Examination of Witnesses (Questions 765
- 779)
THURSDAY 22 JANUARY 2004
MR MARK
DAVIES, MR
DAVID WILLIAMS,
MR ANDREW
SILVERMAN, MR
ROB HARTNETT
AND MR
KEVIN GRIFFITHS
Q765 Chairman: Can we now welcome
from Betfair Mark Davies, David Williams and Andrew Silverman
and then from two other exchange companies, Betdaq, Rob Hartnett
and Kevin Griffiths from Sporting Options. Can I begin by a general
question, do you think you should share the responsibility for
assisting the regulation and funding of horse raising and other
sports on which bets are placed through Betfair and Betdaq?
Mr Davies: Yes to both questions.
As far as regulation is concerned absolutely yes, we already do
it voluntarily as initiatives like the RMOU show. We would be
very happy to see it enshrined in legislation. As far as funding
is something concerned again yes. We believe we should pay in
line with everyone else, with all operators being charged on an
equitable basis irrespective of their operating margins.
Mr Hartnett: I agree with what
Mark says. We currently already contribute to both the regulation
and the funding, to the funding on exactly the same basis, via
gross profits tax and in contribution to the levy as every other
betting organisation and on the regulation side through a long-standing
at least in our short lifetime relationship with the Jockey Club
which can only get deeper now that the Jockey Club has appointed
a new head of security and would appear to be moving very much
towards the beefing up of that role in terms employing betting
expertise.
Q766 Chairman: That is interesting.
In that case why then have we had a response from the Jockey Club
and the National Trainers' Federation expressing concerns that
betting exchanges have exacerbated the corruption of the sport
of racing?
Mr Davies: I do not know why they
said that. I do not think there is any evidence to support it.
I also do not think that is a view that is necessarily held across
the breadth of those organisations. I will quote the new Director
of Security for the Jockey Club Paul Scotney who was quoted in
last Friday's Racing Post as saying "I do not hold
to the idea that problems have increased with the advent of betting
exchanges, the exchanges have probably just made it easier to
expose certain people".
Mr Hartnett: I think there is
a perception that there has been a change in the very nature of
gambling by virtue of the work of the betting exchanges. That
perception has, with all due respect, been put forward in many
cases by commercial rivals. In fact the reality is that whilst
the betting exchanges do allow a range of choice on what to bet
on and how to bet they have not materially impacted on the way
in which people could in theory benefit from a horse or a participant
in a team not actually performing well. You could use as an example
the fact that we would have the argument thrown at us at the moment
that if there was an even money favourite in horse racing that
somebody knew to the best of their knowledge was not going to
win they could go on to a betting exchange and take money directly
from other punters who were willing to back that particular horse
and thereby make money out of it. It has always been the case
that if somebody or some group of people "knew" that
an even money selection was not going to win they could always
have gone to other betting shops, other bookmakers and other betting
organisations and backed all of the other runners in that race
to secure a guaranteed return on the race and a guaranteed income.
The difference now is that on a betting exchange all of the bets
which are struck against a particular horse, or for a particular
horse or participant are recorded and attributable to an individual
whereas in previous cases with bookmakers that was never the case.
There is now a clearly defined audit trail which the authorities
could in fact use from an information point of view and in terms
of a prosecution point of view.
Q767 Chairman: We will come back
to a number of those points. Mr Griffiths, did you want to comment?
Mr Griffiths: In terms of regulations
I certainly believe that betting exchanges are a great help to
British horse racing, particularly with the memorandum of understanding
that the exchanges will have signed up to. The audit trial is
far better with a betting exchange that it is with cash betting
on course or in a betting shop. If anyone feels any crime is being
perpetrated there is an audit trail back to the person who may
have perpetrated that crime.
Q768 Mr Meale: I am very interested,
Mr Davies, how many clients/customers do you have?
Mr Davies: We have round 200,000
registered clients of whom about 30,000 are active on the site
in any given week.
Q769 Mr Meale: How much will your
turnover be?
Mr Davies: The last time we gave
a published figure it was in excess of £50 million a week.
You have to put that turnover in context. There has been a great
deal of misunderstanding as to what that turnover means and it
has been defined in a series of different ways, not least the
way that we define our turnover is different from the way that
Betdaq define theirs. We define ours that if you and I bet £10
with each other we would call that £20 of matched money.
Betdaq's turnover is odds dependent, so if you and I bet £10
with each other with odds of 10-1 they would say one of us is
a £100 risk and one is £10 risk, so that makes £110
turnover for the same bet. For all sorts of reasons our turnover
looks like a far higher number than you might expect to see. I
can give you countless examples of why that might be. For instance
if I were back a horse at 10-1 in £10 and I was then to lay
it back at 5-1 in £10 I have generated £40 of turnover.
What would that have been through the betting shop? It would probably
have been one £10 bet and you would not have been able to
take the other side, so we have immediately overstated it by four
times. Our turnover is really an irrelevant number. People have
spent a lot of time focusing on it but this industry is not taxed
on turnover and it is not charged on turnover, it is a gross profits
tax, and gross profits are a combination of your turnover and
your margin. As everyone knows when your margin goes down and
your turnover goes up in the event that our margin approached
the margin of a high street bookmaker our turnover would come
down to compensate to the same number.
Q770 Mr Meale: You have hundreds
of thousands of clients registered, you are handling billions
of pounds every year in facilitating gambling, that is your trade.
Mr Davies: We are a bookmaker.
Q771 Mr Meale: You are a bookmaker.
