Banking and gambling

Having blogged so recently about the similarity between gambling and banking on the back of the Gambling Commission's survey about attitudes towards the former, I was struck by this description of the latter in Jerry White's history of London in the Nineteenth Century (Jonathan Cape, 2007; p. 164):

"The bankers of Lombard Street...loaned money at interest for a fixed (and usually short) term. To raise the cash they loaned, they might also sell paper at a discount. This was a credit system that gambled - 'ran a book' in Lombard Street jargon - on the creditworthiness of those who had issued or accepted a bill. In normal times, sound merchants and manufacturers honoured their bills and paid up. But if trade was bad, the risks could be high.... The London discount market was not the only game in the City. Stock-jobbing, that 'most active and decided spirit of gambling' [Rudolph Ackermann, The microcosm of London, (1808-10)], had come out of coffee houses into a 'stock exchange' in the last quarter of the eighteenth century."

I wonder whether, in 100 years from now, people look back on our current attitude to sports gambling, and the squabbles over betting exchanges, and wonder what all the fuss was about?

Europe on a slow road to nowhere

I spoke yesterday at the International Casino Conference in London.

The audience comprised regulators from monopoly countries and operators of monopoly businesses in Europe, so I didn't turn up expecting to have many friends. But I was struck, at the end, by how many people came up and told me that they agreed with the position I outlined, and how they find the position adopted by leaders on their side of the business frustrating.

The main thrust of my brief talk was one which will not be news to other online betting operators: that while European governments either sit on their hands or legislate in a way which outlaws internet gambling, consumers vote with their feet and go and bet wherever they choose. The impact of aggressive legislation is not to stop people betting, but to make them bet with operators other than the 20 or 30-odd brand names that we have all heard of. Given that the French government's own analysis estimated that there are around 5,000 gambling sites on the web, it's not as if they are spoilt for choice.

My comment that it would be helpful if European regulation took into account the reality of consumer behaviour was answered by Paul Herzfeld, the CEO of Casinos Austria International, with the statement: "Consumers might want to drive at more than 130kph, but that is the law."A sentence earlier, Mr. Herzfeld had also said that the difficult part of the debate between the state operators and the "private" industry (many of whose members are actually listed on the stock exchange) was that his company was regulated and the others were not.

It seems to me that in those successive sentences, Mr. Herzfeld summed up why this debate is not moving forward. On the assumption that the comments were based on a lack of knowledge rather than a conscious effort to misinform, I'd like to set the record straight on both issues.

To take the second, first: Casinos Austria may be licensed in Austria; but Betfair is licensed in the UK, as well as Australia, Italy and Malta. In other words, not only are we licensed, but we are licensed by more places, and therefore more heavily regulated (by virtue of different countries having different requirements) than his company is.

As regards the first, the analogy completely misses the point. No-one is suggesting that consumers should be allowed to travel at more than 130kph if 130kph is deemed to be the speed at which they are safe. But once we've established that the speed limit is set, would any government insist that a consumer had to drive a Volkswagen but couldn't drive a Volvo? Or could travel by car, but not by train? If not, on what basis must a consumer be allowed to bet with a State-owned operator but not a non-State-owned operator regulated to the same standard?

The implication of Mr. Herzfeld's statement was that Betfair somehow tries to avoid regulation, and wants to break the law. Nothing could be further from the truth: we set our business up making clear statements that we would stick to the law even if we thought it was stupid (we never, for example, took bets out of the United States, but instead blocked access to us from there); ;and we have made quite clear that we will submit ourselves to regulation and tax in states around the world, providing that regulation is equitable and consistent across all operators and does not seek to single us out.

The point is not, therefore, that the online gambling industry is seeking to avoid being regulated. It is that operators are being told that they cannot have a licence. The reasons we are given for that do not bear scrutiny. We are told, for example, that we 'cannot deal with problem gambling issues', when it is manifestly clear that we do so at least as well, and normally better, than existing monopolists. Let's not forget, for example, that the PMU in France introduced a means of ensuring its customers are over 18 only in June last year!

