wagering tax each year for five years), as well as be tailored to timeframes in which that funding can be made available. In addition, the projects in future phases can be expected to vary according to changing conditions and priorities over time.

The expectation is that the rolling five year plan will be maintained into the future, and RQL will need to determine the funding sources from industry and club revenues, and strategic asset retirements. It is also the expectation of this rolling strategy that it will identify assets and or venues that are no longer required and/or viable and plan the organised retirement of these.

This report therefore:

1. Outlines the strategic imperatives surrounding racing infrastructure. 2. Identifies the specific requirements of Phase 1 investment and requests the

approval for funding of these projects, with reference to the detailed business cases.

3. Discusses the likely further projects as currently known. 4. Outlines time phases the likely request for funding across the coming financial

year.

INFRASTRUCTURE STRATEGY MODEL IMPORTANCE DRIVER INITIATION FUNDING

Major Strategic Importance

Need driven by substantial revenue and/or viability issues

Expected to be one off and initiated as identified

Funding expected to be complex and may involve multiple parties/sources

High Strategic Importance

Need driven by the supporting role played to the industry in the total Industry Sustainability Model

Expected to be highlighted by the five year rolling plan

Funding predominantly from infrastructure funds, with some local supplementation

Medium Strategic Importance

Need driven by the ongoing operational infrastructure requirements of the industry

Expected to be collected and categorised by normal 5 year rolling plan process

Funding from ongoing infrastructure funding as required and funds available

2.2 Strategic Approach

RQL, as indicated above, desires a rolling strategic plan that will respond to the requirements of industry viability, as well as funding availability, both from the $110 million infrastructure fund, as well as funding on an ongoing basis.

The strategy approach being taken is to identify the requirements of the industry, and to build strategies to meet those requirements. The strategic importance both long and short term, as well as recognising those opportunities that exist for immediate revenue, club participation or sustaining viability that might exist now and from time to time.

The approach outlined in this document is formulated alongside other industry initiatives and attempts to be supportive and complimentary to the various club based initiatives.

It is dangerous and misleading to attempt to analyse any one project outside the context of the whole of this strategy.

2.3 High Importance/Long Term Strategies

The strategies in this area revolve around the fundamental foundations of the industry in Queensland. They necessarily take on a whole of industry view, and must consider the industries viability as a cornerstone.

The fundamental building blocks of these strategies are:

The preservation and maximum enhancement of the major revenue generating activities

The recognition of the importance of all parts of the racing economic cycle working in unison, which includes the breeding, racing, wagering, and commercial trading segments of the industry.

Building on, and amplifying the industry advantages for the sustained viability of the industry.

Enabling clubs, where they have opportunities to develop and/or realise assets, to pursue opportunities that will enhance both Infrastructure and ongoing revenue opportunities.

In regards to these highest importance areas, a number of very important opportunities stand out:

a. The BRC Master Plan Racing at a Saturday metropolitan level is the highest revenue generator for the industry. Whilst it is difficult to quantify this at a point in time, Thoroughbred racing at Eagle Farm and Doomben generates in excess of 50-60% of RQL revenue. It is clear that the BRC viability is at the very heart of industry sustainability.

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The BRC is the key metropolitan race track and is recognised nationally as the premier race club. The BRC races generate 49% of the TAB wagering turnover in Queensland and a higher percentage of non-TAB wagering. BRC also attracts 35% of all race attendances. The clear domination of the role of BRC is demonstrated within the recent Deloitte Sustainability report. When wagering returns are analysed, the domination of our reliance on BRC becomes obvious. The lowest wagering income generating races at BRC (typically Wednesday midweek) still produce returns in excess or 100% more than any other midweek venue.

RQL believes it is a very high priority to enhance and strengthen Brisbane metropolitan thoroughbred racing

We also know that wagering turnover, which forms the majority of that revenue source, is directly influenced by the perception of “quality of racing”. Quality in turn is influenced by the highest demonstration of integrity, but also by the “show’ being put on, including the quality of venue and horses racing. The attraction of quality trainers to be domiciled in Brisbane and therefore the quality of horses will also be key. In summary, the racing in Brisbane must be of the highest possible standard to attract the attention of the wagering public. A deterioration of the revenue from the BRC based activities is not an option if we wish to maintain viability and competitiveness as an industry.

