Swamped

I've been totally swamped by kind messages following my posting with news of my resignation on Friday, and I will be spending my morning trying to answer the 400-odd e-mails I've received before I head to a lunch.

It's been really extremely flattering to receive so many messages of support, both from people inside the company and outside; and both from those I have always known to be good friends, and from others who have traditionally been on the other side of the divide from me.

Tim Ryan, who famously once tried to get me arrested in Australia on the grounds that I was apparently running an illegal gambling operation (a blog for the future, perhaps), sent a note wishing me good luck; and first on the telephone at 9am was Ralph Topping to say all the best.

Wags will doubtless suggest that he was calling in delight at seeing the back of me, but nothing could be further from the truth: in fact, he was extremely kind and generous in his assessment of my Betfair career. Not that that surprises me about him: Ralph was the subject of one of my unpublished posts from my back catalogue, which I have today posted here. Another old post which I couldn't publish previously has gone up here.

So, the first working day of my post-Betfair career is going to be an even more e-mail-filled one than was my time spent there. Which means, not a lot of time to blog. We'll save that for later in the week.

Ralph Topping

Ah, you clicked on this link quickly, didn't you... Expecting a tirade? Go on, you know you were.

In fact, it was to say, hats off to him. I sent a note out to various CEOs in th gambling industry today, asking them to support a Betfair six-a-side football tournament we are holding in aid of the Anthony Nolan Trust.

Despite our commercial differences, Ralph was the first to answer, confirming that William Hill would be there, happy to be taking part.

Good on him.

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.

Dog bites man

I see there's a headline on page 14 of the Racing Post today which reads, "Hills in call for government to tackle Betfair over levy".

In it, Ralph Topping (for it is he) states that William Hill pays more than three times as much levy as Betfair (that'll be because you make three times as much money on racing, Ralph), and that Betfair receives 'extremely favourable tax treatment'.

I would write more, but I'm afraid I'm falling asleep (as I am sure are you).

Just before I nod off, I've got one thought, though. Why don't the Racing Post just leave page 14 untouched for the next year? It will save them having to re-format each time, and I'm not sure anyone will notice.

Can anyone tell me any other story that hasn't changed in eight years that is still reported by the newspapers?

'Some strange eruption'? Or should that be 'the wheel is come full circle'?

The betting exchange section of William Hill's new policy paper, ‘Betting on Britain’, (reported in Friday's Racing Post, and now doing the rounds of an MP's office near you) is Shakespearean in its range: comedy, history, tragedy, and not a little irony. It's all there.

The history part is obvious, and tied in with it is the document's tragedy. It is not the first time William Hill (or another big bookmaker) has launched an attack on our business based on the absurd claim that Betfair customers are ‘acting as bookmakers’ and either we, or they, should be singled out for differential tax treatment accordingly; and it probably won't be the last. From my perspective, it's refreshing that there is nothing in their attacks which is new, and nothing that is not easy to knock down with the smallest level of scrutiny. But as readers of this blog will know, I think it means William Hill are living in the past, and it's about time we got onto a sensible topic. Like previous efforts, the document is an attempt to stifle competition in a modern market. And like the previous attempts, it'll be rejected by anyone with a brain.

The irony? Well, it's a paper which argues for a change in tax treatment on the grounds that tax is somehow being avoided. William Hill pay no tax on their online business since moving it offshore last year. Need more be said?

As for the comedy: there's almost too much of it to mention, such as the table - labelled 'a simplified version' (see irony, above) - in which they genuinely try to argue that they pay tax based on one customer losing £1000 to them (without any suggestion that at the same time, another customer will win £850 and it's the difference between one and the other that constitutes the profit, not the £1000 on its own (although even that is a simplified version); for tedious amounts of more of which, click here or here, or, in even more detail, here).

But the best line in a whole gamut of them has to be the one that says that taxing exchanges at a higher rate of gross profits tax on their commission is an "appropriate alternative" if identifying individual exchange users for tax purposes proves "too difficult".

