Memorandum from Mr Singh (DGB 175)
1. MY BACKGROUND
I am currently supporting myself financially
through successful sports betting. Although I would use neither
term to describe myself others may consider me to be a "professional"
gambler or a "non-recreational" gambler.
I have followed the discussion about the Draft
Gambling Bill with interest and am on the whole supportive of
the Budd Report, the Draft Gambling Bill and the work of the DCMS.
However, in the light of recent press reports about betting exchanges
I would like to add some input to the Joint Committee from the
perspective of a serious sports gambler to ensure a full and balanced
picture is available to the members. The focus of this submission
is with regard to the regulation of betting exchanges, and the
potential taxation of "non-recreational" gamblers.
My background includes a Masters Degree in Leisure
Management, an Honours Degree in Economics and time working as
a consultant with Accenture. I have never worked within or for
the gambling industry and hold no financial interest in gambling
companies, aside from being a customer.
2. BETTING EXCHANGES
2.1 The fundamental differences between an
exchange and a bookmaker
A myth has developed, perpetuated by vested
interests in the bookmaking and racing industries, that a betting
exchange is a fundamentally different concept to a traditional
bookmaker because of the option customers have in "laying"
or backing an event not to happen.
However, this is simply a matter of semantics.
For example in a tennis match between two players, laying Player
A is exactly the same transaction as backing Player B, it is just
expressed in different words. Similarly laying a football team
is the same as backing both the other team, and the draw. These
options have always been, and continue to be, available with bookmakers.
Indeed several bookmakers, such as Bet 365, are actively promoting
lay bets with coupons in their betting shops.
The real fundamental difference between the
two is simply that an exchange is a more efficient way of organising
the transactions. A bookmaker employs odds compilers who have
the job of guessing the price levels where customers will be willing
to bet on the different outcomes, whereas an exchange uses technology
to find out exactly the right price levels, and update them continually.
This not only reduces labour costs, but also eliminates both the
need for a bookmaker to take a positional risk on the outcome
of an event, and the risk of the odds compilers making mistakes
with their judgement of prices costing the bookmaker money. These
advantages enable significant cost savings, which are in part
passed on to the customer.
This is the real and unspoken reason for the
continued propaganda campaign by the large bookmakers who fear
that the competitive advantage will erode their profits and customer
base over time.
2.2 International Context
The betting exchange concept is now clearly
understood by many thousands of gamblers worldwide, and it would
be very naíve to assume that if the UK took draconian action
against betting exchanges here, that it would not lead to either
UK based exchanges moving abroad, or the business of their customers
moving abroad.
The competitive advantage of the exchange concept
means that a high proportion of future betting growth will inevitably
be directed to exchanges, and it would be a great shame if the
UK did not profit from that through the jobs and profits the exchanges
will inevitably generate, when the innovation originated here,
and has been recognised by the Queens Award for Enterprise.
2.3 Regulation & Security
As someone who bets almost exclusively on other
sports than horseracing, in some ways I am not best placed to
comment on the recent press speculation with regards to possible
corruption in horse racing and possible links to exchanges.
However, I do have an interest in that the main
reason that I avoid horse racing betting, and have done so since
before exchanges were around, is that rightly or wrongly I believe
there to be a small but significant degree of corruption involved,
albeit a lot of it relatively minor and on the boundaries of the
rules rather than blatant infringements.
The corruption is designed to give insiders
an ability to profit from betting at the expense of outsiders,
and makes it significantly harder for a sports gambler without
connections to sustain a long term profit.
Rumours, and proven events, about corruption
go back long through the history of horseracing, and are simply
more transparent with the advent of betting exchanges, and the
audit trail they create.
This can only be good for the sport in the long
run, as new evidence will allow the Jockey Club and other regulators
to be more pro-active in investigating cheats.
There is always some risk of corruption in sport
as in other walks of life, and this will happen whether betting
is legal or not, whether betting exchanges are around or not,
and however effectively a sport is regulated.
I welcome increased powers for sports governing
bodies and/or the proposed Gambling Commission to deal with cheats.
