A day after betting exchange Sporting Options went into administration, a bail-out plan has been put in place.
Officials with Betfair, the world's leading betting exchange, and Menzies Corporate Restructuring (administrators to Sporting Options), announced a deal that will see Betfair take on 95 percent of Sporting Options' clients without any of them losing their money in the process.
Stephen Hill, Betfair's chief executive, said the plan should protect 5,000 of the 5,300 customers owed funds by Sporting Options and could have them compensated within the next few days.
"Our rescue package reflects Betfair's commitment to the betting exchange punter and to the nascent betting exchange industry," Hill said. "It is a testament to Betfair's financial strength that we are in a position to be able to do this."
According to the plan, Sporting Options punters with up to £1,000 in their account will have the amount they are owed credited to Betfair accounts. Any customer who doesn't have an active account with Betfair will be required to open one and pass the standard "Know Your Customer" checks, which involve supplying two separate forms of ID and a bank account or credit card details. Once their accounts are opened, they will be credited with the amount owed to them by Sporting Options.
Customers with over £1,000 will receive a minimum of £1,000 credited to their Betfair accounts, or 20 percent of their total Sporting Options account balances, whichever is the greater. Once accounts are credited, money can be withdrawn at any time.
Some Sporting Options users will be offered special reduced Betfair commission to give them incentive to become frequent Betfair customers.
Officials with Menzies are offering little information about what remains in the Sporting Options coffers, but did say that less than £100,000 was left in active accounts.
Paul Clark, one of the joint administrators from Menzies, confirmed that around £3.6 million is owed to client creditors of Sporting Options Plc.
Clark said Menzies jumped on the Betfair bailout offer because it was the best option for users.
"We are unable to advise clients in relation to their decision-making process, but we feel that it is unlikely that we will be able to make an early distribution to the clients from the funds that we are holding," Menzies said. "Any such distribution would in any event be minimal."
Clark said the main goal of the Betfair agreement is to ensure that a large majority of users still owed money are compensated.
"We are continuing to review the position, and we are working hard to respond to customers' e-mail enquiries and to ensure that we keep clients as informed as possible as updates become available," Clark said.
Another leading betting exchange, Betdaq, had also considered a plan to bail out Sporting Options clients who were left holding the bag when the company went into administration.
"We had discussions with the administrators about undertaking a similar gesture, but it quickly became clear that an alternative package was in place," Betdaq's Rob Hartnett said. "The prompt action of Betfair and Betdaq in expelling Sporting Options from BETA (the Betting Exchange Trade Association) is indicative of our intent to protect our hard-earned reputations as high-quality, low-margin alternatives to the traditional betting sector."
While an immediate black eye for the betting exchange industry (at least a major one) has been adverted by the Betfair plan, both Hartnett and officials with Betfair said a full investigation will be necessary to ensure that users' funds weren't misused prior to Sporting Options going into administration.
"We very much welcome Sporting Options customers to Betfair, and we look forward to helping as many of them as possible," Betfair's Hill said. "We hope we have gone some way in restoring their confidence in the betting exchange industry."
Based in Sussex, Sporting Options was launched in 2002 by former trader Kevin Griffiths with the aim of cashing in on the P2P Internet betting boom. The site offered lower commission rates than those offered by Betfair and Betdaq to acquire new customers and get a good market share in the competitive sector.
Internet bookmaking company Blue Square pulled out of a deal to buy Sporting Options in September after looking into the company's financial problems, which are believed to center around the practice of "seeding" markets to give the impression of greater liquidity.
The practice is widely conducted throughout the P2P market, but if punters' funds were used instead of company funds, executives with Sporting Options could face criminal charges.
Betfair spokesman Tony Calvin said his company made the proposal to bailout Sporting Options after it met with lawyers who made it clear that Sporting Options and its administrators were in no position to pay refunds to customers.
"It is our understanding that Sporting Options are effectively dead and that there will be no return for any clients with money tied up there," he said.
Calvin said Betfair felt it was its duty as the world's leading betting exchange to step up with a plan that suited all interested parties.
"Their collapse does the industry no favors, but there is a big overlap between our customers and the customers of Sporting Options," Calvin said, "and this package gives those who have lost out the chance to recover their money provided they register with Betfair," he said.
All betting activities on the Sporting Options Web site were suspended Monday.
Hill said Sporting Options' predicament before going into administration is a perfect example of why betting exchanges should be heavily regulated under the proposed U.K. Gambling Bill.
"The demise of Sporting Options shows why we urgently need the new Gambling Bill, not only to regulate online bookmakers but also to update regulation for the wider betting industry so that all punters are properly protected," Hill said.
He also noted that customers' funds at Betfair are held on trust in a separate, ring-fenced account that is audited by KPMG.
"Protecting customers' funds should be a condition of a bookmaker's license," Hill said, "and further, the new Gambling Commission should have the power to conduct spot-check audits of online and bricks and mortar bookmakers to ensure that this is the case."