Boys (still) on the Hood

I'll get onto a new topic next week, other than David Hood. but I couldn't help myself but post this article from the Irish Examiner. It comforted me to think I'm not the only person in the world who saw the letter in the Racing Post in those terms.

I've had something of an Irish week this week, which partly explains the paucity of posts. I was in Dublin yesterday; and now I've just returned from a lunch in aid of the Ireland Fund of Great Britain, where the speaker was Willie John McBride. He was absolutely brilliant.

More on letters

I commented the other day that William Hill's David Hood had done more than any other person, in my view, to promote Betfair.

But today's letters page of today's Racing Post points out that he hasn't been alone among the traditional bookmakers in being able to claim some credit for Betfair's success.

Andrew Henderson from Nottingham writes as follows:

"From my experience with all major layers, no matter what you ask for at early odds on any event, your request is without exception referred to a trader before invariably comes, "Sir, I can only offer £25 at those odds but you can have the rest at SP."

I would say Mr. Benson was very lucky to get £200, particularly each-way.

These incidents happen daily, hence the migration to Betfair."

It is certainly true that the reason Betfair was set up is that the gap between what punters wanted and what they were being given grew ever larger; and we simply filled it. Indeed, our founder, Andrew Black, came up with the idea precisely because he was a frustrated punter. It's one of the great ironies of the debate with the bookies that they helped make us what we are.

Incidentally, we remain acutely aware of that fact today, and of what the effect would be, were we to open a similar gap ourselves. That is why - despite what some think (and therefore the perception that we sometimes manage, unfortunately, to create) - we are by no means complacent as a business (to an earlier debate on this blog).

Quote quiz

Given the comments made today at the BHA's AGM about the impact of betting exchanges on bookmakers' margins (a comment which makes no sense for a host of reasons), I thought it worth digging out a couple of past quotes.

For five points each, who said each, when, and in relation to what? Here's a hint: Betfair launched in June 2000. (Answers below)

1. "It [Falling margin] is a serious situation and is impacting heavily on profitability.The problem is that bookmakers are getting less margin out of the fancied horses. If a favourite should be 15-8, it is starting at 9-4. In the short term, punters are getting good value, but it is not sustainable and we will have to consider how to deal with the problem."

2. "If you take the view that it is all fine and dandy, it misses the point that 10 per cent of turnover, on-course, is affecting margins on the other 90 per cent, off-course. If it continues, shops will close and bookmakers' ability to pay the Levy will be affected. It cannot be ignored."

3. "Whether it is a case of a new type of bookmaker or too many bookmakers chasing too little money, it is difficult to see how they are making a profit and we are certainly suffering the consequences. [...] From the punters' point of view, it is wonderful news, but it impacts on the industry's profitability and on its ability to meet levy demands."

Answer? All are taken from an article in the Racing Post on 12th September 1999, before Betfair was even incorporated. They relate to the debate over pitch auctions, and in turn they come from:

1. Tom Kelly, at the time Secretary-general of BOLA.

2. Chris Bell, at the time Managing Director of Ladbrokes Racing

3. John Brown, at the time Chief Executive of William Hill.

BHA AGM

I was at the BHA's AGM today - an event which contained a surprise or two (such as the presence of Jeremy Kyle) and, as ever, differing opinions at lunch afterwards. One person I would consider entirely independent commented to me that he felt BHA CEO Nic Coward had spoken extremely well; another of the same description that he had seemed nervous and not on top of his brief. The racing industry isn't well-known for having consistent views, and today was no exception.

From the substance of the speeches, though, only one paragraph from either of Paul Roy's or Nic Coward's was directly relevant from my point of view.

Paul Roy's reference to Betfair was as follows:

"Betting and Racing also need to work together to understand how the development of exchanges will affect us over the years to come. The impact of exchanges on liquidity, bookmaking margins and the maintenance of integrity services with its escalating costs is significant. This is an enormous challenge facing both traditional bookmakers and Racing and we must respond to it."

