Asian Racing Conference

The ARC kicked off today in Sydney, with the stand-out speaker being an Australian called Peter Sheahan.

He talked about how to engage Generation Y, and challenged the racing folk present to attract youth in order to make racing 'cool', citing brands such as Burberry and Mambo as organisations which had successfully recruited both young and old by targeting the former and getting the latter as a consequence.

Nic Coward briefly presented Racing for Change, and he came a creditable second place in the line of speakers - no disgrace given that Sheahan was outstandingly good, but also not difficult given what I thought were disappointing performances from the other speakers.

He (NC) was relaxed and authoritative, and spoke, in my view, better than I have heard him for a long time. His voice was pitched notably lower than recent occasions when I've been present, which probably has a lot to do with the fact that he wasn't ranting about us. He probably heads the (reasonably long) list of people who are effective and talented communicators on a range of subjects, but suddenly and inexplicably lose the plot when getting onto the subject of Betfair.

He said he fully supported Sheahan's views, which brought me back to the thoughts I had in January about how I think British racing talks about wanting to embrace the Facebook generation, without necessarily understanding that that means doing so on their (the FB generation's) terms, rather than their own (racing's). We'll see.

Tomorrow's schedule includes the 'Big Debate' on wagering, when our chairman and co-founder Edward Wray joins a panel which will include Peter Savill, the former Chairman of the BHB, and Peter V'Landys, the CEO of Racing NSW (and indeed Nic Coward). Ralph Topping was due to be on the panel, but hasn't made it. One can only assume that he's stuck somewhere.

No cheap jokes, please, given that I managed to avoid one myself.

Grand National

I landed in Sydney this morning, where I am attending the Asian Racing Conference, to the largest flurry of e-mails I have had for some time. Most of them revolved around the Grand National.

In any circumstances other than that I would have been roughly over Darwin at the time the race went off, I'd have been very sorry to miss it. The Grand National holds a huge number of special memories for me.

One of the first things I remember in my life was watching Red Rum win his third National, at my grandparents' small terraced house in Kensal Rise. It made an agreeable change to the usual Saturday afternoon fare, which involved my grandfather watching the wrestling on World of Sport.

Four years later, I persuaded the nanny, with both my parents away, to let me raid the house-keeping jar for a couple of quid, which she then obligingly put on Aldaniti for me at Datchet's tiny Turf Accountant - her first-ever visit to such an establishment. I put the stake back in the jar later, and the winnings kept me in Cola Bottles for some time to come.

In 1992, my first year as part of Cambridge University Boat Club's squad, the Grand National and the Boat Race took place on the same day (April 4th). I delayed our crew's departure from our base at the Bank of England Sports Club in Roehampton because of my insistence that I wanted to see the titles of Grandstand, complete with the music from Champions. Now, just a bar of the theme tune is enough to transport me back to that emotional day, which saw Cambridge beaten in a spookily identical fashion to that by which they triumphantly won last week. (Goldie won by three and a half lengths, and I almost took the bows off Isis in my eagerness to get their water along Crabtree Reach, more or less opposite where Betfair's offices are today.)

The memories of this year's race will sadly be limited to the various pieces of commentary that appeared in my inbox, although they give what seems a complete picture. From comments about McCoy's emotional interview, through reports about Ladbrokes' site going down (sorry - couldn't resist!), to a gleeful missive from my parents telling me that they had backed the winner; it was all there.

The bulk of the mails I got, though, involved discussion about what the result means for racing, given two things: first, that it couldn't really have been a worse result for the bookmakers; and second, whether it is right or wrong that the over-round should have got progressively worse as the race approached, to finish at 155%.

To deal with each in turn...

One of my colleagues who is most knowledgeable on the subject suggested to me that, "I'm not sure that any of the other thousands of 'first four' permutations could have been worse for them". Brace yourself for plenty of 'it cost us millions' stories in the press tomorrow, but the reality is that those millions will be back. But I won't be bracing myself for anyone (in racing) recognising the sense (for racing) in managing risk perfectly like we do at Betfair, which delivers levy returns whatever the result.