Some may deny that because you have not been given a fit and proper
person test?
Mr Davies: Yes, we have. We are
a registered bookmaker and we have passed the test.
Q772 Mr Meale: Why then did you intimate
a short time ago in your answer that everybody in the industry
does not have the same position and you quoted somebody from the
Jockey Club. We had Mr Foster here earlier in the week and he
had a different view than that expressed by one of his under links,
he is the Senior Administrator in the Jockey Club. He said that
they were very worried about it and like the ABB and other bookmakers
they were saying that you were eroding and "under the present
plans you were continuing to damage the countries reputation for
firm and sensible regulation of gambling". What do you have
to say to that?
Mr Davies: I would reject that
entirely. I think that is absolutely wrong. I think there are
no new regulatory questions that we raise as an operator or that
are raised by our customers. I think it is quite clear that we
are raising the fight against corruption and for evidence of that
I would cite the fact that bookmakers have recently followed our
lead in signing a memorandum of understanding which puts in place
a much better structure for the Jockey Club to be able to access
information. The reason that you are hearing the negative comments
is there has been a lot of talk about the price of horses and
the length of them and people are equating that with corruption,
and I think that is a step which is completely wrong to take.
This is now a free market where all of the prices on both sides
of the market are visible to everyone. Previously one set of people
could see all of the prices and another set could not. In the
same way some currencies are fixed to other currencies and others
float in a free market and when the currency comes away from its
peg for whatever reason and suddenly devalues by 20 per cent,
30 per cent or 40 per cent nobody turns around and says there
is corruption or there is somebody suddenly inherently weak in
that country's economy, it is purely the result of market forces
which are allowing that price to shift. There has been an awful
lot of talk about horses drifting and the fact that that therefore
means there is corruption. People have pointed to 171 horses which
Clive Reams organisation Racefax has identified as being potentially
problematic. People comment on drifting horses when they lose,
they do not comment on drifting horses that win. In 2003 more
than 1,700 horses on Betfair compared with 171 Clive Reams pulled
out, drifted out, lengthened in price to more than double their
price and won, some of which were absolutely extraordinary examples.
At Stratford in October a horse called Boing Boing went from 7-1
to 80-1 and won by 10 lengths. People do not comment on horses
that drift and win they comment on horses that drift and lose.
It is not a question of the horse drifting that applies to corruption
any more than it is true than when you suddenly put a speed camera
on a road and you discover that 20 cars were speeding overnight
you have suddenly increased speeding, what you have done is put
in place something that allows you to see what has happened.
Q773 Mr Meale: Taking that into account
just going back to my original question about whether or not you
are a bookmaker. You say that you are, in your own publication
it says "Betfair is a sport betting exchange not a bookmaker".
How do you explain that?
Mr Davies: That is a marketing
document which is intended to explain to people why we offer a
service which—
Q774 Mr Meale: You have just told
this Committee you are a bookmaker and you are telling your customers
that you are not a bookmaker, is that not misleading?
Mr Davies: It is not misleading
anymore than the advert that Toyota ran last year where their
car drove itself is not misleading either, it is there to imply
the car gives a very smooth drive and it does not feel like you
are doing any work.
Q775 Mr Meale: That is bizarre that
you should have a publication saying that you are not a bookmaker,
you have just stated to this Committee that you are a bookmaker
and the example that you have given is a Toyota car in a car advert,
that is extraordinary.
Mr Davies: I would disagree it
is extraordinary. I think it is fair to say that a marketing campaign
played on people's understanding of something and when we started
as a business—
Q776 Mr Meale: That is a lie.
Mr Davies: It is not a lie.
Q777 Mr Meale: You said that you
are not a bookmaker, you are.
Mr Davies: It is a marketing tool.
If you want to complain about our marketing slogans then that
is fine. The fact is that we are a bookmaker in that what we do
and what bookmakers do is exactly the same. When you as a customer
come to us you submit a bet request and you ask us if we will
take your bet. We make a decision whether we are going to take
that bet or not.
Q778 Mr Meale: You do take bets?
Mr Davies: Yes, we are a bookmaker.
Our decision is that we will take that bet in the event that we
can immediately offset it. Your experience as a punter coming
to us is exactly the same as it is when you go to William Hill
or Ladbroke's.
Q779 Chairman: That is the key point,
you are suggesting that there is a time gap virtually between
the two transactions, whereas in reality there is not, is there?
The person accepts the person requesting the bet, he is not, if
I understand it correctly, able to place the bet until somebody
else says, yes I will accept it. You do not do anything, you provide
the machinery.
Mr Davies: When you go into Ladbroke's
or William Hill you submit a bet request and they have a set of
criteria under which they will accept or not accept that bet request,
which is whether it fits their risk profile. The chances are if
you are a small gambler it will always fit their risk profile
and they will always take that bet. If you ask them for a particularly
large bet they might say, "we will take some of it at this
price and the remainder at that". They have a criteria by
which they accept a bet or not. In turn we have a criteria as
to whether we accept that bet or not. Our criteria happens to
be that we want to immediately to offset that bet. Because we
are matching as many bets as we are a minute you as a customer
of ours are not aware of that, yes there is a delay and we thought
if the delay was too long and you would be disgruntled as a customer
and go away and not do business with us. We are perfectly at liberty
to take that bet on our own account. It just happens that we are
making the business decision to be a risk-free bookmaker and because
we have the technology to do it can offset that bet straightaway.
We are doing exactly the same thing as every other bookmaker.
Going back to your marketing thing—
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