Thursday, 13 May 2010

Olswang: Once more unto the breach?

I haven't yet commented on the article written by David Zeffman in the Racing Post on Tuesday, which was followed up on Thursday.

The more eagle-eyed among you will have noticed that I did, briefly, put up a post entitled 'Olswang' that said, "I won't get into the ins and outs of the piece by David Zeffman in today's Racing Post. I do find it curious, though, that an article flagged as a 'news special' on 'betting exchanges and the law', and headlined 'Frank Exchanges', should be written by someone whose firm is currently acting for the BHA in matters relating to the levy and betting exchanges - but the fact should, inexplicably, not be mentioned." But in the end I took it down.

I did so for a number of reasons.

First, I thought that the Racing Post, which was apparently not aware of David Zeffman's link to the BHA, would do the decent thing and make it clear themselves that what purported to be a full-page article was in fact, through no fault of their own, not much more than a free advert; and I didn't think there should be any suggestion that I was pre-empting that.

Second, I rather took the view that this is a technical legal argument which has, frankly, been done to death. David Zeffman can have his view; he's expressed it before, as I have mine. But the thing is that every time to date that there has been an independent assessment of it, no-one that matters has agreed with him. I'm all for having the debate again, but I thought it was easier to have it in full with the people who will have to decide. As David Zeffman proved, you can't make a watertight case on one page of the Racing Post. Writing statements like, "it seems very likely that some users are conducting themselves as a business" might be enough to persuade people who really want to believe something, but it clearly isn't based on any evidence. It might once have seemed very likely - indeed, for a very long time and to an awful lot of people - that the earth was at the centre of the universe, but saying so repeatedly didn't actually change the facts.

But those caveats notwithstanding, I'm afraid that today I can't resist. The follow-up piece in this morning's paper is surprising, at best.

Consider the facts: a lawyer who is retained by a given organisation which has long been in dispute with a given company on a matter which over the years has repeatedly been considered by various government departments, writes a full-page newspaper article, without declaring his interest or connection, relating to the dispute in question. That this has happened is pointed out by the given company to the newspaper in which the article was published.

Two days later, the paper uses the original article to headline a renewed call by the client of the lawyer to re-open the much-considered issue, on the back of the fact that there has been an article by a lawyer which suggests it could be done. The connection between the lawyer and his client is only included in a quote from the company which is the target of both the original article and the follow-up, in paragraph 9 of an 11-paragraph piece. Paragraph 3 of the article, meanwhile, repeats the unfounded comment deemed by the lawyer to be 'very likely' mentioned above; while paragraph 5 quotes the client using the unsubstantiated view of his lawyer to state that, "we are not just going to sit here and watch professionals operating on the exchanges, in business, negotiating and taking bets when they are not licensed and not paying tax and levy."

You will no doubt have your own view on whether that constitutes journalistic balance. I guess that only if the HBLB were suddenly to open up a consultation exercise on the issue on the back of the article, might the view that it was wittingly or unwittingly kicking off a campaign be reinforced.

But aside from that, let us consider the argument.

Mr. Zeffman claims that "the accuracy of my analysis is not affected by whether or not I'm instructed by a client."

Let us accept that this is true. I have commented above why you should not just believe something that is generally-accepted just because it is generally-accepted, so I will assume that there is not actually any truth in the the generally-accepted notion that lawyers do what you pay them to do.

I therefore accept without question that the accuracy of Mr. Zeffman's analysis can absolutely be unaffected. But on that basis, it can also be not very accurate, whoever is paying his bills.

Let's consider it.

The law is absolutely clear that two things have to be established for someone to become liable for levy as a bookmaker: that they are negotiating or receiving bets, and that they are doing so in the course business. Mr. Zeffman says that the 'key question' is the latter, and it is true that this is the point on which most debate has raged over the years. But let us not forget that it is a two-stage definition, and Mr. Zeffman predicates his entire argument by dismissing the first part with the boldly-stated and entirely unsubstantiated opinion that, "There is no doubt that an exchange's customers are receiving or negotiating bets".

