Wednesday, 7 April 2010

Vive la France?

So, French legislation has gone through. I must admit that a few months back, I thought there was every chance they wouldn't get it done by the World Cup; but they've defied my predictions on that one, and got a law in place.

Whether it's a law that is going to achieve anything useful remains to be seen, but I guess that depends on what their actual objective was.

I remember having lunch in Paris some time ago with a director of the PMU. After we had discussed Betfair and the marketplace for three hours and he had thanked me for my lengthy explanations but reiterated that they would make no difference to his position, I asked the following question: would he rather have a big black market sitting offshore, making no contribution in tax and providing no information about bets, but by its very nature not immediately visible to people (which would mean that the French government and the PMU could pretend it didn't exist); or would he prefer to have Betfair licensed in France, contributing tax and information, but by its nature able to make a big thing about the fact that it was there and therefore revolutionising life for punters by making the market competitive? He agreed without hesitation that he would always opt for the former, not just in France, but worldwide.

It would be difficult for a government to make the same admission publicly as my companion made privately over lunch, but I don't think the French government's position is any different. While making all the right noises about opening up the market, it has actually created an environment where there will be very little proper competition. Many will argue that in pretending to do one thing and actually doing another, they have played a blinder: all the talk is of liberalisation of the market, when in reality they have stifled competition to the extent possible by putting in place a tax rate which is so prohibitive that no-one other than the incumbents will be making money there for some time, if at all.

This would be all very well if the objective was genuinely to institutionalise protectionism, as many suspect it was. But it seems a lost opportunity if the goal was actually what I think the objectives of all governments should be (and the stated ones are): to make sure that consumers under their wing are properly protected from the potential problems caused by any given product; and then, having regulated effectively, to take a tax revenue from the activity, providing that in doing so they don't jeopardise the primary aim.

For our part, we'll look at the detail of the legislation now that it has passed, and make a decision what we do.

Our opponents in France seem to think that the legislation as passed precludes as from getting a licence in any case. Their opinion that Betfair is 'banned' is predicated on specific wording in the law which says that the odds must be provided from 'its own' (i.e. an operator's own) assessment of the probability of an event happening, rather than from 'an' assessment. The amendment of a single word (replacing 'un' with 'son'), courtesy of the PMU-supporting Jacques Myard, was designed to keep Betfair out - an approach which I described as 'clearly discriminatory' at the time.

But discriminatory as the aim might have been, the reality, in my view, is that anyone who thinks that the changing of a single word bans exchanges, or indeed allows bookmakers, fundamentally misunderstands what we do as a business, and more generally how odds are made in today's world - when the public at large understands it perfectly.

Consider the comment by a Mr. Terry May at the bottom of
a piece in The Times today (which follows this delightful final line of the article: 'Those who believe that Jack Straw could become interim leader could take 25-1 with Ladbrokes and 50-1 on Betfair'). It reads: "What's the point of getting quotes from bookies like William Hill or Ladbrokes? They don't employ odds compilers to price up political markets for a few weeks every four years - they just copy the prices on Betfair and knock a chunk off so they make a profit."

I'd go even further than that: you only need to take a short walk around bookmakers' trading rooms, or wander around the betting ring on-course, to see just how many odds compilers have Betfair screens up all the time. And why shouldn't they? It's the biggest market out there: an open book to public supply and demand.

But, just as them using the Betfair market as a guide should not suddenly mean that they are not making a price, neither should Betfair acting completely transparently about its own supply and demand, and balancing its risk perfectly, suddenly mean that the price up on the screen is not 'Betfair's price'. Of course it is. The line from The Times quoted above doesn't say, "you can get 25-1 with Ladbrokes but 50-1 from a fluid combination of Fred Bloggs, Joe Brown, and Ethel round the corner," does it?

By definition, what appears on Betfair's screen is the unmatched demand, transparently available for all to see so that every punter can know what is considered to be 'fair market price'. It's punters saying "I'd like 3 back for every 1 I put down if I am right in my view of the outcome". Betfair can match that bet itself, as it simultaneously matches one for someone who has said the exact opposite; or it can put the two bets together. Which it does is entirely academic.

If anyone wants us to demonstrate that it's our price, driven (like everyone else's) by supply and demand which we are seeing, then of course we can change our terms and conditions to make it clear that we stand as counterparty to every bet. Betdaq do that already, so it's not like it will make any difference optically.

Alternatively, of course, we could be less transparent about what supply and demand we are seeing; or we could increase the risk we are prepared to take, rather than matching the exposure on each bet perfectly. But it would be a strange government which would force that onto an operator in any industry, particularly in light of what has happened in the world in the last couple of years.

So, our view is that the legislation caters for us just as it caters for every other bookmaker, and we don't see how it somehow allows for bookmakers who take risk but bans those who manage their risk perfectly. The French government may be of a different view, but then, so was the government of Western Australia, and they didn't get much support in court.

Whether it is worth applying for a licence which requires us to pay such prohibitive rates of tax is another issue altogether. It will be impossible to make any money, and possible only to brand-build ahead of the day when the French realise that they are haemorrhaging money offshore. Weighing up the pluses and minuses of that is what we will consider in the coming weeks.


