Joint Scrutiny Committee present their recommendations

April 8th was a big day for the future of UK based betting exchanges as the Joint Committee reported back their recommendations for the new Gambling Bill. The good news was that the committee recognised the benefits that betting exchanges were bringing to the betting public and to the sporting authorities. Describing them as "a good thing" Chairman John Greenway stressed that the exchanges must not be forced abroad by unnecessary regulation. All of this was welcomed by the betting exchanges. However, the disappointing news was the recommendation that non recreational layers should be "identified, regulated, made subject to the appropriate levy arrangements and have their status checked." This was followed by the suggestion that these individuals may also have to pay tax.

The exchanges were quick to reply, with Rob Hartnett of Betdaq saying that they strongly shared the DCMS's original view that "such a defined category was neither necessary nor workable in legislation"

Mark Davies of Betfair reinforced Hartnett's point saying

"Betting exchange users are no different from any other punters, and no British punters are currently licensed or regulated....Imposing thresholds on betting exchange punters would discriminate against one section of the betting public: targeting those who bet on outcomes not to happen is no more logical than targeting those who bet on outcomes to happen, since the two are different sides of the same coin. It would also create bureaucracy for one set of operators, while doing nothing to further the licensing objectives of protecting the vulnerable, keeping crime out of sport, and ensuring fairness to the consumer."

The Joint Scrutiny Committee seem to be working on a threshold figure of £15,000 a year. Davies reported that there are currently about 700 Betfair members making in excess of £15,000 pa and he calculates that perhaps only 240 of them would fit the criteria as suggested, therefore the first point is that we are not talking about many individuals. He makes a powerful point when he continues:

"Most are simply punters, who might win one year and lose the next. Are you to register them retrospectively, then de_register them?"

The opponents of betting exchanges were quick to claim a victory and suggested that the betting exchanges should do the honourable thing and start putting in place the framework now to administer the registration of non recreational layers. Betfair, Betdaq and Sportingoptions went on the offensive writing a joint letter to John Greenway, Chairman of the committee pointing out the negative impact that could result were this recommendation to form part of the final Parliamentary draft. The press release in which this letter was circulated to the media was fronted with the controversial heading "High Street Bookmakers Must Invest in the Integrity of Sport". In a move that Tom Kelly of the Association of British Bookmakers described as 'mischievous' they suggested that the traditional bookmaking industry should put in place a code of practise whereby they have a similar degree of openness to that of the betting exchanges. This letter is reproduced in whole below.

So what next? I do not believe that the proposal to register non recreational layers will make it into the final Gambling Bill. The proposal is so problematic and there are so many unresolved issues that I expect it to be discarded along the way. If I am wrong and the government have the appetite to push this through, the next question would be to what extent would this affect the betting exchanges businesses?

I asked Mark Irvine of TradeSports what impact the proposed new Gambling Bill could have on the Ireland based exchange he represents? He answered that there was obviously an interest factor, but the actual impact would be zero. In contrast the impact to UK based exchanges could be significant, and it could easily be the case that the likes of Betfair may be forced into making the short relocation to join TradeSports across the Irish Sea. As for Betdaq, they are already partially based in Ireland. Rob Hartnett chose his words carefully, but the implication was clear:

"With regard to the Irish position, we do have an operation there as well as in the UK. We want to have a base here (in the UK) because it is so central to the gambling world. We appreciate the opportunity to help shape legislation that may well form a template for other locations that have yet to embrace the benefits of a well regulated gambling jurisdiction. To this end we are committed to the fight. That said if legislation was introduced which compromised our business model, we would have to reconsider."

The cost of losing the tax revenue from the world wide operations of the industry's most successful betting exchanges would be unimaginable. Whatever arguments go to and fro over the coming months, this crucial fact will never be far from the Government's thinking.

Betfair's response to the Draft Gambling Bill can be seen in the announcements section of their website. There is also more reaction in the archive section of www.racingpost.co.uk Below I reproduce a letter published by the Racing Post on 20/04/04 in which Steve Robinson looks at the practical implications of the proposal to register non recreational layers. I also reproduce the letter sent by the major UK betting exchanges to John Greenway Chairman of the Joint Scrutiny Committee.

Letter: No regard for the practical aspects

Published: 20/04/2004 (Sport) STEVE ROBINSON Sale Cheshire

Steve Robinson is critical of the Joint Committee's report on the draft Gambling Bill

THE Joint Committee's report on the draft Gambling Bill does not appear to have given any regard to the practical implications of its recommendation to impose thresholds above which exchange customers might require a bookmaking licence or be required to pay a levy.

First, the Joint Committee "does not accept that those using the exchanges to lay professionally, effectively earning a living, should be entitled to the exemption of paying tax on profits". But it appears to have no problem with those using the exchanges to bet professionally, in effect earning a living. After all, off_course betting tax has been abolished.