The improvements necessary at the BRC in regards to Infrastructure involving patron, racing, integrity and training activities are in critical need of upgrade. The funding of these improvements is well beyond the capability of RQL and its current funding sources.

Fortunately, the BRC embarked on a Master Plan concept some time ago that would see the surplus land within the racing precinct of the BRC isolated and developed to raise the capital for the infrastructure improvements.

Up till this time the BRC initiative has been executed with little RQL support, and with the constant threat that RQL would require the BRC generated funds to be re-allocated to other industry requirements, not BRC related.

RQL now recognises the importance of the funds generated to be used solely by BRC for the improvement of facilities at BRC. Also, the project, if progressed using only the resources of the BRC, will necessarily be slow and take a considerable number of years.

As such, the RQL strategy is not to use significant funds from the Infrastructure Fund to support the BRC, but rather to support the BRC in the acquisition of capital funding to allow faster tracking of the project. This will entail RQL working with the BRC, financiers, and appropriate Government entities to bring forward the benefits of the Master Plan to the maximum extent possible.

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In the short term, RQL will assist the BRC with immediate needs as appropriate, with special attention given to those items that will survive the redevelopment. In some cases RQL will seek to be reimbursed for the capital spent from the eventual profits of the redevelopment.

b. Thoroughbred Breeding/Training Support

Of vital importance to sustaining the thoroughbred industry is the vitality of the breeding industry. This section of the industry not only supplies the product to racing, but at any point in time is involved in the ongoing ownership of 65-70% of the horses racing. To not have a viable breeding industry would have dramatic effects on product availability and marginalise racing in Queensland.

The two major breeding districts in Queensland are located in the areas of the Darling Downs (centred around Toowoomba) and Beaudesert. Each of these areas must maintain a vibrant and inclusive training and racing community to ensure the ongoing viability of breeding operations in the area. The industry in these areas is notionally the major employer within the area. This is more so when considering the support industries such as feed growers/merchants, farriers, vets etc.

The importance of sustaining the racing/training environment in these breeding areas is no better demonstrated than by the enormous investment being made by NSW into the racing industry in the breeding heartland of the Upper Hunter Valley. The result of investment made has been, that the Scone racing carnival, which coincides with the beginning of the Queensland Winter Carnival, was considered by many industry commentators to have eclipsed the Queensland product held at the same time.

As such, RQL includes as its highest priority, the need to reinvigorate these breeding Heartlands. The strategies though are driven by the particular circumstance of each location.

Toowoomba Area The Toowoomba area has traditionally been the Thoroughbred industries heart. At the times when the industry has been at its highest, the breeding, training and racing activities in Toowoomba have also been at their best.

RQL, a few years ago, responding to the challenge of drought conditions, embarked on a project seeing the installation of a synthetic “Cushion Track”. Whilst there is little doubt that this initiative did drought proof the Toowoomba racing venue, and provide a more reliable training surface through all weather conditions, it has had a decimating effect on racing in Toowoomba, with a very negative impact on the training and breeding industry segments in the darling Downs. In the time that has elapsed since, the local Council and community generally, have added water capability that may make the threat of drought less significant in the future.

What we have seen is clearly a dramatic and rapid decline in the industry. On any measure the Toowoomba based industry is in crisis. The wagering Turnover on

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racing in Toowoomba has dropped by 24.8% in the last two years, whilst the number of Horses accepting to run in races at Toowoomba has also declined 7% in the last year alone. Both indicators show that confidence in racing at Toowoomba has deteriorated at an alarming rate. The issue is amplified when we consider the Toowoomba regions role as a provider of racing product to the South East Qld racing region. The number of starters produced by Toowoomba has decreased in the last 4 years by 14%., with the number of horses in training at Toowoomba reducing by 13.4% in the same period.

At the current rate, the Toowoomba industry, the role it plays in the State industry, and the employment it generates, will likely cease to be viable within 3 to 5 years. The Australian Pattern committee through the Australian Racing Board has this year put RQL on notice that the one remaining feature race at Toowoomba, “The Weetwood” will lose its Black Type status this year if the current situation continues.

RQL believes that the experiment of installing a Synthetic track at Toowoomba as the single racing surface has failed and must be reversed if the industry is to survive in that area. Survival we believe is paramount.