To say this is curious would somewhat understate it.

I'm not sure what is meant by our impact on liquidity. In Australia, TabCorp business has increased, and money into the Tote in Tasmania is up 20%, since we were licensed there. The idea that we have adversely impacted liquidity in the betting market is a new one on me.

The escalating costs of integrity services in contrast, is an argument which I think most people have left behind long ago. If the BHA is really setting itself up to argue that Betfair's levy payment should be proportionately higher than everyone else's because of integrity issues, I think it is on to a loser. By all means, we can withdraw the free access to our Bet Monitor on which the BHA's integrity unit basis much of its intelligence, or we could scale down the investment we have made internally in our own integrity team (which acts as a dedicated resource for organisations like the BHA with which we share information) if providing the support of either on a real time basis is seen to create a burden for the sport. But surely no sensible man is going to return to the whole 'you can bet on a horse to lose' red-herring and retain any credibility in the modern world.

But of the three things which Paul Roy points to, the 'impact on bookmakers margins' has got to be the strangest of the lot. There's far too much that could be said about margins to cover it here, so I will blog about it some other time; but even a short analysis of this statement is enough to demonstrate how odd it is.

First of all, as discussed many times before, margin is not the relevant metric, and as a man who has made all his money in the markets, it is inconceivable that Paul Roy doesn't understand that (although if he doesn't, I blogged about it in Noddy terms the other day). The industry gets paid on gross profit. Plenty of academic studies of horseracing will explain how when margin is cut, turnover goes up (and vice-versa); and gross profit is the product of the two.

Second, bookmaker margins have not consistently been going down, as racing seems to suggest. Yes, there was a period of prolonged bleating (which happened to mirror exactly the bleating about pitch auctions which pre-dated Betfair's existence), but if you look at what the bookmakers tell the City rather than what they tell the racing industry, you will know that there have been periods when they have stressed that margin is going up.

But both those points aside, it is worth recalling what the Treasury had to say about this issue when they did their review of betting exchanges. Although Racing will tell you today that 'that was a long time ago' (it finished in December 2005), the quote in question is timeless: "It is not the fault of the tax system that off course prices are set in such an arcane way, nor the responsibility of the tax system to correct for this."

Nic Coward's 'big paragraph' from my point of view was this one:

"Once the right number is established, then will be the time to get into the issue of what parts of the betting world will be contributing what proportion – the very different businesses of small independent, majors, exchanges, online and other remote operators. They will have differences of opinion between them, undoubtedly. Heated differences. But whatever those difficult issues are, and however they are resolved, does not, and will not, and cannot, alter the amount that is due to racing."

There are lots of things you could say about it, despite the fact that it's only one paragraph; but I shall limit myself to three comments.

The first is, perhaps, peripheral. But I can't read it without finding that what springs to mind is the observation made to me by one of racing's CEO's at Cheltenham last year: I remember him telling me that "Nic's rhetoric is Churchillian. We sit in meetings with him and you can see people hanging on his every word. But the trouble is, when you see it written down afterwards, you realise you can't actually work out what it means."

The second is more fundamental: it's curious to me that they don't yet know what the number should be. If they've spent the last three years saying that the levy is all wrong and racing needs to get a proper return, how is it possible that they are only just working out what number they think a proper return is?

And the third, most fundamental of all, is this: it's pretty clear, as was commented to me afterwards by someone who is part of the Horseman's Group, that the paragraph is a "shot across Betfair's bows", in that it flags the idea that not all operators should pay on the same basis as other operators. But surely, if the object of the exercise is to make sure that people pay commensurate to the amount that they benefit from racing, then what screams out as the solution is that everyone should be paying a percentage of their profits. Someone who only makes £100 pays £10; and someone who makes £100million pays £10million. What could be more consistent and proportionate than that?