Mr. Zeffman will not be unaware of the response to this opinion of his, since the BHA had were sent it, in full and in writing, eighteen months ago. Let me quote directly the answer they received responding to the question, "Is any party ‘receiving or negotiating bets’ on an exchange?":

"The fact that a betting exchange customer has the flexibility to request a price different to that available, provides no determinative answer because so does a betting shop customer and a racecourse punter asking a bookmaker for ‘the fractions’. All gamblers, whether betting on an exchange or with a traditional bookmaker have the ability to ‘negotiate’ the odds available. It seems to us that no gambler ‘negotiates’ a bet; the arranging of the rules which govern the placing of the bet (and indeed all consequences following therefrom) is conducted by the betting operator (whether Ladbrokes or Betfair).

There is nothing ‘received’ by any customer on a betting exchange – or at least nothing is ‘received’ by a betting exchange customer that would not similarly be ‘received’ by a betting shop punter (a betting receipt, winnings in some cases etc). If the word ‘bets’ in the context of the 1963 Act means ‘stakes’, then of course the stakes are received (and held pending the outcome of the event) exclusively by the exchange operator. If however ‘bets’ equates not to ‘stakes’ but to the standing of loss, then even the exchange operator does not appear be covered by the definition within the 1963 Act.

In short, we do not believe that any exchange customer is ever ‘receiving or negotiating bets’. However, if this interpretation is wrong and the unique nature of exchange betting means that customers are ‘receiving or negotiating bets’ then it is strongly arguable that Betfair (as a pure intermediary) does neither. In this case, what is the justification for Betfair continuing to account for Levy and on what basis has HBLB been accepting Betfair’s Levy payments over the past 8 years?

The argument that both Betfair and its customers are ‘receiving or negotiating bets’ is symptomatic of a ‘cake and eat it’ attitude from the BHA."

Now, whether you agree with this analysis or not, one thing is undeniable: when David Zeffman says that "there is no doubt that an exchange's customers are receiving or negotiating bets," he is clearly, 100%, wrong. There is a doubt. And it would need him, or his client, to persuade a judge that his version of the argument is right, and Betfair's is wrong. This is what the BHA has been trying, unsuccessfully, to do for the last eight years, just as it has, equally unsuccessfully, the whole argument about 'can you be in business purely on an exchange?' - another whole debate which we've repeated continually and can of course repeat again, in my view with the same result. The BHA clearly believes that in doing so, it is not wasting its time over matters it cannot and will not win, when so many other things under its control are being ignored.

"Behind all the myths, the legal reality is relatively straightforward," Mr. Zeffman wrote on Tuesday - a quote repeated in today's article as if it supports the BHA's argument. Anyone would think that in making their deliberations in the past and coming down on Betfair's side, the last government decided to ignore the law, rather than base their analysis on it.

In the Racing Post today, BHA Chairman Paul Roy suggests 'a new approach to a new government', just as racing has made a new approach every time there has been a new Minister, or a new Shadow minister, or a new set of officials at DCMS. Every time, the BHA gets knocked back, because what they need is not new people, but a new argument that actually falls in line with legislation; or, failing that, a new law.

Personally, I don't mind which it decides to work on creating. But continually pretending that their existing position, expressed unsuccessfully for so many years, suddenly becomes true when you tell it to someone who hasn't heard it before, is just insulting to that person's intelligence. Any in-coming administration will have to look at the issues in far greater detail than could be afforded to Mr. Zeffman even in a double-page spread of the Racing Post, and it seems unlikely to me that careful and objective analysis of the position as it stands will come to a different conclusion from any reached to date.

So if I were Paul Roy, I would be deciding what it is I actually want - levy from betting operators, punters, traders, backers, layers, successful backers, successful layers, or professional punters - and then trying to get a law which secures that. Any administration that thinks that reworking a 2005 law deemed to be at least to some extent future-proof makes sense three years after it was actually implemented, can then write a new one.

If that one, as is true now, is consistent in its treatment of the individual interest groups (betting operators, punters, traders, backers, layers, successful backers, successful layers, or professional punters) whoever their customers are (if they're operators) or wherever they choose to place their bets (if they are customers), then Betfair will be quite happy. But you can bet the exact same argument will rage, because this was precisely the debate, held between 2003 and 2005, that led to the perfectly sensible law we've currently got.