As such, this strategy document has included the Toowoomba Rectification Strategy as a strategy of the highest priority.

Beaudesert Area The Beaudesert area economy is founded on a horse and racing industry base. In recent times the major training and racing centre at Beaudesert Race Track has fallen into disrepair. Whilst the Beaudesert racing community is ideally located close to the major racing centres in South East Queensland, the provision of training facilities in the area is a key infrastructure requirement to support the industry, economy and employment in the area. Because of the level of inaction by RQL in the past, the Beaudesert situation has become dire. Horses have been unable to be worked due to the state of the infrastructure. Work place health and safety issues have required that the facility cannot be used for its intended purposes. The disintegration of the industry in Beaudesert would have severe impact on the districts employment and economy. Moreover, from a racing industry perspective, this area has traditionally supplied up to 25% of the racing stock in the major racing centres of Queensland. The industry would likely not survive a negative impact to this level on supply.

Growing the Greyhound Industry The greyhound industry has shown good growth in wagering revenues in recent years across Australia. In the major states of New South Wales and Victoria, growth is fuelled by both internal production, as well as importing of greyhounds. This is supported by the high level of attractive feature races on offer.

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Queensland, however, is more reliant on internal production since we are unable to compete at the prize money levels necessary to attract significant imported product. Since the removal of the Parkland facility at the Gold Coast, a significant inhibitor to greyhound development has been the lack of a one-turn track in Queensland. A facility of this type is essential to the safe education and development of greyhounds. The continuance of the investigation and the establishment of one-turn dedicated greyhound facility is of critical importance to the ability of the Queensland industry to continue to develop the product required for continued growth.

2.4 Medium Importance/Immediate Strategies This strategy recognises a number of further strategies that will enhance and add to the viability of the racing industry. These strategies add to the attractiveness of the racing conducted at the venues, as well as provide the Infrastructure necessary to the rounded development of racing.

a. Gold Coast Turf Club In the major racing districts of Australia, a clear, reliable and high standard metropolitan track alternative exists in each major city. In Melbourne, Flemington and Caulfield are supported by Moonie Valley and Sandown and to a lesser extent, Geelong. In Sydney, Randwick and Rosehill are supported by Warwick Farm and Canterbury, and to a lesser extent Hawkesbury and Port Kembla. In Queensland this support role is provided by the Gold Coast. In addition the Gold Coast plays an important role as the home of the Magic Millions enterprise and the carnival that is based around the Magic Millions sales, adding significantly to the Gold Coast economy. The Gold Coast Turf Club’s role as a support venue will increase as population increases in this area, and as we seek to grow further the product available. In addition the training facilities at the Gold Coast complex have significantly deteriorated in recent times. This has led to the reduction of horses in training at this venue from a high of 700 plus, to now in the 300 to 400 range. This will have significant impact on the racing supply. For these reasons, this venue is considered of strategic importance and is considered appropriate for systematic overhaul over the coming 2 to 3 years.

b. Albion Park

The harness industry has suffered dramatic decrease in the venues and facilities available to operate the highest quality harness racing. With the pending removal of the Parklands site for use by the Commonwealth Games this will become more acute.

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As the sole remaining metro quality venue, Albion Park must also undergo systematic upgrade. This is intended to be done in concert with the harness and greyhound industries, to release any value of development revenue opportunities, and to develop infrastructure appropriate to the needs of the industry recognising the role it plays as a wagering producer. In addition, a strategy needs to be developed as part of this initiative that will address the viability and needs of retaining or removing the greyhound racing role of Albion Park.

c. Townsville Turf Club

The Townsville Turf Club track has not been subject to major renovation for many years. To ensure this vital link in our region TAB racing strategy can continue, the Townsville track and associated infrastructure will need renovation within the medium term.

2.5 Short Term/Operationally Focused Strategies These strategies are largely addressing areas that have immediate concern and/or give quick return to the industry. They are not significantly outside normal business, but require infrastructure investment in the immediate term.