As regards the SP, it's worth having a look at what SP has been at the National over the last 10 years. Courtesy of the same colleague, here are the numbers:

2000 - 138%

2001 - 142%

2002 - 143%

2003 - 143%

2004 - 133%

2005 - 139%

2006 - 147%

2007 - 152%

2008 - 146%

2009 - 146%

2010 - 155%

To put that into perspective, the winner returned 10/1 at SP today; and 18/1 at Betfair SP.

Now, there's an argument that says that Grand National Day is the one day that the bookies should have an over-round that represents daylight robbery to any value-seeking punter. The vast majority of their customers today are not just not value-seekers, but are not betting with any knowledge whatsoever of whether a horse should be 10/1 or 33/1. Equally, many of them are not likely to come back again until the Grand National is run next year. On that basis, you could argue that it makes sense to charge as much money as possible, safe in the knowledge that they're going to buy the product just this once.

The counter, though, was put succinctly in an e-mail by one of Betfair's very early customers, who suggested that maybe an idea for Racing for Change would be to look at how the biggest betting day in the calendar could become an opportunity to welcome new people into the sport, rather than "treating them as people who have strayed into the wrong part of town and deserve to be mugged".

I think it's a powerful argument.

There's no question - and this year proves it - that there is a trend for false gambles which ignores the broader market as captured by Betfair. Horses are shortened in price late in the day, and nothing is lengthened to compensate. The pricing experience is one which I don't think any other industry would get away with.

Does it matter? I think it does. You might argue that adding 55% to fair value would have gone some way to mitigate the disastrous result; but it seems more likely that someone who picked up £180 for a tenner will return and have another go, than someone who picked up £100.

Certainly, any customer who learns that he'd have got twice the price half an hour earlier, or in the morning, or on Betfair, or even on the Tote (which was paying £15) will feel short-changed, and a 'good customer experience' will become a mediocre one at best. So, given that we know that more regular punters tend to return to the bookies what they win, I would have thought that giving new customers a fair go in the hope (or expectation based on experience) that they can then be retained for lifetime value would be a more sensible business model.

But I suspect I'm in a minority confined to Betfair.

Telegraph

There are contrasting pieces relating to Betfair in today's Daily Telegraph. First, Boris Johnson gives us a great plug in his comment article about the chances of Gordon Brown winning the election. Then 'Aussie' Jim McGrath has a pop at us as he discusses Racing for Change and last week's BHA AGM. The appearance of neither makes for earth-shattering news.

I met Boris when I was invited to a Tory dinner a couple of weeks ago - a dinner notable for its attendance by a number of betting industry people - and he was, in my opinion, a different class. It was a curiously flat affair, all things considered, although I won't bore you with my political opinions about why. But Boris's speech, like his banter afterwards, was entertaining. I'm not surprised to learn he's a Betfair convert!

Neither does Jim's opposition come as a shock. Last time I discussed racing with Jim at any length, he walked (or should that say 'stormed'?) out of a pub in which the two of us had been having an increasingly heated and certainly too alcohol-fueled debate about Betfair's status as a bookmaker and its payment of levy - the very topic of his piece today. Given that his parting words that evening were two in number and totalled seven letters in length, today's latest contribution to that debate is significantly more printable.

Unfortunately, it doesn't, in my view, make it any more convincing. Quite apart from Jim's assertion that 'just about everybody in the game' disagrees with us - he and I must speak to very different people - the fact remains that Jim's argument is based on perception of our business, and mine is based on the reality of its set-up.

I'm not actually trying to argue our case against him, though; nor were the adverts we published last week - the hat on which Jim hangs today's comment - designed to do that. The point that we sought to make in those adverts, and which I keep trying to reiterate here, is that it almost doesn't matter which side of the argument you happen to be on: it seems to us, quite simply, that the time has come to park the debate and move on to something else. Another decade arguing over Betfair's levy payment is not going to achieve anything other than have us all go around in circles, when there are so many other things we need to discuss.

