Vive la France?

So, French legislation has gone through. I must admit that a few months back, I thought there was every chance they wouldn't get it done by the World Cup; but they've defied my predictions on that one, and got a law in place.

Whether it's a law that is going to achieve anything useful remains to be seen, but I guess that depends on what their actual objective was.

I remember having lunch in Paris some time ago with a director of the PMU. After we had discussed Betfair and the marketplace for three hours and he had thanked me for my lengthy explanations but reiterated that they would make no difference to his position, I asked the following question: would he rather have a big black market sitting offshore, making no contribution in tax and providing no information about bets, but by its very nature not immediately visible to people (which would mean that the French government and the PMU could pretend it didn't exist); or would he prefer to have Betfair licensed in France, contributing tax and information, but by its nature able to make a big thing about the fact that it was there and therefore revolutionising life for punters by making the market competitive? He agreed without hesitation that he would always opt for the former, not just in France, but worldwide.

It would be difficult for a government to make the same admission publicly as my companion made privately over lunch, but I don't think the French government's position is any different. While making all the right noises about opening up the market, it has actually created an environment where there will be very little proper competition. Many will argue that in pretending to do one thing and actually doing another, they have played a blinder: all the talk is of liberalisation of the market, when in reality they have stifled competition to the extent possible by putting in place a tax rate which is so prohibitive that no-one other than the incumbents will be making money there for some time, if at all.

This would be all very well if the objective was genuinely to institutionalise protectionism, as many suspect it was. But it seems a lost opportunity if the goal was actually what I think the objectives of all governments should be (and the stated ones are): to make sure that consumers under their wing are properly protected from the potential problems caused by any given product; and then, having regulated effectively, to take a tax revenue from the activity, providing that in doing so they don't jeopardise the primary aim.

For our part, we'll look at the detail of the legislation now that it has passed, and make a decision what we do.

Our opponents in France seem to think that the legislation as passed precludes as from getting a licence in any case. Their opinion that Betfair is 'banned' is predicated on specific wording in the law which says that the odds must be provided from 'its own' (i.e. an operator's own) assessment of the probability of an event happening, rather than from 'an' assessment. The amendment of a single word (replacing 'un' with 'son'), courtesy of the PMU-supporting Jacques Myard, was designed to keep Betfair out - an approach which I described as 'clearly discriminatory' at the time.

But discriminatory as the aim might have been, the reality, in my view, is that anyone who thinks that the changing of a single word bans exchanges, or indeed allows bookmakers, fundamentally misunderstands what we do as a business, and more generally how odds are made in today's world - when the public at large understands it perfectly.

Consider the comment by a Mr. Terry May at the bottom of a piece in The Times today (which follows this delightful final line of the article: 'Those who believe that Jack Straw could become interim leader could take 25-1 with Ladbrokes and 50-1 on Betfair'). It reads: "What's the point of getting quotes from bookies like William Hill or Ladbrokes? They don't employ odds compilers to price up political markets for a few weeks every four years - they just copy the prices on Betfair and knock a chunk off so they make a profit."

I'd go even further than that: you only need to take a short walk around bookmakers' trading rooms, or wander around the betting ring on-course, to see just how many odds compilers have Betfair screens up all the time. And why shouldn't they? It's the biggest market out there: an open book to public supply and demand.

But, just as them using the Betfair market as a guide should not suddenly mean that they are not making a price, neither should Betfair acting completely transparently about its own supply and demand, and balancing its risk perfectly, suddenly mean that the price up on the screen is not 'Betfair's price'. Of course it is. The line from The Times quoted above doesn't say, "you can get 25-1 with Ladbrokes but 50-1 from a fluid combination of Fred Bloggs, Joe Brown, and Ethel round the corner," does it?

By definition, what appears on Betfair's screen is the unmatched demand, transparently available for all to see so that every punter can know what is considered to be 'fair market price'. It's punters saying "I'd like 3 back for every 1 I put down if I am right in my view of the outcome". Betfair can match that bet itself, as it simultaneously matches one for someone who has said the exact opposite; or it can put the two bets together. Which it does is entirely academic.

If anyone wants us to demonstrate that it's our price, driven (like everyone else's) by supply and demand which we are seeing, then of course we can change our terms and conditions to make it clear that we stand as counterparty to every bet. Betdaq do that already, so it's not like it will make any difference optically.

Alternatively, of course, we could be less transparent about what supply and demand we are seeing; or we could increase the risk we are prepared to take, rather than matching the exposure on each bet perfectly. But it would be a strange government which would force that onto an operator in any industry, particularly in light of what has happened in the world in the last couple of years.

So, our view is that the legislation caters for us just as it caters for every other bookmaker, and we don't see how it somehow allows for bookmakers who take risk but bans those who manage their risk perfectly. The French government may be of a different view, but then, so was the government of Western Australia, and they didn't get much support in court.

Whether it is worth applying for a licence which requires us to pay such prohibitive rates of tax is another issue altogether. It will be impossible to make any money, and possible only to brand-build ahead of the day when the French realise that they are haemorrhaging money offshore. Weighing up the pluses and minuses of that is what we will consider in the coming weeks.