In addition, we have identified some investments that may be made that will have the effect of relieving multiple clubs of infrastructure spending, and therefore provide common benefit.

a. Cairns Jockey Club

The Cairns Jockey Club track is due for renovation. The periodic renovation of grass tracks is normal, and the Cairns track is now due for such activity.

b. Redcliffe Harness

With the uncertainty of harness racing within recent years, little infrastructure renewal or enhancement has taken place at Redcliffe. Some Infrastructure investment will be required in the short term.

c. Greyhound Facilities The major strategic issues with regard to the Greyhound code are dealt with above. However, a number of more routine Infrastructure issues need to be addressed as part of the ongoing Infrastructure landscape. These include the possibility of opening new venues at Gatton and/or Toowoomba based on existing infrastructure, as well as a solution to the continuing flood problems at Capalaba. RQL will also enter into discussions with the Townsville Show Society regarding the long term accommodation of greyhound racing at its current venue within the Townsville Showgrounds.

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d. Ipswich Turf Club The Ipswich Turf Club track suffered some damage from the flooding of recent times. Remediation work on the rear sections of the track will require to be performed once seasonal factors are appropriate. Discussions will be progressed with the Ipswich Turf Club regarding assisting the club in its own commercial development plans.

e. Race Day Multi Use Infrastructure Most of our racing venues host major events through the racing year. It is not economically feasible for each venue to own the entire event day infrastructure that is expected by today’s event patrons. These include items such as temporary Marquees, cold-rooms, mobile kitchens and large screen facilities. It is RQL strategy to purchase a number of these items of Infrastructure and make them available to venues to relieve them of the cost of such items, and increase their revenue opportunities.

2.6 Ongoing Infrastructure Strategy

The predominant topic of this strategy document is the proposed strategy around the deployment of the $110 million Infrastructure funding being made available to the racing industry through a redirection of wagering tax.

However, RQL believes an important component of the IIS is the forward looking considerations.

It can be expected that the need for infrastructure renewal and renovation will continue into the future. A failing of RQL in the past few years has been the lack of a strategy for the satisfaction of ongoing needs, as well as a strategy regarding the funding of the ongoing needs.

For this reason, RQL is undertaking, once this strategy is approved, to convert this document into the first plank of a rolling 5 year strategy for the industry. RQL, will through the upcoming wagering fee agreement negotiations be identifying an amount to be directed toward Infrastructure each year. In addition, each Statutory Control Board will be required to implement a strategic process with its clubs and constituents to gather their input to allow a living 5 year rolling plan to be developed and maintained. 2.7 Intercode Considerations

The current IIS made no consideration of the balancing of infrastructure requirements across the three codes of racing.

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With the pending reintroduction of three separate code specific boards, RQL believes that an agreeable way forward is required so that each code can address its own infrastructure requirements and so equality across the codes can be established.

Of major contention between the greyhound and the harness codes is the equity ownership of Albion Park. When the codes where merged, ownership of Albion Park moved to RQL. Theoretically, RQL can now do as it will with the facility without regard to the historical ownership of 50/50 joint venture between the greyhound and harness industries.

It is RQL’s view though that this is not in the spirit of the LNP platform and is not appropriate.

Each code believes the unlocking of the value of Albion Park is paramount to the establishment of appropriate facilities within each code. However, given that it is RQL’s view that this will remain substantially a harness venue, then no tangible value will be realised in the short-term.

As such, RQL believes that the 50/50 equity expectation should be retained, and any realisation of the land value distributed between the two codes when/if realised.

That is, should any part of the land be sold, the proceeds should be distributed 50/50. If the land is developed without being sold, the owner of that development should pay a commercial rent for the portion of land being used, again distributed 50/50. These arrangements would be subject to commercial independent valuation at that time.

However, this still leaves the issue of developing code facilities under the IIS. It has previously been suggested that the $110 million be allocated as per the prizemoney distribution. RQL sees no validity to this argument, as this is backward looking.