Of course, if 10% of the overall profit figure doesn't get racing to the "right number" that we're about to have established, then what needs to change is the rate of the levy. As we've been saying since about 2004: if 10% across the industry isn't the right number, then change it; but you have to do that across the board, consistent across operators. And you also have to accept, as you make the product more and more expensive for the operators, that you risk accelerating the loss of market share to other sports.

Ultimately, that is a risk that Racing is going to have to take, if it wants to go down the route of hitting a pre-determined number; because the quest for that number can only be achieved by deciding what it is, and then working out what percentage of operators' profits is required to hit it.

Of course, the BHA will argue that the percentage will be determined by how many people are in the net, and therefore by what makes you a bookmaker; and we'll be back to the same old unsubstantiated arguments about bookmakers avoiding levy or punters who make money on Betfair being relevant (but not those who make money anywhere else). Flagging this appears to have been the purpose of this paragraph in the speech.

So, at an AGM to take us into a new decade, where Racing for Change was the principle topic, the Chairman wanted to underline the concerns that exchanges raise for integrity and margins; and the Chief Executive wanted to signal his plans to levy Betfair differently.

Who says Racing's not stuck in a groove?

Hug a Hoodie

What a comedy response from David Hood, William Hill's PR director, to a letter in yesterday's Racing Post.

I can't link to it, unfortunately. Luckily, my lovely PA, Andrea, was prepared to type it out for me. It's reproduced below.

Why is it comedy? Because David seems incapable of answering any question without having a pop at Betfair and its business model. "What's the weather like today, David?" "Betfair doesn't pay the right levy." It's akin to having a mild form of Tourettes. The knee-jerk response from Hills, whenever someone points out something about their business that hasn't worked, is to have a pop at us instead.

You might imagine we'd be weary of it our end, and it's true that we'd like to put the arguments behind us. But in another respect, I read this kind of stuff with a certain amount of glee.

I still credit David with having done more to promote Betfair's business than any other person. That's because, way back in 2002, when no-one knew anything about us, Channel 4 did a short piece about us which they put into their programme from Sandown one Friday afternoon. Admittedly, it was a bit of a puff in the end: a seven-minute explanation of how we operate.

David was at Sandown that day, and it's fair to say he didn't like it one little bit. He obviously felt it was a bit of an advert, and to be fair to him he wasn't far off.

Demanding an immediate right of reply, he stood in front of the camera and went reasonably potty. How could Channel 4 give publicity like that to such a terrible company, he asked? After all, we paid neither tax nor levy (he said).

Of course, we did both. Notwithstanding arguments about how or how much, the fact was that we were paying, at the rates demanded (as is true today). So it was a fairly short conversation I had with the producer of the programme as soon as they went off air: he'd heard it; I'd heard it; all the audience had heard it; and it was inaccurate. What could Channel 4 do to put it right?

I suggested two options: either an on-air apology and correction, which would frankly have been embarrassing for everyone; or, have David, or someone else from William Hill, repeat the allegations at a time when we could give a response.

Fifteen minutes later, the producer called me back and asked we could get someone to Lingfield Park the following morning, to be a guest on the Morning Line. The debate there, with me representing Betfair against William Hill's chairman John Brown, kicked off the 3-year fight which resulted in the Gambling Act 2005. Not only did it end up putting in place legislation which stood by our view of the world and rejected the bogus arguments being advanced by others; more importantly, the publicity it generated did more, in my view, to further Betfair's business than any single other thing that happened in our first five years - a period which included us becoming the shirt sponsor of a Premiership side...

I certainly can't complain about that!

The letter, from an Edward Benson of London, reads as follows:

It is indeed a sad day when, after 35 years of enjoying the ‘Sport of Kings’, as an owner, punter and enormous enthusiast with a long family history of involvement in racing (my late father was Charles Benson, a renowned journalist and gambler), I walk into a William Hill shop in the City of London and ask for an ante-post best of £1,000 each way-way on Peddlers Cross at 14-1 in the Neptune Investment Management Novices’ Hurdle on the Wednesday of the Cheltenham Festival.