For example, imagine that Jim is right: imagine that everyone in racing really is against us, and we are wrong, but we stubbornly, irritatingly, refuse ever to accept it. Imagine that we base our arguments on nothing of substance, but just argue our way out of a corner.

There is a view out there which is very close to this. But does it matter?

The fact is that that argument of little substance has still meant that every time we have gone to independent arbitration - through the UK government (twice), through the Australian courts, or through Sir Philip Otton - the result has been the same: whoever has come out in judgment has agreed that there is no way that you can distinguish between a fixed-odds bookmaker which takes risk and a fixed-odds bookmaker which manages its risk perfectly through technology, without being discriminatory towards the latter. On that basis, it surely makes no sense to underline Einstein's theory of madness: keep doing the same thing in expectation of getting a different result.

Jim has told me many times that the reason for this consistent set of results is that people 'stick you in the too-hard basket', and that all it needs is a proper assessment to get a change made. I have suggested to him, in contrast, that it is because the arguments we propose stand up; and that until we hear a substantive response to those arguments, that's what I will continue to believe.

But when I ask Jim whether he has ever read any of the papers I send him, he replies that I have sent him "enough papers to wallpaper the downstairs loo", and that if I "can't put the argument onto a single page, then it isn't worth looking at". Who's making use of the 'too hard basket' now?

The irony of Jim's piece is that the print edition has the following sub-headline: "Cheaper race-going and help for punters is all that is needed to bring in public". By my understanding, that means that Jim's solution is to cut margin and allow punters to win.

Yet the article itself says that what Betfair ought to be doing is to increase its commission in order to help the levy grow. While Jim is quite right in saying that we could do that in our terms and conditions, what baffles me is why he and many others in racing think we don't just do that, if it's such a simple solution to the debate.

The answer, of course, is that we price our product like any successful business venture: we charge the price that attracts the largest number of our target customer as we can, while extracting the best commercial return we can in exchange. Primark sell cheap clothes in both senses of the word; Armani sell at a premium to a specific type of customer. In Jim's terms, the Telegraph sells for £1 a copy; the Sun sells for 20p. They have different types of customer, and the arrival of the Sun brought a whole new set of people to newspaper readership. But having got them on board, if you now sold the Sun for the same price as you can sell the Telegraph, you wouldn't increase your profits five-fold; instead, you'd lose most of your customers.

That's not really one for the 'too hard' basket, is it?

BHA AGM

I was at the BHA's AGM today - an event which contained a surprise or two (such as the presence of Jeremy Kyle) and, as ever, differing opinions at lunch afterwards. One person I would consider entirely independent commented to me that he felt BHA CEO Nic Coward had spoken extremely well; another of the same description that he had seemed nervous and not on top of his brief. The racing industry isn't well-known for having consistent views, and today was no exception.

From the substance of the speeches, though, only one paragraph from either of Paul Roy's or Nic Coward's was directly relevant from my point of view.

Paul Roy's reference to Betfair was as follows:

"Betting and Racing also need to work together to understand how the development of exchanges will affect us over the years to come. The impact of exchanges on liquidity, bookmaking margins and the maintenance of integrity services with its escalating costs is significant. This is an enormous challenge facing both traditional bookmakers and Racing and we must respond to it."

To say this is curious would somewhat understate it.

I'm not sure what is meant by our impact on liquidity. In Australia, TabCorp business has increased, and money into the Tote in Tasmania is up 20%, since we were licensed there. The idea that we have adversely impacted liquidity in the betting market is a new one on me.

The escalating costs of integrity services in contrast, is an argument which I think most people have left behind long ago. If the BHA is really setting itself up to argue that Betfair's levy payment should be proportionately higher than everyone else's because of integrity issues, I think it is on to a loser. By all means, we can withdraw the free access to our Bet Monitor on which the BHA's integrity unit basis much of its intelligence, or we could scale down the investment we have made internally in our own integrity team (which acts as a dedicated resource for organisations like the BHA with which we share information) if providing the support of either on a real time basis is seen to create a burden for the sport. But surely no sensible man is going to return to the whole 'you can bet on a horse to lose' red-herring and retain any credibility in the modern world.