This basically translates as "we think, without any evidence, that there are bookmakers who are evading tax that are using exchanges, but it is far too hard to say exactly which of Betfair’s punters are doing so [presumably this will be because it's not true, a bit like trying to prove the existence of ghosts], so the best course is to subject exchanges to a discriminatory tax regime just in case."

Why they don't just write, "the sole objective of this paper is to try to argue that you should tax or regulate (or both) those horribly competitive betting exchanges to such an extent that they are unable any more to offer their product and offer stiff competition to William Hill and other traditional bookmakers (which we still aren't really used to and don't like much), even though we can't actually articulate any justification for doing so, or provide any evidence that it is necessary."

Surely it would have been rather more transparent and honest if they had? Or is that a third piece of irony lost on no-one but themselves?

Why turnover is an irrelevant metric

Ralph Topping, whose latest diatribe I blogged about earlier today, is not the first person to have quoted Betfair's "turnover" in arguing, bogusly, about Betfair's relative tax or levy payments. The whole of the gambling industry is taxed (and levied) on gross profit; and gross profit = margin x turnover. Therefore, an operator with a turnover of 200 and a margin of 10 will be taxed on the profit of 20; just as an operator with a turnover of 1000 and a margin of 2 will also be taxed on the profit of 20.

However, because it comes up so often, and is still being wheeled out for current debates, I thought some might be interested in learning more about what our 'turnover' number actually means. For those who don't want the long version below, the short version is "not a lot".

Q. How does Betfair measure turnover?

A. The most commonly used metric for turnover is the ‘total matched’ amount which can be found on the site for every market. This figure represents the sum total of the backers’ stakes, doubled. A back bet of £100 makes £200 in total matched turnover, irrespective of the odds.

At even money (decimal odds of 2.0), it is therefore the case that the stated turnover is the same as the amount being wagered by each party, but where odds are extreme, this far from the case: if the odds are 10/1 (11.0 in decimals), then a punter wishing to win £1,000 need only bet £100, and turnover would still be expressed as £200 – double the backer’s stake. If the odds are 1/10 (1.10 in decimals), then a backer wishing to win £1,000 would have to bet £10,000 – making the turnover for the same win figure £20,000.

Applying this turnover metric to an individual user, that user’s total matched turnover on a given bet will be the backer’s stake doubled, irrespective of whether the user in question is the backer or the layer.

Q. What makes Betfair’s (and its users’) numbers so big?

A. Betfair charges its users a margin (commission) based on a user’s net profit per event. In contrast, a traditional bookmaker builds his margin into the prices he offers the punter. This means that a punter is paying the bookmaker’s margin on each and every bet he places with that bookmaker.

Therefore a Betfair punter can make several bets on a market, but will only pay a margin on his overall net profit position on the market in question. This encourages the Betfair punter to make multiple bets on a single market.

A punter with £100 in his account could lay a horse at odds of 6.0 for £20, thus taking up all the funds in his account. However he can now lay another horse in the market for the same odds and same stake, because he is allowed to keep betting as long as his exposure on the market has not gone over the £100 he has in his account. In this instance he is increasing the turnover on the exchange but doesn’t have to use more funds to do so. In contrast, every bet with a traditional bookmaker not only incurs a margin for the punter, but also requires him to fund each bet separately.

Separately, the ability to back for and against (or ‘lay’) every outcome, means that an exchange punter can bet on the movement in a price (so called ‘trading’). On the limited occasions that the ability to back for or against an outcome is available with a traditional bookmaker, the punter again pays a margin on each bet (this is also the case with spread betting) which makes ‘trading’ a price less attractive.

Betting on the movement in the price of an outcome allows a user to generate a large turnover, whilst taking very little risk. We once had a situation where a customer 'turned over' £246,000 on a rugby match without ever having more than £400 at risk. He ended up winning £150, which would have been roughly what he'd have got if he had placed a single bet on the right team to win.

