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Some of these incidents may involve straightforward corruption. A football match where it can be proved that a player was bribed to ensure that his team lost or one in which it can be proved that the referee was bribed to produce a particular outcome both involve a clear case of cheating, which could lead to a conviction and prison sentence. But what about the use of inside information? There was a great difference of view between the Jockey Club, which was against the use of inside information for gain, and the bookmakers, who described it in their evidence to us as,

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We asked the Financial Services Authority how it defined inside information in the context of investment in financial services. It told us that, if its market abuse regime were to be applied to the betting and gaming industry, a large part of the information made selectively available to bookmakers and chosen punters would be inadmissible and subject to both the criminal law and the civil law regime set out in the Financial Services and Markets Act 2000.

The most important way of tackling the unfair and potentially corrupt use of inside information is to have information exchange agreements between betting operators and the sports on which they take bets. Here, the betting exchanges have led the way. The Jockey Club told us that it was very keen on them and said that it uses them almost daily because the audit trail that they provide is excellent. Its spokesman told the Racing Post:

These responsibilities now lie with the British Horseracing Authority, which I visited on Monday to watch its regulatory unit at work—and very impressive it is. It has been given a budget approaching £3 million to do this and is demonstrating a capability to monitor all major online sports betting. Indeed, over the summer the BHA was called in by the Association of Tennis Professionals to investigate allegations of corruption relating to a tennis match in August in the Poland Open tournament, on which Betfair reported that bets totalling $7.3 million had been matched. The favourite, ranked world No. 4, was backed to lose to a player ranked 87th. Despite losing the first set to the favourite, the underdog was still being backed during the second set, which he won. Following that, the favourite suddenly withdrew from the match with a foot injury. There was something wrong there. Betfair very wisely voided all bets and the anti-corruption inquiry continues.

Our report contained a total of 15 recommendations. Some were directed at the Government, a number at the betting industry, several at the sports governing bodies and the most important at the Gambling Commission. What has happened since we published our report? Quite a lot, I am pleased to say. The Gambling Commission has been consulting widely on information sharing, which it rightly regards as being a central element in achieving integrity in sports betting. It has published some helpful papers, one of which contains strong guidance that betting organisations should sign information exchange agreements with sports governing bodies so that irregular betting patterns can be fully investigated. It also agrees with our recommendation that sports governing bodies should be consulted on what sort of bets should be permitted. I take the simple view that no bet should be allowed on the outcome of a sporting event that depends for its success on inside information or on an action or influence by a small number of people.

A central recommendation from our inquiry was that there must be proper rules on who may and may not bet on competitions or events in which they are involved. For example, the Football Association has a rule—Rule E8—that no one involved with a club, as manager, director, player or even office staff, may bet

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on any match in the same competition. It is difficult for the FA to enforce that without assistance from the betting industry. Press reports appeared a year ago alleging that some Premiership managers were placing enormous bets with bookmakers Victor Chandler contrary to Rule E8.

If there were transparency and openness in the relationship between a sports governing body and betting organisations, based on a proper information exchange agreement, the FA would be able to ask bookmakers for details of the bets and the identity of their clients. I believe that, as far as the onshore betting industry is concerned, this will come, because the Gambling Commission is determined that it should. Indeed, the major sports organisations are working with the commission to ensure that the betting industry understands what the various sports’ rules are and that it is the betting industry’s responsibility to report irregular patterns of betting behaviour. This is central to the integrity of sports betting.

There is obviously a difficulty when it comes to offshore betting organisations, particularly those licensed by more relaxed regulators. Certainly I see little sign yet that Gibraltar, which is where Victor Chandler operates from, is minded to impose the same sort of tough regime that the Gambling Commission is introducing here. The FA has asked this company to give it the opportunity to see the systems that it operates to ensure integrity in sports betting and to explore the signing of an information exchange agreement; the FA is still waiting for a proper reply. The Gambling Commission is moving in the right direction, although I wish that it were more ready to make these additional safeguards a requirement of its licensing conditions.

The Government should continue to give every encouragement to these developments, as I hope that they will. But they must also be prepared to take a much tougher line with foreign jurisdictions that license betting operations aimed at British clients. At the very least, they should insist that Gibraltar and Malta apply the same sorts of standards as those that they have required of the newly white-listed jurisdictions of the Isle of Man and Alderney.

