(ii) How are Assets Held on Deposit Looked After?
As mentioned earlier gambling contracts are unenforceable by virtue of the Gaming Act 1845. Bookmakers therefore have required punters to deposit funds with them before placing a bet. How does the bookmaker look after this money?
Currently there are no regulations in the UK that stipulate that bookmakers should keep client funds separate from the rest of the business. This is not the case if you are depositing money with a financial institution such as a bank or a spread betting firm. These firms are regulated by the Financial Services Authority, which ensures that your deposits are safe as the firms are subject to very strict financial controls.
When a client deposits funds with an internet bookmaker the money immediately becomes part of the firms working capital. This means that the bookmaker can use this money to pay for the every day running of the business. This is a dangerous situation for the bookmaker to be in.
On one hand he has access to vast cash reserves held on deposit to use for the business but on the other the money is not really his. Until the client has ‘lost’ the money held on deposit by gambling it with the bookmaker the money should still belong to the client.
If the client wins with the bookmaker he may be put in a position where he is unable to honour the bet because the deposits have been used as working capital. The likeliness is that the bookmaker will be able to honour the bets struck but in the long run he is walking a tightrope as the funds can easily disappear if not managed correctly.
It is said that “working capital planning is a key part of overall financial planning.” Clearly if client deposits can be treated as working capital it cannot be controlled effectively. Good financial planning on the part of the bookmaker should not take account of money that is held on deposit, but as the law stands the bookmaker is perfectly entitled to use funds in this way.
The money that you deposit with a bookmaker in reality becomes his; you may find that you have lost before you have even had a chance to place a bet.
(iii) Why Have Bookmakers Been Unable To Cope?
The incidents highlighted at the start of this chapter regarding Luvbet and Netbetsports were clearly caused by bad money management by the respective firms and a lack of separation of client’s deposits from the firm’s accounts.
Michael Singer, former chairman of the now defunct National Association for the Protection of Punters
(NAPP) explains how the internet firms operate. “What tends to happen is that all moneys go into the one account. This enables bookmakers to use deposit money to shore up the business if they find themselves in financial difficulties.”
Looking again at the liquidator’s report of netbetsports it clearly states that customer funds were not held in individual accounts but were deposited in the company’s merchant and current accounts.
Netbetsports have cited betting exchanges as one of the reasons of their own demise. They feel exchanges
have contributed to the downfall because of the increasing numbers of punters that are betting on the exchanges resulting in less money flowing through the books of the ordinary internet bookmakers.
This view is shared by Bruce Millington he says that “Betfair, whose spectacular and utterly deserved success is probably the chief contributor to the downfall of other online bookies.” The rise of the exchanges is not the sole reason for the downfall of these internet bookies.
The fact that Netbetsports only had an online presence was a contributory factor. They were trying to take on already well established bookmaking operations without a secure financial footing of their own. When Betsmart closed their internet site, as it was unsuccessful, Chisholm Racing, who had set up the site, was able to honour all the bets that had been struck because they had an established business behind them.
(iv) Calls For New Legislation.
These recent incidents have led to calls for internet bookmakers to be subject to stricter controls on how they look after client’s deposits. Michael Singer has described the way that clients are being treated in the wake of these collapses as a ‘major scandal’.
He feels that “when punters place a bet with an internet bookmaker their deposit money should be placed in a separate account and be
ringfenced.” In the wake of these collapses leading internet bookmakers Blue and Sportingbet (the world’s biggest online gaming
organisation) have announced that they ringfence clients’ deposits, winnings and unsettled bets.
Blue issued a statement shortly after the collapse of these bookmakers saying “it would like to make it clear that their 300,000 registered users have always enjoyed ringfenced accounts to the extent that clients’ deposits, winnings and unsettled bets are held in separate bank accounts” which are nominated as “Trust Bank Accounts.”
There is no mention of forcing bookmakers to ringfence clients deposits in the Governments report A Safe Bet For Success. This could be due to the fact several of these collapses occurred during the reports research period, but there were several casualties before the research began.
It is not just the internet bookmakers who have had problems when it comes to paying money owed to punters. Bowman’s, Front Line Racing, SP Racing and First-Past-The-Post-Betting, all land based bookmakers, collapsed at the end of the 1990’s owing punters thousands of pounds.
These firms were in operation several years before the betting exchanges took off, so what excuses do they have? The answer to this question is unclear, but if their finances were more tightly regulated then punters would have had a greater chance of seeing their money again.
It is clear that it is time for the Government to do something about the problem of regulating clients assets held on deposit by bookmakers. Luvbet and Netbetsports are not the only dot com bookmakers that have gone bust, there have been several others, and there is no shortage of disgruntled punters who would welcome a change in the law.
PART 7
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