But of the three things which Paul Roy points to, the 'impact on bookmakers margins' has got to be the strangest of the lot. There's far too much that could be said about margins to cover it here, so I will blog about it some other time; but even a short analysis of this statement is enough to demonstrate how odd it is.

First of all, as discussed many times before, margin is not the relevant metric, and as a man who has made all his money in the markets, it is inconceivable that Paul Roy doesn't understand that (although if he doesn't, I blogged about it in Noddy terms the other day). The industry gets paid on gross profit. Plenty of academic studies of horseracing will explain how when margin is cut, turnover goes up (and vice-versa); and gross profit is the product of the two.

Second, bookmaker margins have not consistently been going down, as racing seems to suggest. Yes, there was a period of prolonged bleating (which happened to mirror exactly the bleating about pitch auctions which pre-dated Betfair's existence), but if you look at what the bookmakers tell the City rather than what they tell the racing industry, you will know that there have been periods when they have stressed that margin is going up.

But both those points aside, it is worth recalling what the Treasury had to say about this issue when they did their review of betting exchanges. Although Racing will tell you today that 'that was a long time ago' (it finished in December 2005), the quote in question is timeless: "It is not the fault of the tax system that off course prices are set in such an arcane way, nor the responsibility of the tax system to correct for this."

Nic Coward's 'big paragraph' from my point of view was this one:

"Once the right number is established, then will be the time to get into the issue of what parts of the betting world will be contributing what proportion – the very different businesses of small independent, majors, exchanges, online and other remote operators. They will have differences of opinion between them, undoubtedly. Heated differences. But whatever those difficult issues are, and however they are resolved, does not, and will not, and cannot, alter the amount that is due to racing."

There are lots of things you could say about it, despite the fact that it's only one paragraph; but I shall limit myself to three comments.

The first is, perhaps, peripheral. But I can't read it without finding that what springs to mind is the observation made to me by one of racing's CEO's at Cheltenham last year: I remember him telling me that "Nic's rhetoric is Churchillian. We sit in meetings with him and you can see people hanging on his every word. But the trouble is, when you see it written down afterwards, you realise you can't actually work out what it means."

The second is more fundamental: it's curious to me that they don't yet know what the number should be. If they've spent the last three years saying that the levy is all wrong and racing needs to get a proper return, how is it possible that they are only just working out what number they think a proper return is?

And the third, most fundamental of all, is this: it's pretty clear, as was commented to me afterwards by someone who is part of the Horseman's Group, that the paragraph is a "shot across Betfair's bows", in that it flags the idea that not all operators should pay on the same basis as other operators. But surely, if the object of the exercise is to make sure that people pay commensurate to the amount that they benefit from racing, then what screams out as the solution is that everyone should be paying a percentage of their profits. Someone who only makes £100 pays £10; and someone who makes £100million pays £10million. What could be more consistent and proportionate than that?

Of course, if 10% of the overall profit figure doesn't get racing to the "right number" that we're about to have established, then what needs to change is the rate of the levy. As we've been saying since about 2004: if 10% across the industry isn't the right number, then change it; but you have to do that across the board, consistent across operators. And you also have to accept, as you make the product more and more expensive for the operators, that you risk accelerating the loss of market share to other sports.

Ultimately, that is a risk that Racing is going to have to take, if it wants to go down the route of hitting a pre-determined number; because the quest for that number can only be achieved by deciding what it is, and then working out what percentage of operators' profits is required to hit it.

Of course, the BHA will argue that the percentage will be determined by how many people are in the net, and therefore by what makes you a bookmaker; and we'll be back to the same old unsubstantiated arguments about bookmakers avoiding levy or punters who make money on Betfair being relevant (but not those who make money anywhere else). Flagging this appears to have been the purpose of this paragraph in the speech.

So, at an AGM to take us into a new decade, where Racing for Change was the principle topic, the Chairman wanted to underline the concerns that exchanges raise for integrity and margins; and the Chief Executive wanted to signal his plans to levy Betfair differently.

Who says Racing's not stuck in a groove?