SUBMISSION 28
Memorandum submitted by Betfair
We are writing to present Betfair's submission
to the inquiry by the Culture, Media and Sport Committee into
the proposed changes to gambling legislation, "A Safe
Bet For Success", the Government's own response to the
Gambling Review Report, chaired by Sir Alan Budd ("the Budd
Report").
We appreciate that the regulation of betting
exchange operations (or betting brokers" as they are sometimes
referred to) is not top of the agenda for the inquiry but it is
an activity which (i) is having a dramatic impact on the industry,
(ii) was highlighted in the Budd Report as being an area in respect
of which the current legislation and regulation is currently inadequate,
and (iii) is constantly the subject of ill-informed allegations
of illegality and impropriety. Betfair leads the betting exchange
industry in taking measures which eradicate any concerns which
might be raised. We intend to work closely with the DCMS to establish
such measures as the industry standards so that UK regulated betting
exchanges can be recognised not only as a tremendous innovation
for the benefit of the punter but also as bastions in the struggle
to preserve the integrity of the industry. This letter intends
to provide you with an introduction to our proposals.
INTRODUCTION TO
BETFAIR
Betfair is the world's largest sports betting
exchange, with an annualised betting turnover of over 1.2 billion
after only two years in operation. The company holds a UK bookmaker's
licence and is registered with HM Customs & Excise for the
payment of Gross Profits Tax. We currently employ 75 people and
our head office, and all of our operations, are located in South
West London.
Betfair is one of the most successful British
companies of the last two years in any sphere:
— www.betfair.com launched in June
2000;
— Created the concept of the "betting
exchange" and established a product which has spawned copies
(numbering well into double figures) all over the world;
— Has achieved a compound monthly
growth rate of 25 per cent since its launch;
— Now turns over an annualised 1.2
billion of bets;
— Profitable in its second year of
trading;
— Now one of the three largest on-line
betting companies in the UK by turnover; and
— Currently employs 75 people, expected
to grow to over 100 people by year end.
While we support the Government's response to
the Budd Report, we are aware that various members of the betting
industry (usually with their own obvious agendas) have tried to
raise concerns about the activity of betting exchanges and are
lobbying for the introduction of legislation which will prohibit
or seriously restrict such activities. It is important to us,
as one of the most significant players within the industry, that
we are able to address these concerns and ensure that betting
exchanges are properly regulated and recognised as entirely legitimate.
BETTING EXCHANGES
It is the Government's stated objective that
they wish to see "a successful British gambling industry;
one that is able to respond rapidly and effectively to technological
and customer-led developments in both the domestic and global
market place, building on its existing reputation for quality
and integrity, and in the process increasing its already important
contribution to the UK economy".
Betting exchanges are the most exciting development
in the betting industry in recent memory, and are arguably the
most successful product ever introduced within it. They are only
possible due to the existence of a network technology like the
internet. Unlike the traditional bookmaker model where a punter
can only back an outcome, and then only at the prices specified
to him by a small range of bookmakers, betting exchanges allow
the punter to ask for his own price and to take a view on both
sides of the market. Punters do not bet with the bookmaker, rather
they bet directly with other punters. Betting exchanges provide
the punter with an unrivalled amount of choice and put him in
charge of the betting process, as the punters themselves create
both demand and supply. They are the perfect example of
a product that is both technological and customer led and will
become a genuinely global product in a very short period of time.
Betting exchanges are based around software
that was developed by Betfair and is subject to a UK patent application.
At the core of this software lies the protection of the punter
and the maintenance of total integrity on the exchange. Furthermore,
the choice which is inherent in a betting exchange guarantees
better value for the punter. The phenomenal success enjoyed by
Betfair and others in the last 18 months is testament to the appeal
of the product to the betting population.
As sport is a global industry so betting will
naturally become one also and betting exchanges are better placed
to exploit that potential than any other form of betting.
As the clear industry leader, Betfair therefore
believes that it stands at the cutting edge of precisely what
the Government considers a key driver of its gambling policy.
BETFAIR'S
EXISTING RELATIONSHIP
WITH GOVERNMENT
Since before its launch, Betfair has had a proactive
relationship with Government and has been open about its objectives
and its means of achieving them. When Betfair was launched in
June 2000, the company took a conscious decision to base the business
onshore, rather than following the trend of the day and moving
it offshore.
Notwithstanding some recent allegations made
about the company by competitors, Betfair:
— pays Gross Profits Tax in the same
way as traditional bookmakers. To date since its introduction,
the company has paid a total of 215,000 in GPT
— contributes to the funding of horseracing
through contributions under the 41st Levy Scheme
— has reached agreement with the BHB
and other sports bodies (BGRB, football leagues etc) over data
rights payments
— was actively involved in discussions
with Customs & Excise regarding the appropriate treatment
for betting exchanges under the GPT regime, and consequently played
a role in the October 6 2001 implementation of GPT
REGULATORY CONSIDERATIONS
Betfair believes that there should be specific
regulation of the betting exchange industry. We recognise that
integrity is the single most important factor to be considered
and, as such, the company already does many things voluntarily.
Specifically we:
— segregate client money accounts from
the company's own finances so that all client monies are always
100 per cent secure
— reconcile the client accounts monthly
to ensure that there is always complete transparency within them
— undertake money laundering procedures
such as refusing to accept cash and monitoring betting activity
for any suspicious transfers between account
— continually monitor all transactions
that take place on the exchange to ensure that any improper activity,
whether it be betting related or not, can quickly be identified
and prevented
— maintain records of every transaction
ever undertaken on the exchange for an indefinite period of time
(this includes voice recordings of any transactions completed
over the telephone) such that we can always provide a complete
audit trail of any transaction
— do not permit any of our employees
to bet on the exchange while at work
Betfair believes that regulation should seek
to keep gambling free of crime and ensure full protection for
the punter. The company has already developed an excellent relationship
with all of the relevant authorities (including the DCMS, HMC&E,
the BHB, the Jockey Club and the BGRB), and will continue to drive
to ensure that betting exchanges are not a platform for corrupt
practices.
