Section 3

I'm afraid I can't (as requested yesterday) link to or reproduce Section 3 of William Hill's 'Betting on Britain' document.

But I can lay out here a brief version of our response (for those who are interested and haven't already read the longer version which I've mentioned before) to their specific claims, which I can list one by one.

I apologise for those who think it is phenomenally tedious and wanted a new story about Betfair's early days... I will have to come back to those another time. At least laying out a point-by-point rebuttal of the William Hill document serves to underline how genuinely amazing it is that that document was allowed to be published with its 10-year-old arguments. Not just that, but published apparently in the belief that it will have any credibility at all with anyone who bothers to take the time to try to understand the counter view. Extraordinary.

1. Claim: Betfair ‘layers’ are acting as ‘unlicensed and unregulated’ bookmakers

Betfair position: It is impossible for any customer of Betfair, using Betfair alone, to act in a commercial manner which would require them to be licensed as a bookmaker. It is impossible for a Betfair customer to tout for business or to deal directly with any other punter or the public in general. The Betfair customer is not responsible for paying out to the winning customer and is not able to hold the stake of those they are betting against. If a customer is unhappy, the responsibility for dealing with that is Betfair’s and Betfair’s alone: there is no recourse to the customer matching his or her bet. No customer can access another customer’s data and it is impossible for any customer to know who their bets are being matched against.

Betfair, in contrast, undertakes all of these activities and responsibilities, which is the reason that we hold a bookmaking licence. Betfair is simply a fixed-odds bookmaker that manages its risk perfectly by using cutting-edge technology to immediately offset the risk it takes – otherwise known as ‘matching’ bets.

Much of the debate is centred on the ability of Betfair customers to ‘lay’ a result, i.e. bet against an outcome. This is nothing new and has always been possible if you can work out the maths. For example, if Chelsea is playing Manchester United, by the simple action of backing Chelsea with a traditional bookmaker, you are automatically ‘laying’ Manchester United and the draw; while in any two outcome event (such as any tennis match, snooker match, boxing bout, or cup tie in any sport), backing one outcome is simply laying the other. Betfair simply allows our customers the transparency and ability to choose. It does not make them bookmakers any more than it would the punter that decides to ‘lay’ one outcome by backing the outcomes which give the same result.

It suits William Hill’s position to label the punter as a ‘backer’ and the bookmaker, ‘the layer’, as if that makes him the same as a layer on Betfair. Although the same word is used, a layer on Betfair is simply a customer who bets on an outcome not to happen. A bookmaker might lay a bet in the same sense (and back the negative outcome); but it is only because convention (rather than statute) has meant that only the bookmaker has been able to do that until recent years, that all the other things that actually make him a bookmaker have become associated, colloquially, with the word 'layer'. In other words, all bookmakers are layers, but not all layers are bookmakers; just as - like they used to tell me at school - the fact that all policemen wear blue, doesn't automatically mean that everyone who wears blue is a policeman.

To underline that case: a punter betting with William Hill that England will not win the World Cup is not suddenly classified the bookmaker to William Hill’s punter, just because he’s betting on something not to occur. But it is abundantly clear that what he is doing is the same as a layer on Betfair who lays England for the World Cup (something I shall be doing, as it happens).

2. Claim: There is a ‘significant tax, integrity and regulatory risk’ associated with exchanges

Betfair position: Betfair customers acting on Betfair alone do not require licensing as bookmakers for tax purposes, because as is illustrated above, they are punters betting for or against outcomes. Equally, as customers undertake no activity for which a licence is required, they do not pose any regulatory threat.

In terms of integrity, Betfair pioneered a new relationship between betting and sport with its Memoranda of Understanding information-sharing agreements. These agreements allow Betfair to share with sporting regulators instances of irregular or suspicious betting patterns in real time, and also to provide them with an audit trail of identifiable customer transactions that the sporting regulator can use to pursue disciplinary action. Betfair signed the first ever MoU with the Jockey Club in 2003.