I have never been more astonished than to be told that I was only allowed £200 each-way despite the fact that the race is over a month away and at the biggest turnover meeting of the year. But despite an approximate £600 million of bets taken, they then had the audacity to cut the said horse to 12-1 for the sake of £200.

How William Hill can look themselves in the eye and say that “it was a trading decision” is beyond me and exemplifies why the bookmaking fraternity is milking the system for their own benefit.

And David Hood's response? Here you go:

It’s a fair cop guv. Sometimes, we have to hold our hands up and say yes, sorry, we got this one wrong.

“Having discussed the process behind the trading decision, I must apologise because the trading decision, in this instance, was probably a little too harsh. If Mr Benson returns to the shop where he placed his bet, with the original slip, we’ll be happy to lay him another £300 each way at 14-1.

“However, for the defence and notwithstanding Mr Benson’s lineage or how much is taken by the entire betting industry at Cheltenham, he’ll understand how trading decisions are about managing liabilities directly relevant to an individual event. Only that event and at that moment in time, not based on the entire turnover of the meeting.

“The ante-post market for the Neptune is the weakest at the festival. A decade ago no market would have been available on this race until the five-day stage. Peddlers Cross had already been well backed prior to Mr Benson’s request and in this instance he was a stranger walking in to a shop wanting to take out another £17,500 from a horse that was already a decent loser. To take that bet in its entirety each and every time, is not good business management and I make no apology for that.

“As for the quip about ‘milking the system’, surely this is back to front? Licensed bookmakers are the rapidly diminishing breed that still pays anything worth a damn to racing.

“Regulated, licensed and levy-paying, add in picture rights and race sponsorship (including each day of the festival) and bookmakers will collectively pay in the region of £140m to racing this year.

“Now, compare that directly to the revenue derived from the facilitators or unlicensed, non-levy paying layers and ask yourself, who is really milking the system? Some racecourses embrace them and then are bewildered that the levy continues to fall. Will there even be enough income to racing for a Cheltenham Festival in a decade.

“Incidentally, at the time of writing (and proofed to the Racing Post) these same non-levy paying layers are offering a whole £2 at 5.4 about the favourite Rite of Passage, while a commission free 9-2 is freely available with fixed-odds firms and a mind-blowing £2 at 13-1 about Peddlers Cross and absolutely no market place – I’d say £2,800/£200 each-way looks a fair bet now!”

Keep your trousers on...

I've just spent two days at a Board Strategy offsite, during which we did a deep dive into Betfair's three-year plan. As that would suggest, we did a great deal of looking into the future.

The contrast, then, to emerge from that forward-thinking discussion to find the Irish edition of the Racing Post, and specifically an op-ed piece at least ten years out of date by Sharon Byrne, chair of the Irish bookmakers' association, could not have been greater.

There's obviously plenty of chat going on in Ireland at the moment: the war of words between Paddy Power and HRI is being well-documented. We are, mainly, out of it; except when others bring us in. And bring us in, Sharon Byrne has done.

The irony of it is that her piece starts with the following sentence: "I can't believe that at a time when racing's governing body, Horse Racing Ireland, should be operating at full capacity, it is merely chanting old, inaccurate facts."

Ironic, because later on she adds this: "If the money that Betfair turned over from Irish customers in 2008 had gone through betting shops, it would have generated over €12million in duty and corporation tax, and provided over 300 jobs. Instead, HRI accepted a voluntary contribution of €1.2million."

If ever there was something old and inaccurate, that is it. How long can people come out with this turnover line and still be taken seriously?

I've blogged before about why turnover is an irrelevant metric, and the many reasons why our "turnover" (which is to say our 'matched bets' number and bears no relation to a traditional bookmaker's turnover at all) is not a number which tells you anything other than that there is activity taking place (which is the reason we have it up there). But perhaps it serves to try to put one part of the economics into perspective with an analogy. So, here goes.

