Gambling study at BookieBusters part 5

(b) The Exchanges view.

The exchanges are keen to counter these arguments, put forward by the traditional betting industry. The founder of Betfair Andrew Black says, “the legislation is quite clear that it is not illegal for two people to bet with each other, and that’s what is happening with us.

Customers are betting with us as the underwriter.” He also says “centuries ago, betting started between individuals, and then needed market makers -bookmakers- when it got bigger. Now, in our sense, it has come full circle, though it’s not going to appeal to everyone.”

It obviously doesn’t appeal to either William Hill as we have seen or to John Schreck, a consultant to the Hong Kong Jockey Club who has described exchanges as “faceless bootleggers raping the sport”. There is confusion over the wording of the current legislation and as such the exchanges are currently operating in a ‘grey area’.

The exchanges are operating by allowing punters to ‘lay’ bets. The legislation requires that bookmakers ‘receive’ the bets. This is where the problem lies, is ‘laying’ a bet the same as ‘receiving’ a bet? If not, users of betting exchanges cannot possibly be classed as acting as bookmakers.

Betting exchanges are acting as a middleman allowing punters to bet with one another. The legislation also states that bookmakers ‘negotiate’ bets. There is no negotiation on an exchange as the bets are just matched against one another.

To be licensed as a bookmaker you have to satisfy the licensing authority that you are a ‘fit and proper person’ to carry out the business of bookmaking. The bookmakers argue that punters on exchanges are not subject to the same tight regulations that they have to abide by when being granted with a permit.

John Brown says, “you have to pass a test of whether you are fit and proper. The police look into backgrounds, it keeps organised crime out, it keeps money laundering out”. While there is no specific legislation relating to betting exchanges, Betfair and other exchanges have taken out bookmaker’s permits.

Andrew Black says Betfair have done this “because we want to show that we are doing things properly to build up customer confidence. We see ourselves as a fully paid up member of the industry.” Betfair also don’t allow you to bet on credit, you have to have the funds in your account to cover any bets that are placed.

Edward Wray, chief executive of Betfair says “we don’t let people bet on the system without having money in their account to cover the full liability of the bet.” This ensures that all punters on the exchange will be paid, so there is no worry that winning punters will lose out. The only real concern, that users are not fit and proper persons, is the criminal element.

The Grand PooBah of Punters

The Daily Honey

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(v) Are Betting Exchanges Open to Abuse?

Jeremy Philips, director of security of the Jockey Club, says “any system offering profit simply from a horse getting beaten is vulnerable to exploitation and abuse.” John Schreck has also said “there is something inherently wrong to back a favoured horse to lose.”

It seems John Schreck has missed the point, as this is what every bookmaker does on a daily basis on hundreds of favoured horses. However, bookmakers are more visible unlike punters on the exchange. There is nothing stopping someone with specific knowledge of a horse’s performance, such as a jockey or a stable from laying bets on an exchange.

There are also concerns that jockeys may be tempted to ‘stop’ a horse after laying it on the exchanges, this is a primary concern of the Jockey Club. Betfair has called for legislation to be implemented to outlaw jockeys and trainers from laying bets on the exchanges.

Chief executive of Betfair Edward Wray is keen to work with the Jockey Club and welcomes legislation, he feels it would ‘rubber-stamp’ what they are currently doing. He quashes fears of the anonymity of the layers on the exchange, “the assertion that bets are totally anonymous is incorrect.

While the details are not made public to other users, every transaction on our site is logged and stored indefinitely. As a result, the movement of funds is easily traceable.” Betfair director of communications Mark Davies claims that Betfair has a “better forensic trail than has ever existed in bookmaking [and] we actually support the integrity of horse racing in a way that previously has never been possible”.

(vi) The Governments Stance.

Although punters who use exchanges are not licensed as bookmakers and have therefore not passed the ‘fit and proper’ test, it is clear that because of the way that Betfair conducts its business punters are protected.

An unnamed Government source has told the Racing Post that the Governments objectives are to protect punters and keep criminals out. He says “in terms of guarantee of payment, it is hard to argue that punters are worse off with betting exchanges than with traditional bookmakers”.

This is because Betfair ensures that the punters can meet their liabilities before betting. He goes on to say, “as far as combating criminality goes, exchanges offer better protection against money laundering than racecourse bookmakers or betting shops. There is no cash betting and a better audit trail”.

The Government is aware that betting exchanges need to be regulated and licensed in some way, but they are unlikely to require every user to become a licensed bookmaker. They are likely, once the Gambling Commission is set up, to examine the systems they have in place to ensure the users are ‘fit and proper’.
PART 6