Examination of Witnesses (Questions 780
- 799)
THURSDAY 22 JANUARY 2004
MR MARK
DAVIES, MR
DAVID WILLIAMS,
MR ANDREW
SILVERMAN, MR
ROB HARTNETT
AND MR
KEVIN GRIFFITHS
Q780 Mr Meale: It is your marketing
thing.
Mr Davies: We are showing to our
customers we are not a bookmaker as they have traditionally understood
it, it does not mean we are not a bookmaker. What we do is we
take the money from them, we accept the terms of the bet and we
give them their money back with winnings if they are successful.
Q781 Mr Meale: Would you accept that
the way you operate now and part of the reason you do that is
you get out of normal regulation which applies to bookmakers?
You do not have a certification for a fit and proper test, is
that not the main reason why you do that?
Mr Davies: That is not right.
We have passed a fit and proper test and we are a registered bookmaker,
we have always been since the very first day we started to trade.
We have been appointed to the Bookmakers' Committee by the Secretary
of State. We are a bookmaker, we are a registered and licensed
bookmaker in the United Kingdom. Nobody objected to the renewal
of our bookmaking permit in 2003. If any of those who are saying
we are not a bookmaker had really believed we were not a bookmaker
they could have rejected the renewal of that permit, and nobody
did.
Mr Hartnett: The argument has
always been made that a betting exchange is in some ways different
from a traditional bookmaker. Our argument has been they are really
two ends of the very same spectrum. What we do is we merely offer
the opportunity, a greater choice in terms of what and how it
is bet. Bookmakers have traditionally held back the against side
of the bet, they have traditionally held that back and kept that
to themselves and it has not been available to the customer. It
is inevitable that the two sides of the same spectrum will actually
become closer together. We have already seen this in light of
betting company Bet 365, a very respectable and responsible betting
company, they have already commenced the offering of odds on horses
not to win and on football matches. In the same way as the bookmaking
industry took on many aspects of the spread-betting industry in
terms of the markets it made available to its customers, I genuinely
believe the fixed odds bookmaking industry will, as it has already,
take on a number of different products which have been born out
of the betting exchange model. We, as Mark suggests, all to the
best of my knowledge hold bookmakers permits and have undergone
the same fit and proper test as any other bookmaker. We offer
bets to people in the same way as any other bookmaker and we operate
to the customer in exactly the same way as any other bookmaker
only for the fact we offer a greater choice. We have created a
more efficient model for the offering of that betting which allows
us to operate at a lower margin which necessarily impacts on the
commercials of the traditional bookmaker and has given rise to
quite a lot of antagonism and antipathy towards us.
Q782 Lord Wade of Chorlton: In reply
to the Chairman's first question you both agreed you should give
contributions to the racing industry, in the light of your answers
to Mr Meale how should that be based? Should it be based on the
winnings of the person who wins, should it be out of your commission,
related to your turnover, how do you suggest that should be?
Mr Davies: It should be exactly
the same as all of the other registered bookmakers in this country,
it should be paid as a percentage of our gross profits, at the
same percentage of the rest of the bookmaking industry.
Mr Williams: Which is the current
system.
Q783 Lord Wade of Chorlton: Is that
what you do voluntarily now?
Mr Davies: That is what we do
as a registered bookmaker.
Mr Williams: It is not voluntarily,
it is statutory.
Mr Hartnett: We have never argued
the fact. We should pay it based on our gross profits.
Q784 Lord Wade of Chorlton: We have
heard evidence that the amount that you pay is a very much less
amount than traditional bookmaker.
Mr Davies: That is inaccurate.
We pay 10 per cent of our gross profits to the racing industry
just as all of the other bookmakers in the county pay 10 per cent
of their gross profits to the racing industry. At the moment our
gross profit is lower than the leading high street brands. When
our gross profit is higher than the leading high street brands
we will be paying more. At the moment we are paying less, we are
paying the same percentage on the same basis, 10 per cent of our
gross profit goes to the horse racing industry.