Some shops are good at taking things back; others aren't. Imagine you buy a pair of trousers from one shop, say for £50. You get home and aren't sure if you made the right decision, but the shop has a 'no returns' policy and so you keep them. You spent £50; and the shopkeeper took in the £50. If you assume that the trousers cost nothing to make, and that the Trouser Levy doesn't allow him to offset any of the costs of running his business because it is based on the gross profit of trouser sales, then he'll be levied on the £50.

Someone else buys trousers from a shop where they're very good at taking things back if you buy something that doesn't fit. His pair also costs £50, but when he gets home, he decides he wants something different and he takes them back. He gets his £50 back, such that £50 has changed hands twice. But it should be fairly clear that no transaction has yet been made: the customer has spent nothing, and the shopkeeper has made nothing. If the customer subsequently decides to buy another pair of trousers, for another £50, he hasn't suddenly spent £150.

Indeed, no-one sensible, surely, would argue, in this instance, that anything other than only the net spend of the customer is relevant to how much Trouser Levy the shopkeeper must pay.

Imagine, now, that one of the shops has a sale. It's two pairs of trousers for the price of one, now, so the customer who shops at the shop with the sale buys two pairs of trousers, for £25 each. He still spends £50, and the shop still makes £50. How absurd would it be to argue that had the customer bought the two pairs of trousers in the shop without the sale, he would have spent £100 and not £50? He only bought two pairs of trousers in the first place because they were half price, and he only had £50 to spend. What is important is not how many pairs of trousers he bought, but how much he spent. The Trouser Levy is, after all, a levy on profit made from selling trousers.

So, this tired old argument that says 'if the money that changed hands at Betfair had changed hands somewhere else, it would have generated more tax' (which is addressed in questions 2, 3, and 5 of the booklet we produced last year) really doesn't make any sense at all, and it baffles me as much that people listen to it as it does that people keep trotting it out.

The simple fact is that if you deposit £100, once, you can "turn over" literally ANY sum of money on Betfair on a single horserace just by backing and laying it, restricted only by time and the number of people with whom you can get matched; and it's only your net position at the end that makes a jot of difference either to you or to us. But if you take the same £100 from a cashpoint, you can only generate £100 in turnover with a bookmaker on course. Arguing, if someone placed 100 bets with it on Betfair (making 100 lots of £200 in matched bets) that "if that £20,000 in turnover had happened at a different bookies" is just like me saying, "if I could translate my salary into yen, and then back into sterling, but keep the yen figure as the actual number, I'd be richer." It might be true, but it's also completely absurd.

For the record, we paid a voluntary contribution of €1.2million to HRI because that was 10% of the profit we had made from anyone betting on Irish horseracing (whether in Ireland or not), and our view was that 10% (which mirrors the statutory payment in the UK) was a sensible number to contribute. It means we made €12million profit in Irish horseracing from customers around the world. The profit is the only relevant number. It makes no odds how many people that involved, from how many countries, on how many races, or how many bets. And what turnover we did it on is no more relevant than what margin we took on it, since one would have been multiplied by the other to make the €12million; and as one went up, the other would have come down. For people who are so good with maths and fractions, it's amazing that so many traditional bookies still claim not to be able to work it out.

An interesting Stier....

Word reaches my ears from Australia that Jamie Stier, the former Hong Kong Jockey Club Director of Stewards who has just been appointed Director of Regulation at the BHA, completely canned Betfair on Sunday morning on Sky Channel - the racing broadcaster owned by our biggest competitor in Australia, Tabcorp.

He said he doesn't believe in the product, and thinks it jeapoardises integrity in racing.

Given that the man in charge of integrity at the BHA, Paul Scotney, is on record as saying that, "The real watershed for racing was the betting exchanges because they didn’t cause the corruption, they brought it out into the open and exposed what was already there," it could be that there are some interesting conversations coming at British racing's HQ.

