Examination of Witnesses (Questions 665
- 679)
TUESDAY 20 JANUARY 2004
MR PETER
SAVILL, MR
CHRISTOPHER FOSTER,
MR RUPERT
ARNOLD AND
MR CLIVE
REAMS
Q665 Chairman: Thank you very much.
We need to move on because we need to end this session by 11.15.
I think you were all in the room when I began the session. Can
I welcome Peter Savill, the Chairman of the British Horseracing
Board, and Christopher Foster, the Executive Director of the Jockey
Club, both of whom are long-standing personal friends. Also, Clive
Reams, the Managing Director of Racefax, and Rupert Arnold, the
Chief Executive of the National Trainers' Federation. Gentlemen,
all of you are welcome. Can I begin with a general question. We
have heard that some sectors of the gambling market would be adversely
affected by the Bill. What do you think the impact of the Bill
will be on horseracing? What opportunities does the Bill give
for the commercial exploitation of racecourses and the racing
industry generally?
Mr Savill: Mr Chairman, there
is no question that the Gambling Bill will have a negative impact
on horseracing. I say that because the deregulation of gambling
generally, especially the expansion of casinos which will have
the facilities to offer additional gambling products and also
the expansion of other products into licensed betting offices,
will clearly help those areas of gambling and betting. On the
other side, I am sure you are aware that we argued strongly for
the deregulation of horseracing products into pubs and clubs and
that was turned down by the Budd Committee and also by the Government.
In other words there is an expansion of deregulation going on,
but the expansion of the availability for the distribution of
our products into outlets other than just licensed betting offices
has not been permitted and therefore I cannot see that as anything
other than a negative impact on horseracing.
Q666 Chairman: Do any of the other
witnesses want to comment?
Mr Arnold: No.
Mr Foster: No.
Chairman: Thank you very much.
Q667 Lord Faulkner of Worcester: I
know you were listening to the previous session and heard Mr Kelly
answer a question from one of my colleagues about the possibility
of a levy on bookmakers to fund sport, something that had been
suggested by the Oxford Review on Economic Policy. I wonder if
I could ask you the same sort of question as was asked of them.
Mr Savill: I was interested to
hear Mr Kelly say that he did not think it was a good idea because
Government was going to abandon the levy, but when I read the
Racing Post this morning I noticed that Mr Kelly would
like to keep the levy. So I assume that on the basis that he would
like to keep the levy he would also like to have a levy enshrined
in legislation. I was not quite clear exactly what this question
meant. If it means that you should incorporate into the draft
Bill a clause which says that sports organisations should negotiate
a levy then what happens when there is disagreement over what
that levy should be. Obviously it will have to come back to somebody
or to some arbitrator to decide. If there was a statement in the
Bill that said bookmakers should pay horseracing ten per cent
of gross profits, there is no question that I would support that.
I am sure other sports organisations would support that as well
because I do believe betting should pay for the information and
the data that it receives. There are other racing organisations
around the world where their commercial terms with pari-mutuals
or bookmakers are in fact enshrined in legislation.
Q668 Lord Faulkner of Worcester: How
much support do you currently receive from traditional bookmakers
and how much do you get from Betfair?
Mr Savill: I think it would only
be fair to compare data. Obviously we get income streams from
pictures, but Betfair obviously are not involved in the picture
side so I think it would only be fair to compare like with like.
We currently receive around (100 million for our data from traditional
bookmaking outlets. We believe, because we have not been told
the exact figure, that around (6 million in the coming year will
be paid by the betting exchanges through the levy, in other words
around six per cent of our income is coming from betting exchanges,
but depending on how you do your calculations on what betting
exchange turnover is, it is quite easy to make an argument that
25 to 30 per cent of horse race betting now are being done through
exchanges. In terms of the amount of business being done and the
amount of money coming back, there is clearly a fairly strong
discrepancy and that is because obviously the margins on betting
exchanges are much lower and payments to racing is being done
on the basis of gross profit.
Chairman: We are going to come on to
betting exchanges right now.