However, it is important to avoid the mistake of blaming the messenger
when exchanges are merely highlighting the ongoing corruption
in racing.
The people to blame and to target, are the insiders
in horseracing who should be subject to appropriate criminal sanctions.
I also welcome the ground breaking work betfair.com
have done in securing memorandums of understanding with the cricket,
tennis and darts authorities, in addition to the Jockey Club.
It would be perverse if the bookmaker that has
done more to aid transparency in betting, and provide information
to governing bodies about betting cheats, in its short three year
existence, than all the other bookmakers have done over hundreds
of years, is now punished for doing so.
2.4 Licensing individual exchange users
It has been suggested by many bookmakers that
individual exchange users should be subject to a fit and proper
person test and licencing. Whilst I personally would have no objection
to obtaining such a license it seems to be completely missing
the point, and aimed at increasing red tape. With over 200,000
exchange accounts it would also clearly be a waste of the scarce
time and resources of magistrates and the police.
The ability to back or lay a bet does not create
the opportunity to cheat in horseracing or sport. That opportunity
still lies, as it always has done with the competitors, trainers
and managers within the sports. If further licensing is needed
to protect the integrity of a sport, then it is the competitors
and people involved in the sport who should be licensed, and subject
to stronger regulations preventing them betting on events on which
they participate.
3. TAX IMPLICATIONS
3.1 Non Recreational Gamblers/Professional
Gamblers
It has been discussed by your committee and
more widely in the media, whether non-recreational gamblers should
face a further tax beyond those paid by betting companies.
In theory I accept that certain gambling winnings
should be subject to income tax. The great difficulty in this
however is the defining of who should have their gambling treated
as if it were a trade, and who should have their gambling treated
as if it were a hobby.
If a wide definition is used then it would have
a negative impact on the wrong people as it is the nature of the
gambling world that people win by luck as well as skill, especially
in a short period, such as over a tax year. This could have a
negative impact on gambling growth, and therefore government revenue
created by gross profits tax.
It should also be noted that particularly on
exchanges, "non-recreational" gamblers already make
a significant contribution through gross profits tax on exchange
commissions. A quick analysis of my own exchange betting shows
that over time my commission paid is between forty to fifty per
cent of my profit and this is subject to gross profits tax paid
by the exchange. (Please note that the percentage I have quoted
is likely to vary, perhaps considerably, dependent on individual
betting styles).
3.2 Ability to Pay
Whilst accepting the principle that some gamblers
income should be liable to income tax, an equally important principle
is that of ability to pay.
The margins for anyone attempting to make a
profit through betting are in the low single figures (personally
I aim for around 1 to 2 per cent), so any return to a form of
turnover tax would not be viable for myself. My betting activity
would have to either cease or move offshore, with a resultant
drop in revenue for the government.
An income tax based on profits is therefore
the only sensible solution, if it is decided that gamblers profits
should become subject to further taxation.
3.3 Overall Impact on Government Finance
According to recent information from betfair.com,
only around 0.7 per cent of its customers made a profit of over
£15,000 over the last year. Given approximately 200,000 users
worldwide, that equates to 1,400 people, many of which will be
outside the UK. Of those remaining some are likely to have won
through chance, and are unlikely to win over a longer period of
time, so the number who are subject to UK taxation laws, and likely
to win enough money to live on is likely to be in the mid hundreds.
Although this is just one company, my experience
is that with traditional bookmakers or spread betting companies
that actions are taken to aggressively limit bets and close accounts
placed by customers who are winning. This makes it impractical
for most winning gamblers to rely on such winnings for a sustainable
living outside of exchange betting, of which betfair.com is by
the far the biggest.
Given such a low number of people who are likely
to consistently make money through betting, the possibility of
those people moving to a more favourable tax regime, or using
tax avoidance measures, and the potential negative fiscal impact
of reverting to any tax on customers, my judgment is that although
in principle a small number of gamblers should be subject to income
tax, in practice it is unlikely to be economically worthwhile
for the government, given that contributions are already made
indirectly via gross profits taxation.
March 2004
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