Unlike a traditional bookmaker, Betfair never
has a position on its own book. It only ever acts as a broker
and there is, therefore, never a "bad" result for Betfair.
As a result, Betfair always takes a completely objective view
of all betting transactions on the exchange. In addition, as Betfair
never takes a position itself, there is never any chance of it
not being able to pay out punters—all bets placed on the
exchange are covered with cash to their maximum liability (punters
are required to download funds into a Betfair-held account to
ensure any bet placed by them is wholly cash collateralised).
This provides the ultimate protection for the punter and is unlike
the position of a traditional bookmaker who will frequently expose
himself to an unbalanced book and could, therefore, be forced
out of business by a particular result.
We believe that Betfair's current "code
of practice" should form the basis of any future regulation
as it will guarantee a high standard of integrity, service and
protection for the punter.
THE QUESTION
OF INTEGRITY
It has been suggested by opponents to Betfair's
platform that the software allows people to bet against an outcome
that they can then affect. Recently, Lord Burnham raised this
point in the House of Lords (5 March 2002). This allegation is
most commonly made in reference to horseracing. However, we strongly
disagree with it, regardless of the sport in question.
Betfair has communicated and met with the Jockey
Club on several occasions, and believes that the Jockey Club is
satisfied, having seen the extent of Betfair's auditing and the
self-imposed rules under which it operates, that, far from being
a threat to the integrity of the sport, the betting exchange,
properly run and properly regulated, can actually help the sport
maintain its integrity.
Most recently, Betfair was instrumental in aiding
the Jockey Club investigate an issue involving doping allegations
at Plumpton. Betfair maintains an extensive audit trail on every
transaction on its system, and shared significant detail of the
bets placed on the race in question with the security department
of the Jockey Club. The result was that the Jockey Club were able
to conclude categorically that there were no suspicious betting
transactions on the race. This moved one national newspaper to
comment:
"Time may show that betting exchanges are
not only the best thing to happen to punters in decades but they
could prove an invaluable weapon in the Jockey Club's battle against
the few who try to corrupt the sport".
(Daily Telegraph, 6 May 2002)
ILLEGAL BOOKMAKING
Additionally, it has been suggested by opponents
that Betfair creates a vehicle for illegal bookmaking.
We strongly refute that this is the case. Margins
are so tight on a betting exchange that it is simply not possible
to make a book: pricing entirely precludes the kind of overrounds
bookmakers require to make a profit. The average price on horseracing
favourites on Betfair is 20 per cent better than the average price
at a bookmaker, making it hard for someone to run a bookmaking
business efficiently on Betfair but, at the same time, providing
outstanding value for the punter.
We also refute entirely the claim that bookmakers
are simply giving up their businesses, revoking their licences,
moving on to the exchanges, and not paying tax. In addition to
the point above concerning margins it must be noted that Betfair
is paying GPT anyway and thus every bet that is placed through
the exchange attracts GPT.
THE "ON
-COURSE" MARKET
Opponents of Betfair have also suggested that
the on-course market will be weakened by the growth of betting
exchanges and this point, too, was raised by Lord Burnham. We
actually believe that the on-course market will be strengthened
by the advent of betting exchanges.
Betfair regularly accepts bets from bookmakers
who are present on-course and who are looking to hedge their positions.
Indeed, on several occasions, the ability of the bookmaker to
lay off his position off the course has enabled him to take further
bets on the course without having to radically reduce his price.
This can only be good for the on-course market and effectively
makes the depth of the entire betting market available to punters
on the course.
BETTING EXCHANGES
AND THE
FUTURE
There have been some suggestions from major
bookmaking companies that the British Government should outlaw
betting exchange, on the basis that they may damage the integrity
of racing. We believe that these calls are motivated purely by
the competitive threat that betting exchanges pose to the traditional
bookmaker.
Betfair strongly disputes any suggestion that
betting exchanges, if administered in line with the rigorous checks
the company imposes on itself, are any threat to the integrity
of any sport. On the contrary, we are convinced, in line with
many commentators, that the audit trail we maintain strengthens
the hand of administrators in their fight against criminals.
However, that argument aside, it is important
to recognise that the betting exchange concept is now here to
stay. It is already so prevalent that it is easy to forget that
before Betfair created it, it did not exist. It is clear that
to outlaw exchanges in this country would simply see the creation
of exchanges off-shore, where regulation would obviously be impossible,
and where the UK economy would fail to benefit from the tax revenues
and employment opportunities that an on-shore company provides.
With integrity so crucial to exchanges, it is
fitting that a British company whose government has the objectives
stated above should be leading the way. It is important that moving
forwards, the world of betting exchanges continues to be led as
it is now: by on-shore, fully accountable organisations with a
proven track record for co-operation with all relevant regulatory
authorities.
In summary, Betfair represents the forefront
of a new and innovative development within the betting industry,
and is strongly in favour of the proper regulation of its business.
We propose that many of the best practices that we now utilise
should form the basis of future regulation of betting exchanges
and that this will result in a strong industry, in which the UK
will be the leading player. Furthermore, it will provide the responsible
punter with the most exciting environment ever in which to bet,
while at the same time making it harder for the criminal to use
betting as a means to an end.
We hope that this letter has helped outline
some of the key points surrounding betting exchanges and Betfair
in particular. Please do not hesitate to call me if you have any
questions.
9 May 2002
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