We said in the conclusion to our inquiry that we accepted that the greater part of sports betting is neither corrupt nor unfair to punters. But the growth of the betting exchanges, because they give punters the facility to bet against a result, has increased the potential for corruption.

It would of course be nonsense to argue that no improprieties took place before the advent of the exchanges. This dates back to the early Olympics, with allegations of athletes accepting bribes to lose a competition and city states trying to manipulate the outcome with large amounts of money. I understand that it was also very popular in chariot racing. In more recent times, the betting practices present in cricket in Asia and South Africa, as described to our inquiry by the ICC, had little to do with the exchanges, and the history of a variety of sports in the UK and elsewhere in Europe over the past century is littered with incidents, allegations and, in a few cases, criminal convictions.

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However, the advent of the exchanges has brought with it new challenges to sports governing bodies, gambling regulators and government. If the betting industry rises to these challenges, the integrity of sports betting could be improved by the greater transparency and disclosure that the adoption of demanding and meaningful information exchange agreements can create. However, it is necessary for all these arrangements to be tightened up and significantly improved and for risk assessments to be conducted on particular sports betting. I hope to hear from my noble friend today that the Government are encouraging the Gambling Commission to do exactly that.

2.38 pm

Lord James of Blackheath: My Lords, I should declare interests in this. I have in the past run casinos, although not in this country, on behalf of a British bookmaker. Secondly, I was until recently executive chairman of the Jockey Club racecourses and was therefore responsible for the running of the races at Aintree, at Epsom for the Derby and at Cheltenham.

I welcome this initiative. A number of concerns have arisen as a result of the Gambling Act and they deserve close consideration. I have three principal concerns to raise with your Lordships. The first is, like the others, an unintended consequence of the Gambling Act. There is a rapid and tangible drift to the conversion by the bookmakers of the 10,000 or so betting shops into mini-casinos. That trend carries a real moral hazard, about which we should all be concerned. It is not so many weeks ago since we debated in this Chamber the issue of the super-casino for Manchester. Noble Lords will recall that we were concerned about the definition of a “destination casino” and the extent to which it represented a bigger hazard. However, the moral hazard presented by the spread of the virus of 10,000 immediately available local casinos to the midst of our local communities is immeasurable.

I do not suppose that a great many noble Lords are in the habit of visiting betting shops, so I shall take them on an imaginary tour of what is going on in them. Every casino is allowed to have four FOBTs—that is, fixed-odds betting terminals. Until eight days ago, they were confined principally to roulette, blackjack and stud poker, but they have now been expanded to include direct access to virtual reality racing, to which I shall return shortly.

The FOBTs are the subject of a series of control orders recently issued by the DCMS which I regard as a disastrous gathering of the inadequate and incompetent assessment of the controls to be imposed on the betting shops. They fail in almost every major respect to address the critical issues; for example, they open up the scope for immediate and repeated betting by touching one knob to repeat the bet that one has made previously. You can therefore bet virtually unlimited sums. You have to put real, folding money into the machine. It will then register you as having a number of stakes available according to the number of pounds that you have put in—you can diminish it to a fraction of a pound. You can then touch any number of numbers on the roulette keypad, so that you could bet, let us say, 20 separate numbers for

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£1 each. However, according to the control orders, which do not foresee that risk, you can press each number 10 times. So you could have £200 on a single spin and press one number to repeat that bet as many times as you had stakes left in the machine. There is no separation of your original stake from the winnings, and therefore no opportunity to remove your stake and bet just with the winnings.

The risk was summed up beautifully yesterday by a senior bookmaker who said to me, “Do you know, our betting shops are empty in the afternoon now; there’s nobody there”. “Why is that?”, I asked. He said, “Because our machines are so efficient that we have stripped all the money out by lunchtime and everybody’s had to go home. There’s no money left in anybody’s pocket”. Moral hazard is rampant there.

Virtually reality racing has concerned me for a huge time. For those who are unfamiliar with it, I say that it is a technique which has been developed by the bookmakers whereby they are able to represent with a computerised software programme an imaginary race run by images of horses, with jockeys on top. It is known in the business as cartoon racing. In theory, each of the 12 horses in a race has an identical chance, with odds of 11:1. However, the bookmakers want to encourage people to bet on them, so they put up on a separate screen the imaginary odds for three or four of the horses to imply that they are favoured. The Select Committee on Merits of Statutory Instruments, of which I am a member, asked the DCMS whether the odds were being in any way manipulated. We were told that they were not, that the bookmakers were at arm’s length from the software systems and that the software system was sacrosanct and never interfered with.

