Racing dinners

I had dinner last night with some big names in racing, chatting about some of the issues facing the sport. Refreshingly, it took more than an hour before we moved off a wide-ranging and interesting discussion and got onto the old chestnut of Betfair not paying enough levy, but when eventually we did, the same old canards appeared: apparently we're still harbouring people who should otherwise be paying a levy, but whether these people are professional punters, quasi bookmakers or something in between is still a point which those arguing the point seemed unable to tell me.

I thought it might be worth laying out the points on which there is a dispute.

There is no dispute that there are professional punters on Betfair, and that some of them make money. There is no dispute that in some cases, that might be significant money. But no professional punters pay tax and levy; and should that change, it needs to change across the board, not just for one operator. I've mentioned Paddy Veitch before.

There is also no dispute that some bookmakers use Betfair as an additional window onto the world, managing the overall position of their business. If those people are not accounting for what they make (or indeed lose) on Betfair in their overall levy calculation, then they are breaking the law. That, however, is an issue of law enforcement. Betfair is no more liable for that than Foxtons wold be for my income tax, if I failed to declare rent received on a buy-to-let for which they had found a tenant.

Where there is a dispute is in whether you can run a business solely on Betfair, doing just what you would do as a bookie but just not pay any of the costs. For many years, it has been the position of the BHA and our big bookmaking competitors that this is happening; and it has been our consistent position that it isn't, because it isn't possible. If you could do it, why wouldn't everyone.

Around the time we launched in June 2000, the darling of the internet sports sector was Sports.com. It declared that it was going to run a bookmaking business at zero percent books, and it raised a great deal of money in the dot.com boom. It went bust in a few months.

It is hardly surprising that it did. You can't make money on zero margin, by definition; and Sports.com never gained the traction to allow it to make money through advertising, which was its business model.

Almost all books on Betfair are pure, 100% books. So to make a book on Betfair, and have your prices taken (which you can only ensure by having best price), you have to take the book overbroke. You have to run not just on zero margin, but on a negative one. And you certainly can't subsidise your incoming with advertising, for the same reason that you are forced to be best price: you have to be completely anonymous, and you have no means of interacting with anyone.

It has been commented to me recently that it's boring that I keep quoting the 2005 Treasury review which looked at whether our customers were actually bookmakers and whether our tax basis should change (and concluded that they weren't and we shouldn't) because 2005 is anicent history, and the world has moved on.

But there's been a far more recent case which is just as relevant. The Constitutional Court of Australia was asked to judge whether there is actually any difference between Betfair's model and any other fixed odds bookmaker's model, other than in our risk-management. As readers of this blog will know, the judges of that court decided 7-nil in our favour. That was in 2008.

The first hour of yesterday's dinner showed not just how many problems racing has on its doorstep, but how many solutions there are to try out. My stock response to the question "if you're so bright, how would you solve racing's problems then" is always "I have no idea because I'm not the expert, but one thing I know for sure is that we can't start until we focus on the things that matter", and last night reinforced that view. Until someone who argues that Betfair are harbouring non-levy payers can come out with an argument why a fixed-odds bookmaker which takes risk and a fixed-odds bookmaker which manages its risk perfectly should be treated differently from each other (or have their customers treated differently from the other's customers), sticking on this debate (as we have for a decade) will do no more than distract sensible minds from dealing with many other problems that need to be addressed. N0-one has succeeded in finding that argument yet. Perhaps that's because, like these secret bookmakers who are evading levy, it doesn't exist.

Market managers?

Word reaches my ears that the latest great idea doing the rounds from those insistent on treating Betfair differently from other bookmakers is to argue that Betfair is actually a 'market manager', and should be distinguished from other fixed odds bookmakers as a result.

The basis of this argument is presumably that Betfair does not take any risk on its singles bets.

Over the years, people have got very hung up on what the level of risk you take does to your status. This is curious for a number of reasons, not least of which is that if risk-taking were a pre-requisite, then we could change our matching algorithm to offset 99.9% of the risk and change status. Or 99.99%, perhaps. What's the threshold of risk that works for you? Am I a 'bigger bookie' if take more risk than someone else? And would it be sensible for any government to base any system of regulation (in any field) on requiring operators to run riskier businesses in order to secure more favourable treatment?

Risk-taking is not a pre-requisite of bookmaking, and neither is it the domain of bookmakers. Punters take risk, by definition; and it's the bookmaker who is in a position to reduce his risk by balancing supply and demand (that is, his book). We happen to balance ours perfectly (on our singles bets, at least; on our multiples, we take risk). We do that by only accepting a bet if we can offset it, matching supply and demand around the world. We do it perfectly, and quickly, because we built technology to help us. That doesn't mean we're doing anything different from a bookie who calculates his risk in his head, any more than a supermarket is doing something different from a small shopkeeper by having an electronic check-out instead of using a pencil and paper.

I accept that this has been questioned again and again: some have commercial interests in making sure it is; others presumably can't understand the mechanics of our business and therefore mistakenly think that regulation should be predicated on the way the business is marketed. But the argument that we can be distinguished from any other fixed odds bookmaker just by virtue of our risk appetite and our means of risk management has actually gone to court in the past to be properly debated an analysed - in the Constitutional Court of Australia.

The result was that seven judges agreed that we are, if you look at the mechanics of our business, just like any other bookmaker; and none came to the opposite conclusion.

A 7-nil whitewash is fairly comprehensive...