Q669 Mr Meale: Mr Foster, do you
believe that betting exchanges are being used by some with improperly
obtained "inside information" to make a profit? How
widespread is that and what evidence have you for it?
Mr Foster: Mr Meale, I think undoubtedly
the answer to the question is yes. There is evidence of a small
number of people abusing the system, but the intelligence available
to us, which comes from a considerable number of different sources,
does not point to a huge problem. We have some promising investigations
in hand and we expect to bring some cases in front of the Disciplinary
Committee during the course of the first half of this year. The
use of inside information is not unique to betting exchanges.
It has been a problem which as regulators we have had to face
in regulated racing with traditional forms of betting as well.
With the betting exchange it is more transparent and it is an
easier medium to use obviously for the misuse of inside information,
but equally, it is easier for us and other people to see it being
misused.
Q670 Mr Meale: That relates to another
question earlier about following the trail. You say there are
a small number of people involved in this, but what we heard from
Mr Kelly this morning is that it could involve very large sums
of money. Can you give us any indication of what that scale is?
Mr Foster: No.
Q671 Mr Meale: Mr Foster, you will
recall that during the course of the Home Affairs inquiry into
horseracing there were times when the Committee wanted access
to confidential information to use in its inquiries and summaries
but they were declined. Would you be willing to provide that to
the Committee?
Mr Foster: I am sure we could
discuss revealing certain information to some degree. Obviously
we cannot risk compromising active investigations, but I am sure
we can share more with the Committee in private.
Q672 Chairman: Thank you. Mr Reams,
your company has monitored this and produced some figures. Would
you like to share your thoughts with us on that?
Mr Reams: Yes. I would say that
the betting exchanges are used on a daily basis by those with
inside information to make a profit from less informed punters.
To take the second part of the question and I have produced a
report that underpinned that, I would say it is so widespread
that minor incidents occur not just on a daily basis but almost
on a race by race basis. The exchanges have made it very easy
for anyone connected to a horse to profit from the knowledge that
they have even though that horse may not win on that particular
day. The range of candidates for that is extensive, from the owner
to the stable lads' girlfriends or whatever. I would say the temptation
to profit now from that inside information with one click on the
computer has made that very difficult to resist and that was shown
in the report that I produced.
Q673 Chairman: We will come on to
that shortly. Mr Arnold, I am sure you will want to defend the
integrity of your members.
Mr Arnold: I would certainly want
to defend the integrity of NTF members, but at the same time I
would like to support the points being made about the increased
temptation that the model of betting exchanges offers to unscrupulous
people. I have first-hand knowledge of inside information being
used in my opinion improperly which I have provided to the Jockey
Club. I would concentrate very much more on the potential rather
than the actual. I do not think the actual abuse so far is large,
but there is no doubt at all in my mind and in the mind of the
NTF council that that opportunity is vastly greater now than it
was and the temptation is very much stronger.
Chairman: Thank you.
Q674 Lord Donoghue of Ashton: There
has been quite a lot of general gunfire noise about betting exchanges
from the racing industry, but I would like to focus on what is
your precise concern, Mr Savill, especially about betting exchanges?
Is it particular companies, is it the general activity or is it
their practises? Is there any difference between your position
and that of the bookmakers we heard in the previous session?
Mr Savill: I do not think it is
betting exchanges per se that we have a problem with. When
I say betting exchanges I mean Betfair, Sporting Options etcetera
and we certainly do not have any particular problems with individual
betting exchanges as opposed to other individual betting exchanges.
What we have a problem with is the concept of betting exchanges
and the impact that it has on horseracing. I personally find it
extremely difficult intellectually to disconnect the spectre of
hundreds of millions of people throughout the world enfranchised
to make money out of horses getting beaten on British racecourses
from the spectre of diminished integrity, increased criminality
and ultimately the loss of punter confidence and the consequences
of that. I think when the Government introduces legislation they
must surely have regard for the consequences of that legislation,
as I know you do, and to introduce legislation which is an open
invitation to everyone, from those with a criminal mentality to
just pure chancer, to take advantage of the law as easily as they
can, I personally believe would be wrong. I think betting exchanges
as a medium by definition encourage malpractice, they are almost
impossible to police, with up to 12,000 transactions a minute
taking place. We know that suspicious activity is extremely difficult
to prove because the opportunities to find excuses for why their
horse ran a particular way are many and varied, as any race horse
owner will know. Betting exchanges are not like stock exchanges.