Far from posing a threat to integrity, Betfair has done more than any other betting operators to provide part of the solution. Although I have noticed some in racing starting to raise the integrity question again suddenly so that they might have an excuse to ask Betfair for more money, I think it would be laughed out of court for anyone seriously to suggest in 2010 that Betfair is a threat to integrity. There are too many clear examples of betting corruption which existed before Betfair came along, and too many knowledgeable and independent people are on record putting the opposite case for the charge to have any real credibility.

3. Claim: Tax yield from exchanges does not represent the ‘volume of betting transactions flowing through the exchange’

Betfair position: Yawn here if you're a regular reader of this blog, but just for the record, since it has been raised again...

The amount of money or volume of bets ‘turned over’ on any Betfair market bears little and sometimes no relation to either the amount the customers have risked or the commission Betfair charges. The fact is that a customer with £100 in their Betfair account can "turn over" literally any sum of money on a single horserace just by backing and laying any number of times, but it's only the net position at the time when the market is settled that makes any difference to the customer, or to Betfair. The same £100, by comparison, can only generate £100 in turnover with a bookmaker on-course or in a shop. As such, to suggest that someone placing 100 bets with the same £100 on Betfair is equivalent to the same 100 bets being equal to £10,000 worth of transactions going through a traditional bookmaker is not only highly misleading, but bordering on the absurd.

Of all the arguments, this one must surely be the simplest. If anyone can give me a reason I am missing as to why some people find it so hard to understand it, I'd be delighted to know!

4. Claim: The gross profits tax yield from traditional fixed-odds bookmakers is higher than it is on Betfair

Betfair position: This argument (the oldest of the many old chestnuts which Section 3 seeks to breathe new life into) is made by a laughable table which I am sorry not to be able to reproduce.

It basically says that £1000 lost to William Hill generates £150 in tax and £100 in levy, whereas £1000 lost on Betfair is won by someone else, which means we get an average of 3%, or £30 of it, so £3 is paid in levy and £4.50 in tax. It's misleading to say the least, and like all the arguments in William Hill's document, is addressed at length in our document relating to the levy.

To put the argument down here in slightly different terms, though, the table is missing a column which outlines what happens if the punter wins the single bet in William Hill's single bet world. Quite clearly in this scenario no tax at all is paid, as the bookmaker has not made a profit. Indeed, the customer profit, and bookmaker loss, can then be offset against future bookmaker profit; so a bookmaker can pay no tax on the second, winning (for him) bet, either.

As such, the £250 William Hill suggests it pays on each £1000 transaction is predicated on what William Hill erroneously terms ‘the ‘layer’ (see above!) always winning, rather than it paying on the differential between what it pays in winnings and what it takes in, in losses. Betfair pays its £7.50 out every time regardless of who wins or loses, because it charges the winning party a percentage of its winnings. In other words, it, too, pays out less to the winners than it takes in from the losers.

The figures are also predicated on the bookmaker making a profit on a race, which is a function of his risk-management and of results being favourable. If the bookmaker is unprofitable over the entire book (i.e. it pays out more than it wins) again, no tax is paid as the tax is not collected on a per transaction basis. Betfair has no such issue, because it has taken the business decision not to take risk because it has the technological capacity to do so while still delivering instant pricing to its customers. To compare a single, successful, bookmaker bet with a single exchange bet is therefore entirely misleading.

Sorry, guys. Nice try, though. Except we've heard it lots of times and we saw through it the first time. Still, you had my seven-year-old daughter believing it for a few minutes.

5. Claim: ‘the current exchange model receives an unfair tax treatment that makes it impossible to compete’

Betfair Position: Betfair entered the market in 2000, meaning our exchange has been competing with traditional bookmakers such as William Hill for ten years. Previous to the recession in 2009, William Hill displayed consistent growth in its revenue on both on- and offline sports betting products, despite having to compete with us.

For eight years, then, it has been entirely possible for William Hill to compete with us. We haven’t changed; so we fail to see why we are suddenly responsible for any slowing in growth in their business.

We have noticed, though, that the slow-down does coincide with them deciding to have a fresh pop at us. Oh well.