There is, people tell me, little evidence that, as it pursues its quest to get more money out of Betfair, the racing industry worldwide is merely giving up money on a promise to nothing. Two in the bush, in other words, is worth more than a bird in the hand. And my continued references to this ten-year battle are, I am told, a waste of time, since racing might as well fight us for more cash even if it is unlikely to get it, particularly as it isn't losing out on anything in the interim.
And then this week, there's Punchestown.
Need more be said?
Well, perhaps one thing.
In case anyone should think this is an isolated incident, I could also point to an identical situation Down Under earlier this year, when our proposed (and agreed) sponsorship of the Magic Millions sales was killed off because we were the backer, and in the end went ahead without a sponsor.
Or the offer to a major British racecourse to become title sponsor of a three-day meeting at a cost north of £750,000, which was agreed by its commercial manager but was rejected by its Board with a "thanks, but no thanks. We think you're bad for racing."
Or, indeed, the offer we made to the BHA three years ago of £250,000 a year to put on races which had been abandoned because of bad weather. Our only condition at the time was that the re-arranged fixture should not be set for a day when there were already five meetings.
The response on that occasion? Again, "thanks, but no thanks. We think you don't pay the right levy, and until you do, we won't accept anything from you."
Fair enough. I guess we can spend it somewhere else.
Posts
Of course bookmakers advertising are fine, because said Board members can own nice wads of shares of them. If they wanted to promote the biggest funder of racing, the Tote, then apply some consistency and ban all other betting advertising. But they can't because the Tote is a lemon and few companies outside the betting industry want to sponsor everyday races...
ReplyDeleteIt's embarrasing to see Dubai racing for $10m and the British flat season launched with a high-profile race and a piddly £115k purse.
Hi Mark,
ReplyDeleteWhen I was out for my morning run I was thinking about your blog and some of the posts where you say that various parties don’t consider Betfair pay the ‘correct’ tax, so to get me through the miles I spent my time thinking about this topic which is something I am interested in.
As it stands Betfair pays the correct tax obviously. However, I got thinking how they could, the people who think Betfair don’t pay the correct tax, make Betfair pay more. I thought about my own situation as a full time trader on Betfair and then I thought hold on this situation is very much like me as a full time trader.
I used to think I paid the correct ‘tax’ (I am referring to commission of course) which was effectively 5% of what I won each race I traded. This was the same as what every other person was expected to pay (of course there were discounts tied into Betfair points, but for arguments sake we all paid 5% of what we made each race).
However, then in September 2008 it was decided I wasn’t paying the correct ‘tax’ and in came the Premium Charge.
Stay with this, it isn’t a moan about the Premium Charge ;-)
So I thought, well Betfair is like me the trader. I trade each race and manage my risk in such a way so I rarely lose, Betfair mange their risk perfectly and never lose as you have said before (excluding multiples and the like).
Then it followed that the bookmakers, the likes of William Hill, are similar to the traditional backers and layers on Betfair who take an opinion and as such have lots of wins and losses. Some races the bookies win and some they lose, just like a punter.
So I moved the idea forward as I climbed my next hill and thought, what if there was a change in legislation and how the taxation on bookmakers is calculated and they changed it to along the lines of your very own Premium Charge.
Instead of having a flat rate on what the bookmakers make each year as at present and kind of like how Betfair was pre-Premium Charge, why not change it so they look at how much the bookmakers make perhaps each race or race meeting or day or week.
I would assume it would be possible for bookmakers to provide/calculate this data.
Then instead they charge a lower %, what that would need to be I would not know but I am sure it can be worked out, on each individual race or race meeting, or day or week.
But, with the addition of ‘implied taxation’ at a certain % for when the bookmakers lose over the period chosen.
Then a % is chosen, again what that would need to be I would not know but I am sure it can be worked out, that all bookmakers must pay as a minimum and any bookmaker that had not paid up to that % would be charged a ‘Premium Tax’.
Now it should be possible to calculate it in such a way so that traditional bookmakers paid a similar amount to what they do now as they would be credited with ‘implied taxation’ on their losing periods.
However, Betfair who manage their risk perfectly will have only have paid a very small amount of taxation due to how they manage their books perfectly and as such would be liable for the ‘Premium Tax’.
At the end of the day all parties will have paid the same minimum rate of tax much as how is the situation with the Premium Charge but those that manage their risks very well, like Betfair would actually pay a much higher amount of tax, much as how I as a trader have to.
What do you think to this idea?
Could it ever work if implemented correctly?
Cheers.
I forgot to ask also if you would think the above idea would be fair?
ReplyDeleteCheers.
