Old hat, new hat

It's all been kicking off, everywhere you look: Ladbrokes are in the frame to get the wagering licence in Victoria; Barney Frank's bill has got out of Committee (hoorah, hoorah); William Hill are moving their telephone betting operation offshore; and Bwin and Party have finally announced what we know they've been talking about for years, that they're going to merge. The times, they are a-changing.

Maybe, maybe not. As half the world moves towards the future, the other half is intent on trying to legislate for the 20th century.

Let's start abroad. Greece, it would appear, want to introduce a high turnover tax a la francaise and limit the number of operators, in the belief that this is the path to the future; Cyprus, rumour has it, has similar plans; and the French themselves are running around trying to enforce their absurd legislation, today taking seven ISPs to court to ensure that they block access to sites.

Good luck with that, mes amis, although it strikes me as being a bit like Agincourt: a battle you're never going to win. The Right2Bet campaign highlighted this week just how short-changed European consumers are by countries which are seeking to limit choice in a way that they'd never get away with for any other industry, and whatever you do try to the ISPs, consumers today will vote with their mice: unless you have the co-operation of the betting operators, attempts to prohibit are doomed to fail, as the United States has clearly shown. All sorts of sources suggest that the number of offerings is spiralling, a process accelerated if consumers are forced to look outside the country for a product which satisfies their demands. (Incidentally, I wrote snippets about this last month but only got around to publishing them today. Other newly-published short thoughts appear here about Australia, and here about the French, and I've also put up a posting about Svenska Spel).

I know: I'm boring; I say it all the time. But sometimes, things people say all the time make for front page news. Like today, for example. Victor Chandler, a man previously notable for saying of betting exchanges that "the only thing wrong with them is that I wish I'd thought of them first" calls for action on "exchange layers", and it leads the Racing Post.

In itself, a call for 'action on layers' can't constitute a news item. (Indeed, you would think that anything on the levy debate didn't constitute news any more... It's been rumbling on for so long and there's been so much said and written about it; although if you're a levy debate junkie, I have posted a previously-unpublished post on it today). But here's the twist... Chandler says that if every lay bet were treated as a bet by a bookmaker, he would pay levy from his offshore business and encourage others to do the same.

Excuse me for a moment while I pick myself up off the floor and put my cotton socks back on, but this must be one of the funniest things I've heard in a decade.

For starters, I can't see why anyone thinks it is relevant to listen to a point about levy from a man who, as I understand it, has been offshore and therefore not paying it since around 1995 (on anything other than one shop in Mayfair).

But more importantly, the premise of his argument is hugely ironic. Because if anything in the world proves the fallacy of the oft-cited adage that Betfair's prices are better than anyone else's "because its layers don't have to take into account the costs a bookmaker would have", then it is Victor Chandler's business.

Why? Because ultimately, the point that is always made is that it's too hard for bookmakers to compete with Betfair's prices because Betfair's prices, so the story goes, are made by people who don't have to account for tax and levy. But Victor Chandler makes his prices without having to account for tax or levy either, so how come his prices aren't the same as Betfair's?

Of course, the reason is that the pricing of bets has nothing to do with the levy debate at all. The price differential is created by superior risk-management: Betfair manages risk perfectly, and so doesn't have to add a risk premium into its prices. The commercial margin of both exchanges and traditional operators is not all that different, which is why the price differential on football is so much less obvious (with fewer outcomes to add risk premium for) than it is on horseracing.

Which brings me back full circle to William Hill's decision to move their telephone business offshore. Ralph Topping cited as the reason for the announcement "Government’s inertia over the issue of creating a level tax and regulatory playing field. William Hill," he continued, "pays more in taxes and levies than it makes in profit while the betting exchanges flourish under a favourable system where they only account for taxes and levies on the commission they charge to exchange users."

Ignore the fact that the commission that Betfair charges its users is the differential between what Betfair take in in losses and what they pay out in winnings, which was what William Hill got charged on too, last time I looked. Instead, consider the thoughts of a coffee companion of mine on Tuesday - a man who left the horseracing industry back in 2003.