Banking and gambling

Having blogged so recently about the similarity between gambling and banking on the back of the Gambling Commission's survey about attitudes towards the former, I was struck by this description of the latter in Jerry White's history of London in the Nineteenth Century (Jonathan Cape, 2007; p. 164):

"The bankers of Lombard Street...loaned money at interest for a fixed (and usually short) term. To raise the cash they loaned, they might also sell paper at a discount. This was a credit system that gambled - 'ran a book' in Lombard Street jargon - on the creditworthiness of those who had issued or accepted a bill. In normal times, sound merchants and manufacturers honoured their bills and paid up. But if trade was bad, the risks could be high.... The London discount market was not the only game in the City. Stock-jobbing, that 'most active and decided spirit of gambling' [Rudolph Ackermann, The microcosm of London, (1808-10)], had come out of coffee houses into a 'stock exchange' in the last quarter of the eighteenth century."

I wonder whether, in 100 years from now, people look back on our current attitude to sports gambling, and the squabbles over betting exchanges, and wonder what all the fuss was about?

Education, education, education

I'm delighted that we've signed a deal with the Professional Players' Federation, for a number of reasons.

First of all, it was fantastic that we were able to form a coalition with other members of the betting industry very quickly. They turned around the request to join us in very short order, which says a lot for intra-industry relationships, and for their commitment to working with sport. Hats off to Clive Hawkswood at the RGA, Mike O'Kane at Ladbrokes and John Coates at bet365.

Second, I'm looking forward to working with the PPF. Over the years, I've had a number of meetings with Simon Taylor and Brendon Batson in the hope that one day we'd get something done between us, and now that we have, I've got high expectations of what relationships we might forge with the CEOs of the other sports players' bodies. We already have a good working relationship with Kevin Darley at the Professional Jockeys' Association, whose doctor we fund in conjunction with the Injured Jockeys' Fund.

And third, I think that this deal will be the major driver towards fulfilling what, for me, was the major recommendation to come out of the Parry report which was published at the beginning of last week, and which I have been told off for not having yet commented on!

I'm surprised there has been as little reaction to that report as there has. I think it's fair to say that the meetings of the panel were more fractious than Rick Parry himself would have expected when he accepted the job of chairing it at the request of Sports Minister Gerry Sutcliffe.

But, despite there being moments when I think we probably all felt we would never achieve consensus, we ended up with what in my view was a good report. Certainly, I think it is one which the betting industry will do all it can to make a success. And for me, the single most important recommendation that came from it was the need for education of players. As Brendon Batson says in the PPF's press release, "would-be corrupters...can only access sport if they can find away to get to participants". So today's announcement, of a deal which has been worked on for a little while and which was signed just before the report's publication, is, I think, an extremely positive step.

Method or madness?

I'm not sure whether to laugh or cry at the follow-up to the Fontwell Park race name story which I blogged about yesterday.

Yesterday, the reason for us not being able to call one of our sponsored races the "Betfair pays £7m in levy maiden hurdle" was that it was a "political message". But a further response given to Fontwell by the BHA today states that the reason is actually that they don't want us to include the part that we pay on our international business. They say that (as I explained in yesterday's post) we actually pay £6.2million in statutory levy, and the additional £1m (and change) is a voluntary donation which they are not happy to refer to as levy. So we can call the race the "Betfair pays £6.2m in levy maiden hurdle" but we can't call it the "Betfair pays £7m in levy maiden hurdle".

Is it just me, or is that just plain weird? The reason our international contribution is a voluntary donation is that there is no statutory mechanism by which it comes as levy. The BHA is, sensibly, anxious to get levy on bets placed on British horseracing, wherever the bet happens to be placed: the non-statutory nature of the international portion is therefore doubtless a frustration for them, and you would think that they would do everything they could to imply that it is money they are entitled to, rather than because we believe it right that we should pay it, so that other betting operators might follow suit in giving it.