When we then asked why they were able to offer odds of 3:1 on a horse in a 12-horse field, the startling answer was that they were giving the chosen horses a 20 per cent loading of having a better chance. The bookmakers were thereby admitting that they were lying; they were intercepting the system. One would expect in those circumstances to see the incidence of winning favourites to match the 20 per cent or so which applies to live, breathing racehorses in proper races. In fact, it comes out at 16 per cent; that is, nearly four points below the average for living racehorses. It is even more remarkable that the clear favourite, if it is winning only 16 per cent of the races, is coming second in 17 or 18 per cent of them. God forbid that I should be accused of being a cynic, but if I were, I would say that the bookmakers are getting it both ways. They are encouraging bets to be laid and then avoiding the necessity of having to pay out on the horse that is the favourite because the software system is in some way stopping it winning. That is as much a corrupt process as slipping dope to a horse or getting a jockey to pull it. What on earth are the bookmakers doing? It is a question of integrity in racing, but one that comes from a different direction.

The bookmakers claim that because they now offer these wonderful betting methods, they should no longer contribute to the betting levy which has been the lifeblood of British horse racing and the thoroughbred

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racing industry. As a result, the industry is now bereft of £90 million. The Government should do three things immediately.

Baroness Crawley: My Lords, the noble Lord is into his eighth minute.

Lord James of Blackheath: My Lords, I shall list those three things and finish. First, the Government should adopt the recommendations of the excellent committee of the noble Lord, Lord Donoughue, and impose on the betting industry the restoration of the levy at a reasonable level. Secondly, as the noble Lord, Lord Faulkner, said, they should immediately require offshore bookmakers to abandon advertising in Britain or to comply with the usual regulations. Thirdly, the DCMS should revise all its controls on betting shops to stop them becoming mini-casinos. It is an outrageous state of affairs and needs immediate correction.

2.46 pm

Viscount Falkland: My Lords, we have reason to thank the noble Lord, Lord Faulkner, not only for introducing the debate but for the incredible amount of work that he has done to try to generate understanding of betting today, with its new technologies and the difficulties linked to human fallibility and criminality which they have created. I am surprised that the Government have not sought to counter the view put forward in the press that there has been a new development in our society and that people have suddenly become dishonest and seek to influence the results of races and other sporting events. That is not the case: there has always been dishonesty in sporting events.

It is in fact more difficult today to be dishonest in sporting events and to alter results. We can take pride in the new technologies for that. You have to be a very clever criminal to get past the close examination that takes place, but, as with all other classes of person, there are good, indifferent and bad criminals. As with car theft, only a good criminal nowadays can steal a modern car; only a good criminal today can get to the bottom of the challenge of influencing results to create fortunes for themselves. An attack on the new technologies, therefore, on grounds that they have generated new vice in our society, is quite misplaced.

The noble Lord, Lord Faulkner, must have been a little ironic in asking the Government what guidance they will give to the commission. I do not expect him to be as vituperative as me or the noble Lord, Lord James, but there is nothing to make us believe that the Government will be able to lead; it is rather like expecting the blind to lead the partially sighted. The Government’s record on gambling and betting has been disastrous. The noble Lord, Lord James, gave us the example of the FOBTs, which are dishonest in themselves because they are gaming machines. People ask, “FOBTs? What’s that? They must be all right—it sounds complicated”. He explained that phenomenon well.

The noble Lord, Lord Faulkner, and I, together with the noble Lord, Lord Donoughue, who is in the Chamber, and the noble Baroness, Lady Golding, who will speak later, went to a great deal of effort of which

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we should be proud. However, the Government’s response was disastrous and a bad Bill appeared on the statute book. Many questions will have to be answered at a later stage. The Government completely failed to understand how regeneration could be achieved through casinos. They never even bothered to look at it. The whole idea of regeneration was knocked on the head—although very few people remarked on it—just before we had the famous vote in this House which was narrowly won by the Minister, whom I always admire for his tenacity in some of the briefs he is given and for the agreeable way in which he carries out his job. The Chancellor of the Exchequer, as he then was, suddenly put a 50 per cent tax on casinos, which really meant that regeneration was out of the window.