Mr Hartnett: It must be borne
in mind that the payment of levy and the payment of taxation is
not some altruistic notion that the bookmaker elects to pay, this
is money lost by the betting public to the bookmaker and a proportion
of that is paid to the racing industry and paid to the Treasury
via tax. We have created this more efficient means of offering
the betting service, it means that the general betting public
is getting a better deal out of it but they are leaving less money
behind on each individual bet. The argument is that they have
are having considerably more by way of number of bets. In the
long-term the differential may not be anything near as great as
some have argued, but the point remains this is exactly the same
basis on which the bookmakers pay and we being part of that same
spectrum are perfectly comfortable paying exactly the same rate.
Mr Griffiths: I would like to
draw attention to Professor Vaughan Williams statement on the
turnover of betting exchanges. His view seems very strong that
business being transacted on betting exchanges is complementary
business by and large, it is new business that is being created
because of the efficiency of the system to people are betting.
Even if they were gamblers before they are betting a lot more
often because they have the ability to trade their loses and trade
their bets. A very low margin is taken out which encourages high
turnover and bigger stakes.
Mr Davies: Perhaps I can clarify
for Lord Wade one of the reasons why there is so much uncertainty
about this, which brings me back to the reply I gave to Mr Meale,
people have tended to suggest that if our turnover went through
another platform pound for pound it would create more money. The
simple fact is that the reason our turnover is where it is is
because our margin is lower. We are not being charged on the basis
of turnover we are being charged on the basis of gross profit
and that is why we can say we are paying exactly the same. For
turnover against turnover, yes, the amount of money that comes
off our turnover is less than the amount of money that comes off
somebody else's turnover, that is because our turnover is high
and because our margin is low and the taxation system is designed
to allow high turnover and low margin operators to exist and we
have created a very efficient high turnover, low margin.
Q785 Viscount Falkland: The other
day I was told most forcefully by my old friend John McCririck—we
were appearing on a television programme to talk about gambling—he
said this whole fuss about betting exchanges had been blown out
of all proportion, particularly by various bodies on racing—and
I shall not mention them as some of their representatives are
here—he said in actual fact betting exchanges have created
a new wave of bookmaking and all that will happen in the long-run
is that the bookmakers will become betting exchanges. What is
your response to that?
Mr Davies: I would not like to
second-guess the business plans of our competitors, we get on
and run our business as best we can. It is really not for me to
comment on what the plans of our competitors might be. I would
say that I think we have taken the bookmaking model to perfection
in as much as a bookmaker will seek to profit no what matter what
the outcome of an event and we will always profit no matter what
the outcome of the event because we are immediately off-setting
every bet that is placed with us, so one of those people is going
to be right in his view and one of those people is going to be
wrong. The person who is right is going to pay us commission for
the privilege of having placed a bet.
Mr Hartnett: This notion of efficiency
is very important. We have managed to create through technology
what it has taken a certain number of major bookmakers an enormous
amount of investment in terms of the real estate and in terms
of numbers of customers. Ultimately the aim is to get to a position
whereby they will be in a no risk or extremely low risk business
of taking bets in on various things and paying out less than they
take in.
Q786 Viscount Falkland: What you
are saying is against what happened on the programme, I have to
say. If John McCririck is saying it is a possibility he is probably
right.
Mr Hartnett: I think we have seen
the first inkling through the actions of Bet 365 and others in
terms of the bet types they offer to their customers.
Q787 Mr Banks: I just want to get
a little more clarification, the pamphlet that you put out says
that Betfair is a sports betting exchange, it is not a bookmaker.
It was suggested by Betfair in its memorandum that it should be
licensed as a bookmaker rather than an intermediary, is that an
accurate statement of what was in your memorandum, you just said
that you are registered?
Mr Davies: We are currently registered
as a bookmaker. The proposal that the Government is putting is
that it should include a new and separate class of betting intermediaries.
