Betfair's 'Other' Problem Comes at a Bad Time

18 July 2003

Officials with Betfair have been quite vocal in defending themselves and P2P betting in general in Australia of late, but remain tight-lipped about a possible investigation into the activities of one of the site's customers.

England's Racing Post reported that U.K. Jockey Club representatives are investigating the betting habits of Steve O'Sullivan, a self-employed blacksmith who made his living shoeing horses, but could have been cashing bigger checks by backing numerous horses that he knew had no chance of winning races.

O'Sullivan was questioned by officials from Portman Square's security department over activity on exchanges surrounding the running of Hillside Girl at Carlisle last month. Other reports indicate that O'Sullivan laid a horse called Nimello when the former Lincoln winner became embroiled in similar controversy five days earlier.

Nimello was found lame on his right fore after finishing 13th of 20 runners in a Salisbury claimer with the performance referred to London after racecourse stewards learned the 12-1 chance had drifted from 6-1 to 32-1 in Betfair's win market, and from 10-1 to 25-1 in the place market.

Hillside Girl pulled up lame in a five-furlong novice auction stakes for which the filly's price on Betfair went out from a shade of odds-on to 21-1.

Mark Davies, communications director for Betfair, couldn't comment on the investigation or even whether one was indeed being conducted.

"If we comment on this one and then we don't comment on another," he explained, "people would start making assumptions"

Last month Betfair signed a memorandum of understanding with the Jockey Club, through which the site has agreed to turn information on its customers over to investigators if there's significant cause for concern over corrupt betting practices. The agreement was signed after the races in question in the O'Sullivan investigation.

Sources told the Racing Post that O'Sullivan, 32, has a near perfect record as a layer and that his successes during the last couple of months included three horses partnered by Dale Jewett, a fellow stable worker.

Jockey Club investigators also interviewed Jewett.

As part of the investigation, the Jockey Club informed Nimello's owner that no more entries would be accepted for the horse, which also pulled up lame at Musselburgh in March, until it has received "verification from an independent veterinary source of the horse's soundness to run again."

The timing of the possible investigation couldn't have been worse for Betfair, which was in the midst of seeking a license in Australia.

John Heaton, the Tote's chief executive, said the O'Sullivan affair exemplifies what's wrong with exchange betting.

"He was prepared to lay a horse to lose £100,000," he said. "That doesn't seem like harmless fun. To me, that is bookmaking."

Skullduggery issues have long been a cause of concern for all betting exchanges, as many say it's much easier to do using a P2P exchange that it is through a traditional bookmaker.

Betfair contends that the most effective way to detect punters with inside knowledge is to license exchanges and force players to register.

On Wednesday the group responded to a report (from a panel assembled by the Australian Racing Ministers) suggesting that betting exchanges be banned in Australia. The response triggered a rebuttal from the Australian Bookmakers Association, increasing the tension between Betfair and Australian bookmakers.

The U.K. Tote and high-street bookmakers have responded by criticizing the Betfair model as well.

Peter Jones, the Tote chairman, told the Racing Post that he felt Betfair was an illegal operation and was creating lower profit margins for the horseracing industry.

"It is a question of their underlying legality," he told the Post. "I can see professional bookmakers throwing in their licenses and going on to the exchanges illegally. I am in favor of exchanges, but there has to be a level playing field and legality."

Much of Betfair's racing business comes from commercial bookmakers who can find an easy way to level their books through the site.

Betfair operates with a license in the United Kingdom, which according to Jones, could be re-evaluated.

"It is a work in progress," Jones said. "The government's concept is of small punters betting on a recreational basis. That is not the case with a small number of big players. The Treasury has been made aware of this in no uncertain terms."

Heaton said he would push for getting betting exchange regulations included in the massive gambling bill that's expected to go before Parliament within the next year or two and will overhaul the gambling industry in England.

"When the Budd Committee's recommendations are implemented, a lot of people working in betting shops will have to be licensed, yet exchanges are not regulated at all," he said. "They must be put on an equal footing."

Heaton described margins on horse racing during the last 12 months as "very poor," although they've been slightly higher in the last three months.

In 2001 and 2002, horse racing accounted for 60 percent of gross profits in the Tote's betting shops, now totaling 435. That number dropped to 52 percent during 2002 and the first part of 2003, he said.

Heaton also said the Tote has been approached by a betting exchange to funnel its bets through the site, and while the idea was appealing, the Tote was forced to take the high road.

"It is a very attractive proposition," he said. "The exchange is responsible for paying betting tax, the layer doesn't pay anything. We wouldn't need a permit any more. Tote Credit can throw that away. There would be no fit and proper person test and the exchange will charge us a very small percentage commission. Tax will only be payable on that small commission."

The idea of the Tote going through an exchange is reason enough for the government to reassess how it deals with exchanges, he said.

"That is not what the Treasury intended, but it wouldn't surprise me at all to see bookmakers betting through exchanges," he said. "There would be a saving of 25 percent on gross profits. If you can't beat them, join them."

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