Instead, RQL suggests, after consideration of the strategies and industry segement viability, that the most equitable arrangement would appear to be:

a. The allocation of the $10 million of funding provided by the Parkland resumption to

the infrastructure needs of the greyhound industry.

b. Recognition of the current state of code contribution to industry revenue, as well as future growth potential, as the determining factor for IIS funds allocation. In approximate terms, this would result in the remaining $100 million being allocated to the thoroughbred, harness and greyhounds industries, 80%, 10% and 10% respectively.

c. However, considering that RQL has, in the last few years, spent a considerable

amount of cross industry funds on thoroughbred only facilities, once these are considered, RQL believes a more appropriate intercode allocation, to take into account this spending, would be thoroughbred $70 million, greyhound $15 million

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and harness $15 million. This would increase the greyhound allocation to $25 million, including the $10 million Parkland compensation.

d. The resultant IIS allocation will therefore be:

Thoroughbred $70 million

Harness $15 million

Greyhound $25 million

Total $110 million

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3. Phase 1 Projects 3.1 Background

The following business cases were prepared and the former Government entered into Funding Deeds between the State Government of Queensland and RQL on February 16, 2012, as detailed below:

Project 1. Gold Coast 2. Beaudesert 3. Cairns 4. Mackay 5. Rockhampton 6. Logan

Following a change in government, the board of RQL advised that they wished to revisit the allocation of infrastructure funding and make application to the State Government on a case-by-case basis. This has in turn resulted in the rolling out of phases; with Phase 1 consisting of projects at the following locations:

Gold Coast

Beaudesert

Cairns

Toowoomba

Mackay A detailed description of each project can be found in the project business cases. In summary though, the RQL review is now proposing is below. 3.2 Gold Coast – Stage One The project has been pledged by the LNP Government and the current expectation of the Gold Coast Turf Club (GCTC) is the spending of $35.4 million on upgrading the facilities.

There is an agreement between the GCTC and RQL, however, that the components identified in the original plan do not represent the most urgent needs of the GCTC, and as such the planned works need significant rework. It is RQL’s view that this rework will ultimately result in the addressing of GCTC needs well within the $34.5 million.

To this extent, funds will be available for other infrastructure needs. The possible savings will not be known till later in the program. The GCTC is aware that despite modifications being necessary to the original plan, RQL will ensure that total expenditure does not exceed the $34.5 million commitment.

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It is intended that the GCTC project be conducted in a number of stages. Stage 1 is included in the Phase 1 requests in this report. RQL undertook a full review of the scope and delivery of this project.

At this point, RQL has identified an appropriate Phase 1 of works and determined that this stage of the project would focus on renovating the public grandstand, development of a new member’s facility and the installation of an equine swimming pool.

These works will be delivered in a phased approach with the initial focus being the renovation of the bar and lounge area before the Magic Millions Carnival in January 2013 and the remaining areas by December 2013.

It is critical that this is approved as a matter of urgency to ensure that the bar and lounge facilities are completed before the Magic Millions Carnival in January 2013, as per last week’s media release from the Gold Coast Turf Club, RQL and the Hon. Steve Dickson MP, Minister for National Parks, Recreation, Sport and Racing . The architects HBO+EMTB have been appointed and engaged. To achieve the proposed timeline works on this project must continue as scheduled in the business case. In addition, RQL and the GCTC will continue definition of subsequent phases of work that will occur post the 2013 Magic Millions carnival. The next stage of works will focus on track and training facilities. At all times, these additional phases will be defined so as to not exceed the overall $35.4 million cap. 3.3 Beaudesert

This project, originally budgeted at $7.3 million, as per the original business case was aimed at elevating the Beaudesert thoroughbred racing facility to TAB status and conducting 18 TAB meetings.

The review revealed that this intent was flawed in that it failed to identify the cost of supporting an additional TAB track in South East Queensland, and also failed to provide any analysis of wagering turnover expectations and the ability to cover the prizemoney requirements, as well as the ongoing operational costs.

It is now RQL’s belief that the industry cannot support an additional TAB venue, and that the Beaudesert facility should be upgraded to accommodate the substantial thoroughbred breeding and training industry in that location, as well as return Beaudesert to a premium country non-TAB venue. The costs and plans are included later in this report as a Phase 1 project. A detailed business case has also been submitted.

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RQL has reduced the scope of works and determined that the project would focus on upgrading the course proper including new running rails, widening of the existing sand training track, installation of training lights, refurbishing the public, members, jockeys’ and stewards’ facilities, and construction of an additional 24 tie-up stalls, including wash bays and sand roll. In addition, significant landscaping, fencing and public safety enhancements will be made. To achieve the proposed timeline works on this project must continue as stated to ensure the first race meeting proceeds on January 26, 2013. 3.4 Cairns

The initiative at the Cairns Jockey Club involves substantial renovation of the turf thoroughbred track. RQL believes this project is necessary to ensure the viability of the Cairns racing industry, and as such is included as a Phase 1 project.