Instead, they have fallen over themselves to point out that it is nothing more than a donation, which just emphasizes that it should be passed around on an annual basis to whatever the donor thinks is the most deserving cause.

I'd be fascinated to know the logic by which that is thought to be the most sensible approach.

Open Day, or open season?

Seeing that Tony McCoy scored an in-running win for punters at 999-1 yesterday (when he came from 10 lengths back aboard the 9-2 shot Open Day in the racingUK.com Juvenile Novices' Hurdle at Market Rasen) brought back memories of the first such bet of its kind on Betfair - when McCoy re-mounted Family Business at Southwell in 2002.

You'd think that 1000-shots winning was a very rare occurence; so, too, 1.01 shots being turned over. But how rare? I asked the clever people who can dig into Betfair's audit trail to find out how often either has happened.

The answer is that there have been 537 bets landed at 1000 on Betfair to date, ranging in size from £2 (which accounts for 178 of them) to an astonishing £277 on Optimus Prime at Thurles on 8th November 2007, after the leader fell three out.

Meanwhile, 57,392 bets (on roughly 17,000 events) have been unsuccessfully backed at the minimum odds of 1.01, of which 3,167 were people putting £2 on what they felt to be a certainty to win just 2p! At the other end of the spectrum, last-gasp upsets have on occasions cost a backer more than £100,000.

Tottenham's late, late show, when they came back from 4-2 down on 89 minutes to clinch an equaliser three minutes into added time in the London derby on 29th October 2008 was the second-biggest ever: one backer had put almost £160,000 on an Arsenal win at the minimum odds with only minutes left.

But the biggest example of a 'sure thing' not coming off cost a punter an astonishing £200,000 when he backed Australia to win the fifth one-day international against South Africa in 2006, after they had scored a world record 434 for 4 in their 50 overs. South Africa got to 438 for 9, and won by a wicket with one ball to spare.

Political statement?

The second race on the card at Fontwell's forthcoming Cheltenham preview meeting, on 10th March, raises an interesting question: what constitutes a fact and what constitutes politics?

Betfair's proposed name for the race was the "Betfair pays £7m horseracing levy Maiden Hurdle", which is, I grant you, something of a mouthful.

But it's also a statement of fact: last year, Betfair paid £6.15million in compulsory levy on British horseracing from UK customers (that is, 10% of our gross profit from those customers betting on British horseracing, in line with other UK bookmakers), and an additional £1.25million in voluntary levy from our overseas customers betting on British horseracing (in contrast to most other UK bookmakers).

So, it's not an opinion, as "Betfair pays the right levy Maiden Hurdle" would be. It's a straight statement about the fact that we pay the horseracing levy (and how much it comes to), which you might think was justifiable to promote given that an extraordinary number of people seem to be unaware of it. I often get told that the trouble with Betfair is that we don't pay tax or levy, as if we were not based in Hammersmith and licensed in the UK.

But Fontwell have called us to say that the BHA have asked for the race title to be changed, on the grounds that it is a "political statement".

Surely there can't be anything wrong with letting people know what levy we pay, can there? Why would the BHA not want people to know?

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.

ESSA

Khalid Ali, secretary general of ESSA, has said in response to the news that Ladbrokes has become the first bookmaker with both an on- and off-line presence to sign up to his organisation that: “We would urge all operators in the industry, online and off-line to work with ESSA.”

I saw Mike O'Kane of Ladbrokes at a dinner on Monday and he told me the news about Ladbrokes joining.

I said to Mike that Betfair would far rather be part of an industry-wide organisation which works to combat corruption in sport; but that we will only become part of a wider group if the requirements placed on its members are not diluted to enable it to embrace a larger number of operators. In other words, if ESSA's Early Warning System shares information with sport on the same basis as our MOUs, which includes allowing sport real-time access to bets and to information on the people behind them, then we'd be delighted to be involved.