Leonthefixer,
ReplyDeleteBefore the premium charge winners on betfair all paid different amounts of commission as a percentage of what they win in the long term (because you pay comm when you win but don't get a refund when you lose).
The premium charge tops everyone up to pay at least 20%, i.e. the people who used to pay the least (as a percentage of what they win) now pay at least 20%. I pay about 45% of my long term profits in commission, so while it's still not fair that you only pay 20%, it's fairer than it used to be when you paid less.
It's the complete opposite of the situation you're suggesting: everyone, betfair or bookie, pays GPT at 15% and Levy at 10% of racing profits. You're talking about a tax that would make Betfair pay more tax than its competitors. I would think the answer to "do you think it would be fair?" is pretty obvious.
The situation *would* be the same if the bookies paid tax when they win but got no rebate when they lose. If that was the case then Betfair would pay very little tax and levy relatively, just like a very consistent trader pays a tiny fraction per pound won compared to someone who takes positions and has big wins and losses like me. But it doesn't work like that. The bookies' tax and levy bill is based on their long-term profits, so every race they lose the taxman and the Levy board owe them.
In any case why would you want betfair to pay more tax than the bookies? They'd just pass the cost on to you and me.
Alice,
ReplyDeleteI agree with your first point that we all paid different amounts of commission as a % of long term profits. The reason for this though was not because of Betfair’s commission structure but because of how individual achieve their profits. Those that were able to eradicate losses from their betting were able to reduce the amount of commission as a % of long term profits, no other reason was behind this than how the individual chose to bet.
I paid exactly the same rate of commission as you did. However, due to my ability to remove the vast majority of losses from my betting through hours of work and study that goes on and on similar to your form study, I have been able to reduce my losses much better than you have. Just because I have come up with a system that avoids losses better than you, on what basis do you think I should pay a higher rate of commission than you do per market?
The Premium Charge tops everyone up as you put it but I still pay a higher rate of commission now than you do per market, again why should we all be on different rates? Surely the only fair way is to have everyone on the same rate per market?
You say it isn’t fair, but why isn’t it? Your argument is based around the ability of the individual to remove losses from their betting. Essentially you are saying that those who are able to eradicate losses from their betting should pay a higher rate of commission to make it fair on those that are not able to eradicate losses from their betting. But make what exactly fair, we used to all pay exactly the same rate, we don’t anymore.
But anyway back to my original comment.
Of course I expect Mark to say no it isn’t fair as it would mean Betfair pay more than the other Bookmakers as a % of their Gross Profits. But I hope it will have the effect of generating a bit of discussion and perhaps I and others, maybe even Mark could learn something new. As I say it is a topic that interests me and it would seem others.
You could ask, why should the bookmakers get a rebate when they lose? In the current situation they do but who says that has to be the case in the future?
Finally, I don’t want Betfair to be passing more costs on to me and you because they are paying more tax than the other bookmakers. But at the same time I wonder how racing is going to survive in its present format hence why I posted the original comment, to try and create discussion.
"You say it isn’t fair, but why isn’t it?"
ReplyDeleteAn easy enough question to answer: you win £10,000, pay £1,500 in commission and pocket £8,500. I win the exact same amount, £10,000, but pay £4,500 in commission and pocket only £5,500. I've paid 3 times as much as you, just because of the way in which my wins happened. Fair or unfair?
Happy to have a discussion too, and I appreciate you're not trying to be argumentative, but to say "what if?". My main point was that most people would consider taxation of any kind to be fairest when related to how much people make. I'm sure someone working for Megabank plc would think it fairest if they paid a lower rate of tax than others because they're also very clever and avoid (personal) losses. It doesn't work like that though.
My other point was that betfair's current taxation situation (and for that matter most companies and individuals) is already like the Premium Charge - they pay a % of what they make over the year.
Ask Mark what he'd think of a tax system where the bookies didn't get a rebate for their losses, and ended up paying much more tax and levy than betfair for each pound of revenue and I'm sure he'd tell you that was unfair. I've never heard him argue for that.
Alice, I don’t want to high jack Mark’s blog discussing the Premium Charge and the rights and wrongs of it so this will be my last comment on the subject on this blog.
ReplyDeleteIt is important to remember what Betfair are doing. They are offering us a product just like any other business that we pay for. So what is the product they offer us?
Well that’s simple enough, they offer us the ability to bet on a market.
Therefore, we pay to bet on that individual market, or at least we used to. The old Commission structure was simple and in line with other businesses. We used to buy the product from them and they charged us all the same for the product. They didn’t differentiate between different customers, we all got charged the same 5% of winnings for the individual market (of course there were discounts but essentially we were all charged identically). Customer A paid exactly the same as Customer B for the product.
They do not offer us a product over 1 week, 1 month, 1 year or lifetime. They offer us a product which is each individual market.
