Another Round in the UK P2P Battle

17 March 2004

Leading betting exchange Betfair once again finds itself in the crosshairs of a media circus involving traditional bookmakers, the horseracing establishment and status of betting exchanges in the United Kingdom.

The latest round of controversy started two weeks ago when jockey Kieran Fallon slowed his horse, the heavy favorite to win, on the final stretch of a race. By the time he got back on the reigns he was passed and lost the race. It was later discovered that betting exchange punters laid an unusual amount of money on the horse to lose.

The U.K. Budget Committee is scheduled to meet Today, and Chancellor Gordon Brown is expected to take the opportunity to change regulations on betting exchanges, namely allowing for maximum limits to be in placed for individuals on the exchange.

Several British publications are reporting that Brown is in favor of a plan that would force individuals who use exchanges to pay taxes similar to those that bookmakers do--a policy that has been recommended in the past by high street bookmakers. There's some speculation that Brown wants a new scheme in place by summer, some in the industry are skeptical of the plan as well as the suggested time frame.

The traditional bookmaking industry has expressed concern lately over individuals who routinely lay up to £200,000 on a fancied runner at attractive odds in the near certain knowledge it will lose.

Bookmakers feel those individuals should be forced to pay a bookmakers tax, in hopes the plan will either drive them out of the market or force them to compete above board.

Officials with Ladbrokes, a leader in the anti-exchange movement, testified in January before a joint committee on the draft gambling bill. Chris Bell, Ladborkes' vice chairman, told the committee then that the exchanges had to be treated differently, as they have evolved over the last two years.

"This is not our granny or our friend just having a few quid," he said. "These people are laying bets. They have to know something about it to lay a bet."

Betfair on Monday issued a release disputing many of the claims made in the press regarding the Fallon fiasco. The company's communications director, Mark Davies, said the notion that Chancellor Brown's efforts could bring an end to betting exchanges are off base.

"This is nothing that we haven't seen before," Davies said.

The company also stated that its competitors are trying to make more out of a situation that the exchanges have under control.

"The arguments put forward by Betfair's opponents are commercial in background and hypocritical in nature," the statement read. "They are designed to put restrictions on betting exchanges, yet offer no compensatory safeguards to the public, such as improving their own transparency, or positives for the sports or racing industries."

The company added that unlike traditional bookmakers, it has been more than willing to offer information to the Jockey Club about those using the exchange and placing bets.

Bookmakers have shown an "unwillingness over a 40-year period," to take similar measures," the company stated. "It was not until Betfair publicized its Memorandum of Understanding with the Jockey Club in June 2003 that the traditional bookies were embarrassed into accepting the principle of information sharing," the statement said.

The company also pointed out that any plan in which individual account holders and punters are taxed or licensed will "achieve nothing."

"On this basis, anyone who took Kieran Fallon's alleged tip that Rye would beat Ballinger Ridge would not require a license," the statement read, "while those who bet that Fallon's mount Ballinger Ridge would lose to Rye would have to have a license and pay tax. Bookmakers are licensed for reasons of financial probity, because they deal with the public's money, and not for any other reason."

Since the abolition of the betting tax in 2001, the biggest bookmakers have seen a threefold increase in stakes, a quadrupling in telephone and Internet business and a 14 percent rise in profits.

All the while, however, high street chains like William Hill and Ladbrokes have fought against the rise of betting exchanges.

The Treasury replaced the betting tax with a profits tax after the industry warned of an exodus overseas to compete with the growth of Internet and telephone exchanges in offshore centers.