While operators like us are denied licences (and the French, for example, have said that they want to ban 'our way of betting', as if the fact that we manage our risk perfectly through technology is somehow problematic: you would think that it was a bonus, given what is going on in the world), consumers are voting with their feet. If they can't find the product they want at a fair price within their own jurisdiction, they go and find it on the web. They don't think of it as breaking the law: they think of it as exercising their consumer right to a fair product at a fair price. It's not as if they are buying something that isn't sold in their home country; it's that they are buying it in a package that attracts them, at a price which they think is fair value.

The impact of this in the longer term is going to be significant. Governments that think they are protecting their tax revenues by protecting their monopolies and keeping out competitive product are simply losing consumers to sites much further afield. We know from our own commercial experience that once you have lost a customer by seeing him sign up to a different site, it is very difficult to get that customer to move. In short, this game is a land-grab, and, by legislating (on purpose) to keep out best product and best price in order to protect slower-moving national operators, European governments are not even pitching for the business.

Onshore and offshore

I was at a breakfast this morning with many in the gambling industry and the racing industry, talking mainly about onshore and offshore bookmaking.

The comment was made that when the current Government first looked at gambling, with the publication of A Safe Bet for Success (when Tessa Jowell was Secretary of State), the document it produced was littered with warm words about Government wanting to work with the gambling industry. The Government duly embarked down the road of putting in place legislation that would make the UK a "world class" jurisdiction; and then in the space of literally six weeks, faced with an onslaught from the Daily Mail, it bottled it and produced regulatory and fiscal policies that didn't match. The offshore industry it wanted to entice to Britain stayed put; and onshore operators, which at the time were rather greater in number than today, battled with their disadvantageous position.

On this, I think everyone was agreed. So too, I suspect, the theory that an in-coming government, assuming a change, is bound to start from a position of wanting to correct what went wrong. In theory, it's easy enough: support the industry (in terms of facilitating its ability to trade internationally), and, to the extent possible, reduce the cost of doing business at home. This is what government tries to do for every industry out there, and while it can't always get it right - high-profile departures like Dyson show that - on the whole the aim is clear and such policy can in broad terms be pursued.

But between the time of the Gambling Act and now, the disadvantaged onshore industry has, with only two exceptions, given up and gone away. The result is that nearly every remote gambling operator in the world now sits outside the UK's jurisdiction, where it is under no obligation to contribute to tax, levy, foundations to help problem gamblers, or anything else.

An incoming government wanting to put right the mistakes of the past would therefore have to look at reducing the rate of UK gambling tax (currently 15% of gross profits), which makes Britain fundamentally uncompetitive. But to come back onshore, overseas operators need the overall cost of doing business in the UK to be reduced, which immediately means you get into a circular argument: you want people here, because you want to make sure they are paying their way; but if they pay their way, you raise the cost of them doing business.

The sensible policy would obviously have been not to lose them offshore in the first place, and it seems absurd to think that it has taken William Hill and Ladbrokes moving just in the last few months for this issue to come to the front of many British minds. But, given that they have now been lost, what can be done to get them back?

I blogged about the carrot and the stick approach earlier this month, when the UK Government made an announcement that had a slightly 'if you can't beat them, join them' feel to it. But in reality, standing up for the British industry in Europe, which I would love to see happen more, means standing up for its right to operate cross-border under the terms of Article 49 of the European Treaty within a properly-regulated system. And I'm not sure how you can do that at the same time as putting in place restrictions on EEA-licensed operators which adhere to your own regulatory standards, just because you're not happy that they aren't paying something to someone else. The law is about regulation, not tax, unless you want to get into a fight at the ECJ.

On that basis, though, I can picture a future scenario where a more Eurosceptic UK government delights in being challenged in the ECJ by an offshore operator for putting up internal market barriers, on the grounds that it could paint itself as standing up for British interests in keeping out "unwanted" offshore gambling in the face of a European Commission which insists on internal market rules. This would be fine, on the face of it, were it not that you are back to the problem you started at: there are only two operators left under British jurisdiction, and UK consumers don't for a second distinguish between those two and everyone else. Why should they? Consumers look for the best service and the best price, finding the product they want at the price they want. They stopped being interested in a British kite mark before I was born.

It was commented this morning that 'what needs to be advocated is a modern market approach to these issues', which is right. But in reality, the room would have been split at least two ways about what a 'modern market approach' actually is; and it's while everyone's been having the debate that the industry has developed, or moved, somewhere else. Unfortunately, we're still trying to find a middle ground between the views. Perhaps we need to accept that there isn't one.