Following the State Election, the project was put on hold and RQL amended the project delivery program and cash flow to reflect the current status. All future reporting on this project will reflect these changes.

It should be noted that the amendments to the project delivery program and cash flow will not adversely affect the overall delivery, as it is anticipated that the project will be delivered within the original timeframe and budget.

3.5 Toowoomba

The Toowoomba Turf Club course proper was converted to a synthetic surface approximately two years ago. Whilst this surface has gained widespread appeal as a training surface, it has not enjoyed the same acceptance as a racing facility. To that end, racing has deteriorated in Toowoomba.

Over the last two years we have seen average acceptors and nominations decrease by 14.8% and 15.5% respectively and starters decreasing by 6.7%, and wagering turnover by 2.06% and 6.58% in the last two years. There is no doubt that the decline is solely related to the installation of a synthetic track at Toowoomba.

The Toowoomba region is a very large thoroughbred region in Queensland, employing many thousands of people. Based on current projections, without intervention, Toowoomba racing will be unsustainable within three to five years. This will have a significant economic impact on the region and the state.

As such, RQL believes that it is of urgent importance that the synthetic track be replaced as the racing surface. However, RQL have undertaken significant work to ensure that as much of the previous work as possible can be retained, including the synthetic material as a training surface, and the reuse of the under track base construction material and drainage.

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The scope of works for Clifford Park racecourse will include reinstating turf to the course proper, relocating the existing all-weather track to the training track, and installation of a water collection and reuse system. It is envisaged that the costs associated with this project will be $6,990,200. The final scope of works has been prepared and submitted in the business case.

RQL is intending to utilise the balance of the original synthetic track funding,( $4.3 million as at June 30, 2012), and will seek further funding as appropriate to offset part of the costs associated with the Toowoomba project. There are significant savings of future costs (estimated at $0.75million per year) that will be delivered as a benefit of this project. RQL and the Toowoomba Turf Club have identified ways to minimise the water reuse system costs, as well as allow for an affordable contribution to these works by the Toowoomba Turf Club.

3.6 Mackay

This project is now completed. It included installation of a new track, public and member’s facility upgrade, and construction of a function centre. It is difficult to understand the rationale behind this project, since it is clear that the $7.4 million invested will not return a fraction of that investment. RQL is seeking reimbursement of the shortfall in funding of the Mackay Business Case of approximately $676,272.

3.7 Super Screens & Marquees

Queensland racing events conducted by both TAB and non-TAB race clubs require significant temporary infrastructure to appropriately manage larger than normal public and corporate attendances. Temporary infrastructure and facilities such as marquees, toilets, food and beverage preparation and storage facilities, grandstands, television screens and super screens, tables, chairs and shade umbrellas are routinely hired by race clubs whose permanent facilities cannot support the increased crowds safely or comfortably. The costs of providing temporary event facilities is proving to be ever increasing and to a large extent has the result of diluting margins on those very important days to Club's revenue. RQL has developed a strategy to purchase temporary infrastructure that can be used by race clubs as opposed to hiring from third party operator. Temporary marquees and super screens will be made available for clubs to use free of charge via an internal booking system. Race clubs would only be responsible for the cost of transport and setup, dramatically reducing their event hire cost, and the cost to the industry.

a. Marquees

RQL has conducted research establishing the current usage of temporary marquee each TAB race club. The six South East Queensland TAB tracks hire approximately

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263 marquee structures per annum covering over 37,000 square metres on race tracks. Dependant on market hire rates and demand the cost to these six clubs alone has been estimated at $574,000 per annum. Approximately 30% of this expense can be attributed to transport and labour charges. RQL can acquire a range of marquees that will service approximately 90% of these club requirements for approximately $420,000. Additionally these marquees could be used by non-TAB race clubs during non-peak periods. b. Super Screens (Big Screens)