"It's hilarious," he said to me. "If I stepped back into horseracing today, I could pick up exactly where I was when I left off. It's all the same arguments, with all the same rhetoric. You'd think they'd have worked it all out by now. When will they see the light? The rest of the world's moving on."

So the times are indeed a-changing, at least for some. How ironic that it's the French who should sum it up so well: plus ca change, plus c'est la meme chose.

Friendbet

I was interested to see that a company called Friendbet has been licensed to operate in France.

I always knew the French hadn't understood what a betting exchange was.

They set out to ban exchanges, and came out with legislation that they think has done it.

And then they license Friendbet.

What do they think that is, if not an exchange?

And on it rises

I note that, according to a research piece put out by Barclays today, "investir.fr estimates that there are 20,000 websites operating in France that offer gambling."

So, from 5,000, to 15,000, to 20,000, in the space of months.

Good legislation, that.

Encore...

I see more operators are pulling out of France. Some of them, of course, are doing so in order to apply for a licence, but others because their product offering is banned under the new legislation.

Specifically, Betclic has shut down its casino;

Sportingbet has blocked access to French customers while applying for a licence;

Paradise Poker has blocked access to French customers. And it is rumoured that BET365 is to close French accounts.

Meanwhile - quelle surprise! - the PMU have applied for a sports betting licence

Two thoughts spring to mind.

First, any lingering doubts from those among us who still believe in fairies that the French legislation is designed to protect the encumbent player must finally have exploded. The PMU is not obliged, as others are, to close its existing business while it goes through the application process.

The other is that experience has shown that it is actually remarkably difficult to win an account from another operator, because standard levels of customer lethargy mean that however good and competitive your product, people still tend to stick with their existing provider, because it's just too much like hard work to change. Famously, this is why people keep their bank accounts, on average, for longer than they keep a spouse.

This means that all those customers who are having their accounts closed, who will then go to open an account wherever they can, will be relatively unlikely to return where they were once their first operator is licensed. They have to go through the account opening process, submitting details, and perhaps having Know Your Customer checks done as well. Some simply won't be arsed.

This would be wonderful for France if they all, instead, opened with the PMU in the interim; but as the PMU offers neither innovation nor value, the chances are that they will, instead, open with an operator which is acting in breach of French law: in other words, in the black market.

Makes a lot of sense, this French law, non?

That was the week that was

I've been a bit quiet this week on the blogging front, partly because I've been out of the office a bit. My first week into my new decade has been interesting, starting at the one racecourse in the world which fights Goodwood for a place in my heart as my favourite horseracing venue: Chester.

I went up on Tuesday night to catch up with the racecourse's MD, Richard Thomas, who treated me to dinner at a fantastic new on-course restaurant (well, new since I last went) called 1539. We chatted all things racing, over a good meal and a decent bottle of Sauvignon Blanc.

If you're of the view that racing is short of progressive thinkers, I recommend you make a visit and fish Richard out. Over the years, I've grown used to discussing ideas which in my view would do no more for racing than start the game of catch-up on time that has long-since passed; but on Tuesday evening, I enjoyed listening to some genuinely strategic thoughts designed to get ahead of the curve. It made for stimulating conversation.

I stayed overnight at the new Abode Hotel overlooking the racecourse (genuinely new this time: it had been open a week; and very nice it was too), and on Wednesday did something that you can't claim to do every day: I sat next to Sir Alex Ferguson for lunch.

I kept my BBC history quiet in case it meant he didn't speak to me, and I found him very friendly and down-to-earth, if for some reason remarkably more difficult to understand in real life than he is on the telly. I don't think that was because we chatted mainly about racehorse ownership, although with my limited knowledge, that's always possible. Still, it didn't seem appropriate to grill him for footballing wisdom, tempting though it was. It was, after all, a day off. For him, I mean. :)

A large part of Manchester United's squad came with him as guests in our box, while in the box immediately next door, Michael Owen was hosting family and friends, including our very own Bert, who has, of course, gone into partnership with him at Manor House Stables. They sponsored the opening race of the day, and won it, to great celebration across the two balconies. No-one was booked for taking off a shirt, though.