There was a question just now about insider trading and improperly
obtained inside information. We know on the Stock Exchange insider
trading is a criminal offence. Having inside information in horseracing
is not a criminal offence. Betting on horses, the lifeblood of
that is inside information and what you do with it. It is totally
different to the concept of a Stock Exchange. If we are going
to allow inside information we will have to look at whether that
gives people with that inside information, who are going to be
allowed to use it and bet with it and lay horses with that information,
the opportunity to take advantage of those less advantaged, uninformed
punters and say, "Is this a case where the vulnerable people
are vulnerable to those situations?" That encapsulates our
general thinking and our concerns and I think our feeling is that,
in trying to put some evidence behind those concerns, we feel
that there is evidence. We hear evidence constantly both from
the bookmaking industry and from Racefax who we have done the
two month trial with that there is evidence of increasing situations
where malpractice is certainly very strongly suspected.
Q675 Lord Donoghue of Ashton: On
evidence and monitoring it, Betfair, the largest exchange, has
signed a Memorandum of Understanding with the Jockey Club. Is
that working and could you give us particular examples or evidence
to sustain the case that it is working, if you are going to argue
that?
Mr Foster: It was signed in June
of last year and the short answer to is it working is yes. There
is very close co-operation between our security department and
Betfair in particular and there is a great willingness on the
part of Betfair to try and root out malpractice. How does it work
in detail? There are two things really. One is that under the
terms of the MoU we are able to require an audit trail of lays
and we have asked for that on a number of occasions and that has
been readily provided. The other part, which is more proactive,
is that Betfair themselves and indeed some of the other exchanges
do give us early warnings of suspicious transactions and by suspicious
transactions I do not mean just a horse drifting. The key for
them, of course, is they know who is doing the laying, they know
which account holders are actually involved in the transaction
and where account holders about whom they have a worry are involved
they will inform us which enables us to send a signal to the racecourse
before the race and the stewards may warn the trainer, the jockey
or both that their horse is drifting. Our feeling is that the
existence of the Memorandum of Understanding is acting as something
of a deterrent and we are actually getting fewer reports in now
from Betfair than we were three months ago, but—and there
is a big "but"—the Jockey Club itself has limited
powers. Our powers extend to those bound by the rules of racing,
not necessarily to those who are laying bets. We also have limited
powers of investigation. So the MoU is not an answer in itself.
We cannot on our own deal effectively with criminals who may obtain
inside information by coercion or may seek to influence the outcome
of a race. That remains a major difficulty for us whether the
MoU is there or not.
Q676 Lord Donoghue of Ashton: You
are dependent on the voluntary giving of an alert by one part
of the industry, are you not?
Mr Foster: Indeed. It is not a
sound basis for the long term to rely on voluntary arrangements.
Q677 Lord Donoghue of Ashton: How
should that be strengthened?
Mr Foster: We envisage that being
strengthened by the Gambling Commission making it a duty for betting
operators to provide audit trails and effectively to take up the
sort of clauses which are in the existing voluntary MoUs.
Q678 Lord Donoghue of Ashton: And
being compulsory on all exchanges?
Mr Foster: Yes, across the whole
range of betting outlets.
Q679 Chairman: Do Mr Arnold and Mr
Reams want to comment on this?
Mr Arnold: If I could just provide
another perspective to that just to add to what Mr Foster has
said. There is a world of difference between the exploitation
of inside information and third parties offering financial inducements
to people to provide that information. Those people may be deciding
that rather than just giving their opinion as to whether or not
a horse would win a race they would actually be making sure that
a horse cannot win a race. It is the difference between those
two things that is the biggest fear of the training community
and all responsible trainers.
| 