Just like if you go into a shop and buy a pair of trainers, you can buy them at the same price that I buy them. Just because I might get more use out of them over their lifespan doesn’t mean I should pay more for them. That doesn’t come into the equation as we are buying the product, i.e. the trainers.
That is why I think the old system was fair.
When the Premium Charge came in Betfair no longer charged us on a per market basis, they now price differentiate between customers. I pay more per ‘product’ now than you do. No longer do they charge everyone the same for the ability to bet on a market, which is the product they are selling us after all. They charge us on the basis of our ability to lose or not to lose depending on how you want to look at it, over a period of time.
....Continued from previous comment as my reply was to long to be allowed to post in a single comment....
ReplyDeleteAll other bookmakers, to my knowledge, charge the same amount whoever is purchasing their product. As their price is built into the odds they offer you and me, the customer. We could both go in to William Hill and have the same £10 bet on the next race at the same price. This is not possible on Betfair. If you bet £10 at 3.85 and I bet £10 at 3.85, you can not dispute that we are charged differently, I as a Premium Charge customer am charged more than you as a non Premium Charge customer. We are differentiated on the basis of our ability to remove losses from our betting.
You say because you have paid 300% more commission over X period it is not fair. So what is a fair percentage? The person paying 5 times more than me over X period might think along the same lines as you and therefore would think that you are not paying a fair amount as well as you don’t pay as much as they do over X period. This all comes back to the change just over a year ago where Betfair stopped charging us all the same for the product they provide and started to differentiate between different customers.
Likewise what is a fair period to base the calculation over, a week, a month, a year?
By far the fairest system was what was in place previously where we all were charged exactly the same for the product we purchased, the individual market we bet on. It was deemed fair enough by Betfair to have it in place for nearly 10 years.
In my opinion the only reason this fair system was taken away was not to try and balance up what different customers pay over X period on their Net Winnings, but rather to bolster their bottom line as they knew they were in a position where they could start to differentiate their pricing between different customers.
However, Betfair is like any other business and is within their rights to charge people what they want for their product. They can do as they used to and charge everyone the same for the product they sell or they can do as they do now and charge different people different prices for the same product and if it is too expensive we can purchase the product elsewhere.
Remember what we are purchasing from Betfair, it is the ability to bet on an individual market.
Finally, remember Betfair is not the Government and that Betting is not like stock trading or going to ‘work’ etc which are subject to tax and how much tax you pay depends upon how much you make. It is a product that is sold to you and I the consumer.
leonthefixer,
ReplyDeleteI understand your point, but I think you've undermined your own argument. If your argument is that what you make over a week, a month or a year is an arbitrary period, and the fair way to charge is per unit, like buying trainers from a shop, then I can see where you're coming from.
But surely the unit equivalent of an item in your shopping basket is a bet, not a market (which is just as arbitrary as a week or a month)? With commission just on market winnings, you place your first bet in a market and you'd owe commission if you win (say you back something for £10 at 3; you'll pay £1 in commission if it wins). Lay that bet off with a second bet (£10 at 2), and not only do you not pay any commission at all for the second bet, but it actually reduces what you were previously on the hook for (you can now only pay a maximum of 50p commission).
So in summary if commission is charged on net winnings in each market then we've never paid the same price for each product (bet) transacted.
How about this for a suggestion: Betfair charge 1% per winning bet. That's plainly just like the shop example you've cited (much more than the arbitrary commission per market system). I'd pay less, and you'd probably pay more.
I'm guessing you wouldn't be a fan of that, even though that's precisely where you'd end up if you followed your logic to its conclusion. The reason you've concluded that your arbitrary period (a market) is more "right" than any other arbitrary period isn't because there's anything fundamentally more right about it, but because it's the version that results in you paying the least.
At the end of the day people have been arguing about what's the fairest way for Betfair to charge for almost a decade. The reason there's never consensus is because everyone's definition of "fair" is "a system that charges me less and others more".
Sorry, I know I said I wouldn't comment again but I can't help myself.
ReplyDeleteWe seem to be reaching some common ground which is good. What I say is fair is where we all get charged the same amount for what Betfair are selling us. At the moment Betfair are selling us the ability to bet on a market and as such I think we should all pay the same rate to bet on that market, which we used to do but no longer do.
If they were to be selling us the opportunity to bet over a week and charged us all the same that would be okay. So if I made £100 I paid £5 and if you made £100 you paid £5. If someone made £100 but then lost £100 withing the week they paid nothing, that would be fair. However, they won’t do this as it would mean the amount they earn would fall massively. I would not have a problem with them choosing whatever time period they wanted just so long as we all paid the same. But the only time period they can choose to my knowledge that earns them the most is by doing it per market hence why it has always been that way.