It was a shame to head back down south, particularly as doing so also meant a trip back down to earth. From relative glitterati, I was soon back in the world of French forums, which are inevitably buzzing with chat from consumers planning to get around French legislation. That and the Higgins snooker story have dominated the questions I've been asked by people this week. I suspect my personal view of neither will come as a surprise to anyone who has spoken to me or has been a regular reader of this blog, because I've written in the past about the issues which form the basis of both stories. If you've missed them and are wondering, you can see them here and here. I'll save the rest of you on-going repetition!

Dunkirk?

As French legislation moves ever closer, more and more operators appear to be lining up to suggest that it simply isn't going to work.

An op-ed piece in Le Monde the other day, signed jointly by Betclic, Bwin, and Unibet, laid out the reasons to be fearful. Isabelle Parise, co-chair of Mangas Gaming, told the IGaming 360 conference in Madrid yesterday that there are "many things that are dreadful" in the legislation, which, as it stands, is "the worst you can imagine". And Gigi Levy, CEO of 888.com, threw into a results presentation yesterday the thought that it would be more difficult for foreign operators to get a French licence than it will be for French ones. He commented that his company operates happily under its Gibraltar licence by the terms of European law, which seems to me to indicate that they plan to continue to do so when the law comes in, just as the amiable and eloquent Patrick Partouche suggested would be true of his eponymous outfit a few weeks ago.

At Betfair we had the latest in a long series of meetings about France this morning, pondering how absurd and ridiculous the new law is, and discussing whether our since-foundation stance of complying with national legislation obliges us to withdraw from the market until we are in a position to apply formally to operate, if it ever becomes commercially viable to do so. It would be an arduous and depressing task to contact our French customers with that sort of unhappy news; but the law as it is written would require us to close accounts and block French IP addresses, with risk of arrest for non-compliance. Operators who do comply with it would have to pull out of France.

Absurd and ridiculous, though, the law unquestionably is.

The simple fact is that we know, and customers know, that there are plenty of work-arounds for IP blocking, should people chose to use them; and without operator co-operation, the chances of the French government enforcing their legislation - short of sending the police randomly into people's front rooms and catching them on their computers - is zero. Operator co-operation will only come from those with brand names to protect, so the law will shut out precisely the sort of company that ought naturally to be welcomed in.

Anyone else who wants a bit of the action in defiance of the French government has the playing field wide open, so the black market will flourish. By France's own estimates, it already equates to around 5,000 sites, even before the addition of new rogue operators which are likely to pop up in the way that music file-sharing sites did when Napster first got banned. The music industry has struggled to recover from that position ever since, but the French have chosen not to learn from past mistakes. Instead, they will deny people proper choice and competition and force those who want it to find it in the illegal market. They are failing their citizens in consequence, and it's a shame to see it.

Meanwhile, should you be sunning yourself on the Cote d'Azur this summer and realise you've forgotten to place your weekend's bets on any sport back home with the account you opened in London, unlucky. You can quite legally call your bank which is licensed in England, order from your local bookshop at home, or change your utility provider online while you think of it - not to mention whatever other uses you might want to put the internet to while you relax on your hols. But you can't both adhere to the law and type in the URL of your betting account and place bets in your own country on your domestic sport, because in their wisdom, the French say that's interdit.

Looks like it'll be Tuscany for us this year, then.

Sacré bleu

I see that the French are expecting to have 30 applications for licences under their new gambling legislation.

That's down from the 200 that they originally expected; and from the 100 that they revised that estimate to; and the 50 that they then settled on.

And it's a far cry from the 5,000-odd online gambling sites that they identified in their government-commissioned Durieux report.

I wonder what that tells us.

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.