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.

Betting in the course of business?

For almost ten years now, there has been a lot of chat from the BHA that there are people on Betfair who are 'in business' and should be levied accordingly.

Below is an article on Patrick Veitch, a professional punter, from May last year. His book, Public Enemy Number One, was serialised in the Racing Post, but I don’t recall coming across this particular piece when the book came out.

http://www.bloomberg.com/apps/news?pid=20601093&sid=azKJ.S5bvrdA&refer=home

Here's a snippet:

“He carefully documents his 10,049,983.03 pounds in profits from 1999 to 2006. (Gambling winnings are tax-free in the U.K.; the government gets its cut from a 15 percent tax on bookies’ gross profit.) Veitch’s hardest job is getting the bookies to take his bets; he has a team of around 300 agents placing bets on his behalf. He also discusses the research that goes into spotting something that will give him an edge, like the anomalies in racetrack conditions that will favor a particular horse.”

BHA Chairman Paul Roy and his CEO Nic Coward have shown no interest in Patrick Veitch, or others like him, being subjected to Levy. But they believe that they ought to be going after people who "look like they are in business on Betfair," even though there have been numerous government reviews which have concluded that you cannot actually run a bookmaking business purely on Betfair: you can only use Betfair as a hedging mechanism for an existing bookmaking business (in which case you are liable to levy anyway, and are breaking the law if you don't pay it), or you have to take your chances like any other punter - with a commensurate likelihood of success. Yes, some people still go on to win - like Patrick Veitch does with traditional bookies.