There is a very simple reason, however, that they cannot set the time period to the individual bet as you suggest. That reason is that Betfair would be unable to operate anywhere near like it does and would make Betdaq look like it had a lot of liquidity. Reason being you would put the likes of me, traders, out of business. We would be forced to move elsewhere and with it we would take the liquidity Betfair needs and have admitted they need. That is not to say they, or us (traders) do not need punters as we do. Without punters traders would not be able to operate, each party needs the other. But to charge on a per bet basis would make trading impossible on Betfair and that is the simple reason why although a fair method of charging, it is unworkable.
So I agree with your statement:
“So in summary if commission is charged on net winnings in each market then we’ve never paid the same price for each product (bet) transacted.”
But I hope I have demonstrated that such a time period would be unworkable and that is why Betfair sell us the ability to bet per market and do not sell us the individual bets as you suggest they perhaps could.
What I don’t agree with though is your statement:
“The reason you’ve concluded that your arbitrary period (a market) is more “right” than anyother arbitrary period isn’t because there’s anything fundamentally more right about it, but because it’s the version that results in you paying the least.”
The reason I don’t agree with that statement is because I consider the time period of the individual market to be the correct period and fundamentally right.
The reasons being is that it works for Betfair, in that they can earn sufficient revenues, which they wouldn’t if they were to change it to a 24 hour period, 7 days, a month or a year. But most importantly because we would all pay exactly the same rate of commission, something which you cannot say we do since the introduction of the Premium Charge.
I think it is clear and I hope I have demonstrated it, that the fairest way to charge is on a per market basis. That way it allows Betfair to operate and earn suitable revenues and everyone is charged the same amount for the product Betfair sells. There is no price discrimination as there no is under the Premium Charge. All other exchanges operate with the per market basis for the fundamental reason that it is the correct and fairest way to charge. The reason the other exchanges do not use the Premium Charge method is because they are not sufficiently strong enough to price discriminate.
I hope you agree with the per market basis now.
Cheers,
Andy.
LTF
ReplyDeleteI agree that I am not going to get into a long debate about the PC on my blog, but FWIW, I don’t think your proposal for a revised GPT/Levy modelled along the lines of the PC works.
Betfair gives you a credit for losses incurred before assessing whether you are eligible for the PC. Betfair does this because it receives a clear benefit when you lose money on Betfair (implied commission - i.e. commission taken from the persons to whom you have lost). Your suggestion for a change in how GPT/Levy is charged would allow a risk taking operator to get an equivalent credit (“implied tax paid), when England win the World Cup. Why? What direct benefit does HMRC receive in such a scenario? Crucially, and unlike Betfair, HMRC cannot say “not to worry that the bookies who laid England have been cleaned out, we can take a corresponding tax charge from all the England backers.”
In simple terms, the “implied commission/tax paid” is only sustainable when the operator can point to a direct benefit that this produces. I think HMRC, understandably, would take the view that they already give operators a credit for losses incurred which can be carried forward and set off against future profits. Why on earth would they also give credit for losses as if they were actual profits on which the operator had paid GPT?
So, if you recognise that a GPT based on the PC would work, with the slight tweak that the concept of giving credit for “implied tax paid” should be removed, your new GPT would work exactly as the current GPT works. All operators, irrespective of their attitude to risk, would end up paying 15% of their total profits in any given period.
I also disagree with your claim that: “Just like if you go into a shop and buy a pair of trainers, you can buy them at the same price that I buy them. Just because I might get more use out of them over their lifespan doesn’t mean I should pay more for them. That doesn’t come into the equation as we are buying the product, i.e. the trainers…………………. No longer do they charge everyone the same for the ability to bet on a market, which is the product they are selling us after all.”
You suggest that what Betfair “produces” is the ability to bet on a market. What does that mean? Is it a question of simply putting the market up? If it is, why not exclusively use an exchange with a lower commission rate and no PC? Isn’t this exactly what all exchanges produce?
In reality, ‘the ability to bet on a market’ requires something other than putting it up, for us just as for traditional bookmakers. The bookmaker will not lay you the favourite all day if he isn’t getting money in on outsiders; and us putting a market up doesn’t help you one jot if there isn’t supply and demand (seen as liquidity in our case). As losers disappear more quickly than winners, we need to make sure we keep them coming through the door; and obviously there is a price in that. So I would argue that what BF is “producing” is not the putting up of the markets, but the flow of customers, which is much more expensive to generate; and because of your betting, we know some people are making greater use of that than others. The PC was brought in to balance that. To use your own analysis as I understand it, what we do in each case is ensure that people pay for the level of what ‘we produce’ that ‘they use’.