Q. What relationship does this total matched turnover amount have to Betfair’s profits?

A. Betfair’s profit on an event is generally a very small percentage of this turnover figure, but it varies depending on the nature of the event. Two extremes are: a 5 day test cricket match which will typically generate significant turnover, but a very small yield for Betfair; and a 30 second greyhound race which will give a much higher yield based on a much lower turnover amount. The cricket match by its nature allows users to move in and out of positions as the game gradually develops, whereas the market on a typical greyhound race will only form in the minutes before the race and the race, will not be covered ‘in-running’.

Q: Is any metric of turnover on an exchange comparable with what a traditional bookmaker would consider to be his ‘turnover’?

A. Not really. A traditional bookmaker’s turnover is the sum total of all the back bets (whether backing for or backing against an outcome) that he accepts. The respective pricing mechanisms of the traditional and exchange platforms (punters being charged on a per bet versus per market basis), together with activity on an exchange which could not be done through a traditional bookmaker, means that any comparison between a turnover figure from a traditional bookmaker and an exchange, is like comparing apples and oranges.

Q. Does an analysis of turnover in some form have any benefits?

A. It is difficult to see any. The arbitrary nature of betting exchange turnover, and the flaws in treating it as a meaningful number are highlighted by the following:

1. Different exchanges calculate the ‘total matched amount’ differently. As described above, Betfair doubles the backer’s stake. However, Betdaq takes the sum of the backer’s and layer’s stakes. £100 bet at digital odds of 11.0 gives £200 of turnover on Betfair, but £1,100 of turnover with Betdaq.

2. A small punter can generate huge turnover with just a nominal amount in his account. A Betfair punter needs to collateralise his maximum liability on a market. However, if he never puts himself in a position where this liability is more than say, £10, then irrespective of the number of bets he places and the turnover he generates, he needs no more than £10 of funds in his account.

3. If a user wants to cancel an unmatched bet on Betfair he can do one of two things: he can click the ‘cancel’ button; or he could self-match – i.e. he could accept his own offer, giving him no exposure on the market and freeing up the original funds which had until then been unmatched. Cancelling his bet obviously results in no turnover, but self-matching will cause a total matched turnover of double the punter’s back stakes. Logically a punter will cancel rather than self-match, but the fact that an alternative which achieves the same result can have such a radically different impact on the turnover number, further undermines that relevance of that number.

Turnover, however defined, only generates profit for the operator if it provides punter loss. Betfair believes that the best way to maximise this over the lifetime value of the customer is to offer a low margin offering which does not penalize the punter for making multiple bets on a market, or otherwise increasing the range of betting opportunities for the punter.

The only meaningful metric is total punter loss. This provides the bookmaker’s (exchange or traditional) profits, and as a consequence the betting duty yield.

Is everything OK, Ralph?

I remember the first I met Ralph Topping. I was at the races at Windsor for an evening meeting, and he'd just been appointed. He was full of bonhomie, and was extremely friendly.

I saw him again shortly afterwards, at a meeting for what became the GREaT foundation, at which the gambling industry discussed how it would work together to avoid having the government introduce a statutory levy for problem gambling. He made a point of pulling me aside at the end of it to tell me that he wanted to make clear that the past was the past; and it was time the relationship between William Hill and Betfair changed for the better. We looked forward to grabbing a pint together.

When he had to present to analysts as William Hill produced mediocre results in August, I could understand what I regarded as diversionary tactics when Ralph drew on the irrelevance of Betfair's "turnover" to argue that "About £4bn of bets goes through Betfair and it pays just £7m to the levy. It's getting away with murder." Even when the BHA love-in happened just before Christmas, when Ralph and the BHA hierachy buried the "aimless and bleating' hatchet, I just saw Ralph as someone fighting his own corner. He'd just moved his online business offshore, so there was a certain logic, again, in trying to deflect attention elsewhere; and we've got used to being the whipping boys when diversion is needed.

But Ralph's recent interview in Betview magazine, which in part is a very interesting read, takes him to entirely new ground. He's quoted as saying, "I call Betfair the choirboys of the industry - 'look at us we're so innocent' - actually the exchanges are the biggest Masonic lodge there is. They're a massive secret society where illegal gambling is taking place."

I wonder what happened.