If, on the other hand, it only allows a sub-section of that to happen, because many of those signed up to it don't want to give up customer details if corruption is suspected, then we won't, because we believe that betting volumes tell you very little and the identity of those placing bets is key. We don't want to endorse any system which claims to uphold integrity if in reality it doesn't use every means available to do so.

I agreed to meet with Mike to find out exactly what ESSA offers sport these days, because if its bar is set at the highest level, we will gladly get involved. But when we spoke to them in the past, we felt that they were setting the bar lower than we believe it is possible to get it.

More on China

PA Sport published news yesterday about the scale of illegal football gambling in China, saying it has been estimated at an incredible US$14.6 billion. Meanwhile, the Chinese Super League season, which normally begins in mid-March, could apparently be delayed after the arrest of around 20 top officials in the ongoing match-fixing scandal. (Unfortunately, I only get PA Sport on a subscription, and I can't find a live web link to it.)

Aside from the implications of this which I have commented on before, for me, the most extraordinary thing about it was that a meeting of the Beijing Lawyers' Association, "lawyers and insiders" concluded that "current laws are not tough enough to prevent soccer gambling, which is categorised as ordinary gambling"; and they called for laws to be strengthened!

Given that the Chinese have proved themselves not frightened to jail people involved in gambling, this reads to me as "Prohibition doesn't work (even in the most authoritarian major jurisdiction in the world); let's strengthen prohibition."

It also rather puts into context the likelihood of 'stick' methods of controlling gambling being successful in Europe.

Criminal activity?

I've just seen the numbers from the most recent of the Gambling Commission's regular surveys on attitudes to gambling in the UK. The good news is that the number of people who think gambling is conducted fairly and can be trusted has gone up since last year. The bad news is that it's still true that fewer than one in every two people hold this view!

In fact, it's incredible to think that after a decade in which attitudes to gambling seem to have changed beyond all recognition, such that it has become a mainstream leisure activity (a change charted in Colin Cameron's book, You Bet!), an astonishing 41.3% of the 4,000 adults surveyed still agree with the statement that "gambling in this country is associated with criminal activity".

When asked what the ‘criminal activity’ entailed, the answers were broken down as in the table below. As political background, it brings some context to the debate about proper regulation, and underlines why there should be no surprise that it takes place in such a febrile atmosphere.

Personally, I find it slightly baffling. Perhaps that's because of how I came into the gambling industry; how I viewed it at the time; and how I still see it now.

I started my professional career at the US investment bank JPMorgan, where I was a bond trader. When I left there because my JPMorgan colleague Edward Wray asked if I had an interest in joining his gambling start-up, I looked at the Betfair product and saw it as being just the same as what I was doing. For me, the only difference between trading UK corporate bonds and betting on a horse race was that for one you studied balance sheets and income statements, and for the other you studied the form. When I made this point some years later, speaking at the Swiss Futures and Options Association annual gathering at Burgenstock (I get all the good gigs!), an audience which started as sceptical eventually agreed that there was actually little or no difference between the financial world and the regulated bookmaking market.

I wonder what the percentages would come out if those members of the British public who have been asked about gambling were also asked about banking and financial services? Even after the events of the last couple of years, it is clear that the numbers would be miles apart from those below.

Which set of responses is an unfair reflection of reality?

Table 3: What crimes do you yourself, associate with gambling?

Category of Crime	2008	2009
Thefts committed by gambling addicts to support their addiction	12.6%	14.0%
Money laundering	8.8%	7.9%
Violent crime	7.8%	7.4%
Other serious/organised crime	5.9%	7.0%
Other financial crime (excluding money laundering)	4.3%	5.0%
People who run gambling businesses acting illegally	2.5%	2.8%
Criminal organisations illegally influencing sporting events	3.3%	2.4%
Criminal organisations buying and/or operating gambling businesses	2.2%	1.9%
Other	2.4%	3.5%
Crime not specified	10.2%	8.9%