  1. Hi Mark - I admit I used to think that when I placed a bet on Betfair I was not betting against Betfair, but from reading this blog I have come to understand that I am placing a bet against Betfair.

    That bet will only be accepted if Betfair can accept the opposing bet from another client, i.e. Betfair manages its risk perfectly.

    For that reason I agree with your argument above.

    However, I was sat watching the Man United game tonight and at half time up popped a Betfiar advert. It was one of those Lounge ads (can't say I am a fan of them but that is beside the point). I have tried to find the ad on Youtube but can't.

    The closing line of the ad was along the lines of:

    "On Betfair you bet against other fans".

    Now I think it would be fair to assume from that line that I am betting against a fellow punter not Betfair as you have argued above.

    Surely it should be:

    "On Betfair you bet against Betfair"

    As you say it is Betfair's price I am taking not another punters.

    So surely the line in the advert is misleading, it can't be that I bet against another Fan but at the same time be only betting against Betfair? Surely it is one or the other?

    On a side note, I thought it quite inappropriate that one of the people in the advert, the Liverpool fan I think it was, seems to stick his two fingers up at another person in the Lounge when he doesn't like what is said towards the end as he lies back into the sofa.

    If I am right in what I am pretty sure I saw I am surprised that it is allowed by the ASA and is hardly the image that Betfair I would have thought wanted to put forward.


  2. I think there's a difference between the way you market a product and the way a product is regulated.

    Plenty of cars sell themselves on the basis that if you buy one, you get more sex.

    And there's no mistaking the implications of the Flake advert some years back.

    The mechanics of the bet are that we accept two bets simultaneously. The visual effect of that is that you bet with someone else. The effect is also that we don't care who wins, which puts us in a different position to the traditional adversarial one of bookmaker and customer.

    However, mechanically, the fact is that we are accepting bets providing we can offset the risk of that bet. If we can't offset it, we put the bet up on our site and advertise it as the part of our order book which we cannot fill because it does not fit our risk profile.

    So I don't agree that it is misleading. I think it is perfectly possible to be both at once: we push the layman's understanding of how we operate while also making sure we are regulated in a way commensurate with what actually happens.

    So, Red Bull doesn't actually give you wings; but it is regulated as an alcoholic product in line with other alcoholic products, to make sure that you, the consumer, are not being sold something which will damage your health.

  3. Last time I looked, you had to put vodka in Red Bull to make it alcoholic. ;-)

    On the exchange / bookie debate, I think it is blatantly misleading to advertise the fact that people are betting against each other, when technically speaking today they are only doing so if Betfair's bookmaking arm(s) can't find a way to skim a profit from customers bets first.

    Either you are an intermediary or a bookie. If the latter suits your purpose from a business perspective, then should people really be mislead into believing the former? { Which may have been true just over 2 years ago. }

    Take my old favourite cross matching. As of 2 weeks ago, you were still making statements about "cross-matching incorporates best execution" when the reality is that BGB is skimming a small % from the majority of cross matched bets. So whilst it may be better execution, it is not best.

  4. "I think it is blatantly misleading to advertise the fact that people are betting against each other, when technically speaking today they are only doing so if Betfair's bookmaking arm(s) can't find a way to skim a profit from customers bets first."

    Surely that's more blatantly misleading. Doesn't Betfair's bookmaking arm only match bets when customers place opposing bets, e.g. I back Liverpool to qualify tonight and you back Benfica? And they'll do it even if they don't make a profit other than commission.

    "Either you are an intermediary or a bookie."

    Cobblers. A bookie is an intermediary. Just because the method of managing risk hasn't changed since the seventies doesn't mean they don't do it.

    Frankly I think the fan vs. fan stuff is rubbish. I don't bet on Betfair because I can bet directly against someone rather than indirectly. I bet there because the net position I achieve means I can win money long-term. It's just nitpicking to focus on how Betfair matches me up with losing punters.

  5. I say bookie & intermediary, as they are classified as 2 different things under the 2005 Gambling act.

  6. My point exactly The Geek. The Gambling Act came into force on September 1st 2007 IIRC. What changed about Betfair overnight? Nothing at all of course. That's pretty much a dictionary definition of "arbitrary distinction".

    If I want £20 on Man Utd to qualify for the Champions League semis and I ask for 1.60, when someone else wants to back Bayern at 2.34 then the precise mechanics might have changed, but it doesn't change that Betfair's matching up customers with opposing views. With no cross matching Johnny Spod's high-frequency arbomatic matchatron robot would match the pair of us at 1.6 and 2.34 and pocket £1.68. Since cross matching I'd now get 1.74 instead of 1.60 and Betfair skim 7p.

    If it was "fan vs. fan" before then it's "fan vs. fan" now. If you're getting your pants in a state about it then that's a bit warped IMO, unless you're one of the geeks previously milking the £1.68s out of the other punters of course.

    Either way Betfair matches up customers with opposing views. How they do it, with which legal entity and how much they make from it doesn't change that fact.

    I bought a mobile from the Carphone Warehouse recently. It isn't a carphone. I suppose I could post something on Charles Dunstone's blog moaning about that, but I fear I'd look a pillock.

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