  1. Mark

    First, I would like to wish you the very best of luck in your new venture. I'm also delighted that your blog has now returned to its full, unadulterated glory.

    Turning to your post about my piece in the Racing Post it's true that I have been instructed by the BHA for the last few months. However, it's also true that the views I set out in my article (as well as the views I set out below) are my own and would be mine regardless of who was instructing me. I'm glad that you appear prepared to accept that that is true; I'm certainly not going to question the independence or integrity of your comments now that you are an external consultant to Betfair.

    So, with those preliminaries out of the way, I'm surprised that you take issue with whether Betfair customers can be said to be "receiving or negotiating bets". You refer in your post to the 2005 Gambling Act although, as you will be aware, the question of who is a "bookmaker" for Levy purposes, remains a matter for the 1963 Betting, Gaming and Lotteries Act. There is no specific guidance in the legislation or relevant case law as to the meaning of "receiving or negotiating bets". As such, the words would bear their ordinary meaning and, as you correctly point out, it would be for a judge (and not the Gambling Commission, DCMS, HMRC, the Treasury or any other Government agency) to decide whether or not an exchange's "business" customers are receiving or negotiating bets.

    In terms of "negotiating" bets, you suggest that this involves "arranging ... the rules which govern the placing of the bet". I see no reason to give this term such a strained interpretation. A negotiation can be on price alone, the essence of what happens on an exchange.

    In terms of "receiving" bets, you say that there is nothing "received" by an exchange customer that is not similarly "received" by a betting shop punter. That may or may not be true. However, there is no real issue as to whether betting shop punters are "receiving" bets since they are not doing so (at least to any extent that is material) in the course of business so they cannot be liable for levy. By contrast, some exchange customers appear very much to be operating in the course of business.

    [Sorry, seem to have run out of space so will continue on next post]

  2. [Continued...]

    Moreover, I think that it is relevant that s.29(2) of the 1963 Act limits levy payable to "business which includes effecting betting transactions on horse races". It would appear that the legislator considered "effecting betting transactions" to be synonymous with "receiving or negotiating bets" which confirms my view that these terms are to be broadly construed and undoubtedly include the activities of exchange customers (and come to that exchanges).

    You also suggest that if exchange customers are receiving and/or negotiating bets, it is "strongly arguable" that the exchange may not be a bookmaker under the 1963 Act. Firstly, this is not an either / or situation. It is quite possible (indeed, I believe it is the case) that both the customers and the exchange itself are negotiating bets on an exchange. Secondly, I do not think that it is "strongly arguable" that exchanges are not bookmakers . Plainly what you state is not (or, at least, was not) the view of Betfair as under the old licensing regime it secured for itself a bookmaker's permit. That would have been unnecessary if it was not receiving or negotiating bets.

    Finally, you state that "every time to date that there has been an independent assessment of [these arguments], no-one that matters has agreed with" me and "Anyone would think that in making their deliberations in the past and coming down on Betfair's side, the last government decided to ignore the law, rather than base their analysis on it". I do not know what you mean by this. As I have said above, the 2005 Act was not intended to and does not address at all the Levy or the definition of a bookmaker. I know that in 2005 HMRC and the Treasury looked at the question of applying betting duty to exchange customers. There were very particular reasons why they decided that it was not in their interests to do so. As far as I am aware, they did not decide policy (and it would not be for them to decide anyway) that exchange customers could not be bookmakers under the 1963 Act.

    I know that Betfair has continually tried to purport that this issue has been thrashed out and decided and that it is a dead issue. But that is simply not true. The fact remains that there is a large contingent of exchange customers who in all likelihood are liable to pay Levy and are currently not paying it. Particularly with the financial difficulties being brought about to Racing from the current levy shortfall, I do not think that this is an issue which is going to go away, no matter how much Betfair may wish it to do so

  3. Hi David

    Thank you for your comments. I'm glad to see I got my readership back so quickly..!