The question of dishonesty or cheating in sport was something that we discussed at length in the pre-legislative committee. We failed absolutely to come to satisfactory conclusions on that, although the noble Lord, Lord Faulkner, moved us a long way forward in his deliberations and the meetings that he set up.

I shall conclude my remarks on the subject of racing. The case of Fallon and the other jockeys is a disgraceful case that should never have been brought. I would not bet on it, but in my view he is bound not be convicted. It has been a long and disgraceful proceeding in which a lot of people have had to wait around with loss of earnings and the distresses that have resulted, going right back to jockeys being arrested in the middle of the night.

Fallon is one of the best jockeys of the past 50 years. Jockeys are a particular type of person. They are very vulnerable, although they are strong little men who have a talent for moving half a ton of horse flesh in tough races, day in and day out. They do not have much time to get involved with criminals, but criminals get in touch with them. I think that what happened with these jockeys is that criminals got in touch with them and they allowed themselves to get into contact with them, and then they found it very difficult to disengage. Criminal elements are extremely adhesive once you get involved with them.

When Fallon was riding in France, when I was over in Deauville in August, he had a look of joy about him, even with the sword of Damocles hanging over him. Presumably he was not getting calls all the time asking why that was, because during the period when he was supposed to be fixing races his percentage of winners went up from 19 per cent to 28 per cent—so there must have been some very disappointed criminals about. I foresee a result there that will surprise some people.

The sporting bodies are the ones that must deal with this. I hope that we will return with another debate on this, because there are many things to say. The Government will not be able to give any guidance, so let the sporting bodies do it along with the Gambling Commission and we might get somewhere.

2.52 pm

Baroness Coussins: My Lords, I shall draw attention to the role played by the organisation Business in Sport and Leisure, or BISL, in promoting the commitment

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of the gambling industry to corporate social responsibility. BISL represents more than 100 private sector companies, including those from all major sectors of the gambling industry. I should like to see the Gambling Commission encourage BISL to seek further improvements in the communication and co-operation between betting companies and sports bodies, in the interests of integrity and of consumer confidence.

The role played by BISL is similar to the Portman Group's in relation to the drinks industry. At the Portman Group, I helped to develop mechanisms for effective self-regulation and educational tools to tackle problem drinking. Some of those devices are now being used as models for similar initiatives in the gambling industry.

I should declare two other interests. I sit on the Advertising Standards Authority, which from September this year has responsibility for regulating gambling advertising on television for the first time. My personal interest in sport—although I am aware that some might regard this as a dark confession rather than a declaration of interest—is that I am a lifelong supporter and season ticket holder of Fulham Football Club.

Behind this debate is the genuine worry that the relatively new form of gambling, betting exchanges, may compromise the integrity of sport by inviting corrupt practices. This is self-evidently in the interests of neither the gambling industry nor the sports bodies, but innovation in any sector will often expose gaps in the regulatory framework. The invention of so-called alcopops in 1995 did exactly that in the drinks industry. Existing legislation and codes of practice on advertising and retailing did not address the new and particular problem of certain alcopops, which was that their naming and packaging were irresponsible by appealing to children. So a new code was devised to tackle this new dimension of marketing.

In the same way, betting exchanges have opened up new territory which must be patrolled and policed. The question is how and by whom? The answers depend first on assessing the extent of the problem. Warning bells were clearly sounded in the report produced by the noble Lord, Lord Faulkner of Worcester. More recently, the Gambling Prevalence Survey revealed that although the overall level of problem gambling has remained low at 0.6 per cent of the whole population, for the 1 per cent of the population who participate in betting exchanges that figure rises to 9.8 per cent. But evidence submitted to the Gambling Commission's consultation on integrity in sports betting suggests that the incidence of corrupt practice is very small. So there is certainly a need for educational initiatives on problem gambling—and this is one facet of how the relationship between sports and betting can give rise to a loss of integrity, by tainting the image of both with the association of harm and dependence. The industry's leading companies pay a voluntary levy to fund the Responsibility in Gambling Trust, but there is plenty of scope for more companies to contribute, which should be a priority for the betting exchanges in particular.

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