RQL has also conducted research to establish the current hire levels of large super screens at the 10 TAB thoroughbred racing venues. Usage has increased rapidly in recent years as the expectations of event attendees have risen to expect this type of service at major meetings. TAB race clubs hired a Super Screen on 46 occasions in 2012 costing the industry approximately $265,000 in third party hire fees. Two screens could be purchased to fulfil these current requirements. Total cost including a modified ridged truck and a 36m2 screen and custom built trailer with a 15m2 screen is approximately $1,052,000. Current hire costs would recoup this outlay within four years. The acquisition of two screens would provide the opportunity for many non-TAB clubs to access a Super Screen which under normal hire circumstance is not achievable. It is estimated that the Screens would be used approximately 100 times per annum. The acquisition of marquees and Super Screens for industry use will significantly reduce the hire costs for Queensland race clubs allowing those clubs to redirect these funds towards much needed capital and infrastructure upgrades. Financial Summary:

Portable information Van 40,000

Marquees 408,000

Super screen large 785,000

Super screen small 267,000

Total Funding Required 1,500,000

3.8 Continuing Greyhound/Harness Alternative Investigations - $200K

To further investigate the alternatives available to meet the ongoing requirement in the Greyhound industry for a one-turn facility in replacement of the Parklands facility closed some years ago, and alternatives to accommodate the Harness industry in the Gold Coast region as a result of the pending dislocation from parklands. In order to facilitate this project moving forward immediately, a joint industry Steering Committee is to be formed, and funded under this strategy to ensure the work required is able to be undertaken.

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RQL has at this time sought approval from the Queensland Government for Phase 1 of the IIS for the Gold Coast Turf Club, Beaudesert Race Club, Cairns Jockey Club and Toowoomba Turf Club projects. Business Cases have been submitted individually for the above projects. RQL will continue to work with the Queensland Government on the proposed IIS, but at this stage is focused on the delivery of Phase 1. 3.9 Projects Reviewed and Identified and to be considered for Future Phases

a. Rockhampton The Rockhampton thoroughbred facility has recently undergone a major track and patron’s infrastructure upgrade. The Rockhampton facility, however, is a dual code facility, accommodating greyhound racing within the same facility. As such, work is required to complete the facilities necessary to properly accommodate greyhound racing. RQL does, however, have some concerns regarding the costings and approach to this work and, as such, further investigation is required. This project will therefore be delayed to a later phase.

b. Greyhound One-Turn facility

The previous Infrastructure plan included a project, estimated at $24 million, to construct a new greyhound facility at Cronulla Park, Logan. For the greyhound industry to remain viable, it requires the construction of a “one turn” facility within South East Queensland. This requirement was originally filled by the Parklands facility, however, this facility was resumed for the extensions to the Gold Coast Hospital. RQL is investigating the viability of the Logan site together with other alternatives. It is envisaged that this project will be the subject of Phase 2 of the IIS, and as such will be administered by the yet to be created greyhound statutory body. It is believed that this need can be met at accost of less than $24m, with any savings to be achieved will be available for other infrastructure projects. c. Deagon

The IIS contains a plan for the upgrade of the Deagon thoroughbred training facilities. RQL is investigating the operation of the Deagon thoroughbred facility on an outsourced model. As such plans for Deagon will be put on hold until the new business model is established.

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4. Future Projects 4.1 Phase 2 and Remaining Projects

In regards to further phases after Phase 1, it is proposed that the new code specific boards, when they are formed, consider the allocation of the infrastructure funding. It is proposed that the funding in Phase 2 and beyond are allocated to the following venues in the second half of the 2013, 2014 and 2015 financial years:

1. Thoroughbreds – Gold Coast Turf Club (tracks), Townsville (track and facilities),

Ipswich development plans, and other venues. 2. Harness – Albion Park and Redcliffe, relocation of Gold Coast. 3. Greyhounds – One-Turn facility (buildings and tracks subject to business case

analysis), Rockhampton and other alternatives.

All other venues will be considered and submissions will be sought from clubs and the industry and each of the three control bodies will consider these with implementation from the FY2014 onwards as part of the ongoing rolling 5 year Capital Plans.

RQL will continue to work with the Queensland Government on the proposed IIS, but at this stage is focused on the delivery of Phase 1.

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RACING QUEENSLAND LIMITED

Lot 2 Racecourse Road, Sandgate

PO Box 63, Deagon Qld 4017

P (07) 3869 9777

F (07) 3269 6404

E info@racingqueensland.com.au

www.racingqueensland.com.au