    I will briefly take issue with some of the points you make as follows:

    You said “I'm surprised that you take issue with whether Betfair customers can be said to be "receiving or negotiating bets"”. What I took issue was your statement in the Racing Post article that “There is no doubt that an exchange's customers are receiving or negotiating bets.” I believed there was a doubt and remain of that view.

    After nearly 2 years of listening to all sides and considering the evidence, HM Treasury, whose review you believe can be distinguished from the current debate, concluded that: “Whilst there are clearly differing levels of activity on exchanges and some users do not bet in high volume, there is not sufficient evidence to characterise these users as running a business, as opposed to merely being high-volume gamblers who have traditionally been outside the tax net.” I have taken this quote from the Levy Board’s own consultation document and HMT’s conclusion could hardly be clearer or more relevant.

    Finally, you are right that Betfair did hold a bookmaker’s permit under the pre-Gambling Act regime. It seemed sensible to have the local Magistrates Court confirm that Betfair and those running the exchange were “fit and proper” to do so, given that Betfair was and still is responsible for holding client funds, preventing minors using the platform etc.

  4. Mr. Zeffman,

    Allow me to declare my interests (this is how you do it BTW). I bet on horseracing on Betfair and generally win more than I lose, so I imagine I am, mistakenly in my view and the view of everyone independent who has properly looked at the issue, considered by Mr. Roy to be a "bookmaker". I'm also an owner, and absolutely furious that the BHA is wasting money that could otherwise be spent promoting racing, on welfare or prize money on your legal fees instead.

    Can I take issue with some of your points?

    Firstly your admission that the BHA has been paying you for your advice on this subject for several months, but you neglected to declare this conflict of interest in your Racing Post article. Mark may well be happy to accept that you independently and miraculously just happen to hold exactly the same view as the client paying you, but I'm a slightly more cynical person. Every single person who was ever caught failing to declare a conflict of interest could argue the same point ("I didn't need to declare it, because it would have been my position independently"). I'm not aware of the regulation governing the behaviour of those in the legal profession, but in the industry in which I principally work, that excuse would be insufficient to avoid censure. The whole point of declaring a conflict of interest is that someone reading your views wouldn't necessarily discount them, but would consider them in their honest context. Saying that you wouldn't doubt Mark's independence if he made a pro-Betfair point and failed to declare his interest (something I'm not aware he's ever done) does not excuse your own behaviour.

    As for your points on "receiving or negotiating bets", you see no reason for a strained definition of "negotiating", and that the interpretation could be as loose as merely any participation in the agreement of a price. If that was the correct way to interpret the 1963 Act then every party to any bet, punter or bookie, would be covered by it. If that's what those drafting the 1963 Act intended, then why use the phrase "receiving or negotiating bets" at all, rather than just "betting".

    Would you agree that your article was inaccurate to claim that there was no doubt people betting on Betfair meet that definition in the 1963 Act? Wouldn't it have been more accurate to say that a court would need to interpret the intention of the 1963 act with respect to the meaning of 'receiving or negotiating bets', and until such time as a ruling is made it remains unclear whether that definition would capture the activity you're considering? I would laugh but I just remembered you're getting paid for this.

    Finally you've made the point that the definition of what constitutes a bookmaker for the purposes of the Levy wasn't addressed in the 2005 Gambling Act, and that it's the 1963 Act that's applicable. While that's technically true, it's disingenuous to pretend that the process of drafting the 2005 Act has no relevance. If you study the minutes of the Joint Select Committee you'll see that they received submissions from Racing and from Betfair's main commercial competitors pleading with them to ensure that customers who bet for a living on Betfair should be licensed and taxed (but not their own pro customers, naturally). Exactly the same arguments that are being made now were made then.

    Someone's either a bookmaker or they're not. Are you seriously suggesting that with all the evidence in front of them, someone independent would determine that a Betfair customer isn't a bookmaker for the purposes of licensing (as they have already), isn't a bookmaker for the purposes of Gross Profits Tax (as they have already), but is a bookmaker for the purposes of the Levy? That's laughable. TBC...