Our view of that is that they are looking to a future proof of
bill, right now there is no requirement for a second category
because we are clearly a bookmaker. I have to come back and stress
exactly what happens when you come to us, you come and you bet
on an outcome to happen or not to happen and you can do the same
thing when you go to Ladbroke's or William Hill, you can walk
into your local high street shop and you can bet that England
will win Euro 2004 or they will not win Euro 2004. There has been
a lot of talk about the word "lay". People say "layers
should be licensed". Laying is being used in two different
contexts here. When you lay on the Betfair site you bet that somebody
will not happen, just as when you back on a betting exchange you
bet that something will happen. If you go to a high street bookmakers
and bet that England will winner Euro 2004 or they will not in
those both of those situations the high street bookmaker will
tell you that he is laying the bet and for that he requires a
permit. What he is doing is accepting the terms of your bet, taking
your money from you and agreeing to pay you back, which is exactly
the same thing as we do. That is why we require a permit because
we are a bookmaker who lays in that sense.
Q788 Mr Banks: A bookmaker takes
risk but Betdaq does not take risks, apart from the odd occasion
you do not take risks?
Mr Davies: I would say that a
bookmaker does not necessarily take risk and it is not in taking
risk you make yourself a bookmaker any more than it is if you
take more risk you are more of a bookmaker or any more than it
is true that a punter does not take risk. If I as a punter go
and put £50 down I am risking £50, I am taking a risk
as a punter. There is nothing in bookmaking that is defined by
risk, nothing at all. As I mentioned, a bookmaker will seek to
make money no matter what the outcome of the event. If a bookmaker
could he would take an equal amount of money on every outcome
because then he would lock in his theoretical margin. The fact
is that it is not as easy to do that with a non-technological
platform as it is for us. There is nothing in bookmaking that
requires you to take risk.
Q789 Lord Faulkner of Worcester: Is
there any parameter which you apply to what sort of event can
be the subject of a bet?
Mr Davies: Yes, we have, I think,
three criteria. The first is that there must be a published result,
the second is that we believe it is of sufficient interest to
generate liquidity and, therefore, to be efficient, and the third—
Q790 Chairman: I would guess it is
that the outcome is unknown before the event!
Mr Davies: I cannot think of the
third.
Q791 Chairman: Well, I have just
given you what I think the third must be, that if you know what
the answer is, you cannot have a bet on it surely.
Mr Davies: Yes, there are parameters
against which we would allow them to put up a bet or not.
Q792 Lord Faulkner of Worcester: And
there are occasions then when you turn them down?
Mr Davies: Yes.
Q793 Lord Faulkner of Worcester: If
I would like to bet on whether or not the Government is going
to win the vote on tuition fees on Tuesday night, would you accept
that bet?
Mr Davies: Yes, we could put that
up.
Q794 Lord Faulkner of Worcester: But
nobody has presumably?
Mr Silverman: No, nobody has.
Chairman: Well, that is very interesting
because Baroness Golding now wants to ask you a little more about
inside information!
Q795 Baroness Golding: What are the
warning signs that people are using inside information, improperly
obtained inside information? What are the warning signs that you
can see?
Mr Davies: Well, to answer the
question, I think I would refer you to the comments made by the
Chairman of BHB when he sat before this Committee on Tuesday when
he described inside information as "the lifeblood of racing"
because the nature of betting has always been that people have
sought to use information and get an edge over other people. Peter
Savill made that very clear. The DCMS, in their analysis of the
situation, have introduced a new concept of cheating which involves
interference with the horse and I think that one of the things
that needs to be clarified is exactly what constitutes inside
information and what does not. We believe it is not for us to
make that decision. As far as we are concerned, whatever rule
is made, wherever the line is drawn that says, "This is inside
information and this is not", anybody acting on any information
in order to place a bet leaves indelible fingerprints on the bet
they place, so it is not for us to make the decision, but it is
simply for us to help to police it. We have no reason to believe
that inside information is being used improperly on our site any
more than inside information is being used to bet on any platform
anywhere.
Q796 Baroness Golding: So are you
saying you would not do anything unless you were asked to?
Mr Davies: No, I am not saying
that because we obviously do a great deal at the moment to aid
those who police the sport to police it properly. I am just saying
that it is not for us to be the judge and jury in this case. It
is for us to look at the guidelines which have been set and to
help those whose job it is to police the sport to do so. At the
moment that is the Jockey Club and we look forward to working
with the Gambling Commission when it is the Gambling Commission's
job to do that.
Q797 Baroness Golding: You have an
audit trail tracking people who bet. Are there ever any signs
that something is very peculiar in that audit trail?
Mr Davies: Yes. We will use the
audit trail that we have to track anything that we believe there
is suspicious information about, but I think you have to look
at the difference between inside information and corruption. If
you are interfering with a horse, stopping the horse from winning,
then that is corruption and that is what we currently look out
for. If what you are saying is that you have been given a tip
by somebody who has an edge, then that is currently considered
by the Chairman of the BHB to be the lifeblood of racing. It is
not for us to decide where that line is drawn. At the moment we
look for corruption where we believe somebody actually knows that
something is going to happen. It does not necessarily mean that
they actually know that the horse is going to lose and it could
be the other way round because there are gambles both ways, but
whatever is considered to be corruption, we allow those who police
the sport to do their job better by virtue of the fact that we
have information that we can provide them with.
Q798 Lord Donoughue of Ashton: This
applies particularly, I think, to Betfair. You say that Betfair
maintains an unprecedented audit trail of bets on its site and
this has just been referred to, but I would just like to ask you
two or three specific things about that. How many people are fully
employed and trained to monitor suspicious betting patterns and
how do you deal with the problem of multiple accounts which can
be quickly established and could well disguise betting patterns?
Mr Davies: The answer to the question
is a great deal of what we do is done through technology because
we automatically run a series of queries of our database which
allows us to honour information which we can then act on. One
of the things we have, for instance, is an immediate early-warning
system where the screen will flash those people who are tasked
with looking at this sort of information in the event that certain
conditions on the site are breached or that certain accounts have
come on to the site at a given moment, and we would then use that
information to go and warn the Jockey Club at an early stage that
we have concerns that somebody in particular has bet in a particular
way. In terms of the number of people who are involved, we currently
have a Client Operations Team of 26 whose dedicated job it is
to analyse exactly what is going on on the site on a full-time
basis, but it is also important to note that they are the only
people within the organisation and indeed our site who are watching
the site on a full-time basis. We have a telephone betting operation
of around 50 people who, by the nature of their job, will be looking
at prices all day long and watching price movements all day long,
and of course the transparency of the system means that every
single person who comes to our site is able to see every single
price and every single price movement, not just as it currently
is, but tracked on a historical basis. You might well be aware
that we have a very active chatroom and although sometimes people
go on the chatroom and complain that they believe there is possible
sculduggery because of course they did not believe that they could
possibly lose and they have indeed lost, there are indeed occasions
where it might be our user base which flags something up to us
that is particularly suspicious. The answer to your question is
that we have a team of 26 people whose role full-time is to analyse
exactly what is going on on the site.
Q799 Lord Donoughue of Ashton: And
multiple accounts?
Mr Davies: Well, you cannot register
a credit card for more than one account, so in order to be able
to open multiple accounts, you also have to have multiple payment
methods, so that is the first protection against multiple accounts.
The second is that obviously we will run checks against whatever
payment means you use to deposit money into the account and the
check then verifies your address, so you are not in a position
where you can put in a load of different cards and a load of different
names unless you have gone to the trouble to apply for umpteen
different credit cards under umpteen different names, so there
are safeguards against that. As I said, the Client Operations
Team's full-time job is to sit there and analyse what is going
on and they can look at things like IP addresses that have been
used and where the account has been opened from, so there are
all sorts of checks which can be done.
| 