Incredibly, the Committee does not seem to have realised that the act of laying any particular outcome is exactly the same as, and can alternatively be achieved by, betting on every other possible outcome in the appropriate proportions _ a situation made possible when the total bet and total lay price percentages are both very close to 100 per cent, as is often the case with betting exchange markets.

For example, suppose we have an event with three possible outcomes, A, B and C. A so_called `non_recreational' layer is hardly likely to lay A to a large sum of money when he or she can instead bet on both B and C to appropriate amounts, thereby achieving precisely the same effect and yet avoiding the need to register for a licence or pay tax.

As a consequence, a situation would inevitably arise on each and every market whereby there would be practically no money offered to bet on any outcome because very few punters would want to lay any outcome to a significant amount, yet considerable sums of money would build up on each and every outcome for customers to lay with virtually no takers. This would fundamentally alter the entire pattern of betting exchange markets and would render them farcical, even for the so_called recreational layers.

Second, by imposing such a threshold, it is a concern that this would surely encourage exchange punters to set up numerous exchange accounts under various guises and other named account holders, in order to give the impression that their betting has remained under any given threshold. Therefore, instead of promoting transparency and integrity, the Joint Committee's recommendation of imposing a threshold would have the contrary effect of encouraging many punters to conceal their true identity.

Third, if an exchange punter finds himself in a position whereby he has exceeded the imposed threshold of profits gained via laying outcomes during a given period of time, then there would be nothing to stop him offering to lay a given outcome at a longer price than is currently available and, at the same time, betting on and thereby matching his own lay offer.

By continuing to do this until a selected outcome wins, the punter can reduce his net profits from laying outcomes by any amount he may choose, and can therefore ensure that he does not exceed any particular threshold. This makes a nonsense of the Joint Committee's recommendation.

Fourth, many exchange customers like to trade on particular selections that they believe will be strongly supported in the market by betting on them at one point in time with the intention of laying off their bet later on at a shorter price in order to lock in a small but guaranteed profit, either in_running or before the event has even begun. (The converse may be applied to selections that the punter believes will drift.)

In such instances, the punter is, in effect, betting on the direction in which the market will move, as opposed to whether the selection will win or not.

The act of trading requires the punter to both bet and lay to large sums of money with the aim of gaining only a relatively small profit, and even this is no more than a gamble in itself. This must surely be described as nothing more than a recreational activity, and yet the `lay' element of trading in this way would be likely to render such recreational punters liable to require a bookmaking licence or to pay a levy.

The Joint Committee reported that exchanges are a good thing and that steps must be taken to avoid betting exchanges basing themselves outside the United Kingdom. Ironically, its recommendation would be likely to severely compromise its own objectives.

Letter sent by Betfair,Betdaq and Sporting Options to John Greenway

Dear Mr Greenway,

The Joint Scrutiny Committee's report on the Draft Gambling Bill raised a number of important issues with regard to betting exchanges, many of which have been referred back to the DCMS for further consideration. You are on record as stating that "there is a case for renominating the Committee once certain policy decisions have been taken" and that "there is no reason why the Gambling Bill should not be introduced in the current session of Parliament."

We share your enthusiasm for the introduction of the Bill, but equally wish to ensure that the wholly legitimate interests of betting exchanges and their customers are fairly reflected in the final Parliamentary draft.

However, we take exception to the Committee's suggestion that some exchange punters are "identified, regulated, made subject to the appropriate levy arrangements, and have their status checked."

The question of registration of layers is something we discussed at length with the DCMS prior to their drafting of the proposed legislation. The need for bookmakers to themselves account for use of the services we offer as part of their own business return was wholly supported. However, given the nature of the market, with multiple operators and such a broad spectrum of betting opportunities, it was felt to be neither feasible nor desirable to introduce financial or activity limits as a criteria for singling out one group of punters over another.

The betting exchanges have information sharing agreements with sporting regulators which help to underpin the integrity of individual sports. The imposition of artificial barriers, any of which could easily be circumvented, would damage the effectiveness of those arrangements.

It would do so through potentially fragmenting the source of any corrosive money across a greater number of possibly less reputable operators and encourage abusers to draft in others to open 'managed' accounts. We would then be no more able to protect integrity than the traditional bookmakers who often do not know the identity of their customers.

This would hardly be conducive to the objectives of the bill to keep crime out of sport and ensure fairness to the customer, though perhaps the detail of our arguments, which we will outline to the DCMS, have not been given much thought or time by those who call loudest for the regulation of our punters, as a cynical means to protect their own business model.

The major bookmakers are intent on strangling the exchanges with red tape and ultimately denying punters a betting platform that, for the first time, offers real choice, control and value. The imposition of conditions on betting exchange punters, even were it to be possible, would discriminate against one section of the betting public and create unnecessary bureaucracy for both the operators and the new Gambling Commission.

Even leaving aside the rhetoric of the debate, requiring the registration of certain betting exchange customers would bring no more information about those customers than is already known to the betting exchange operator. As you know the audit trail of an exchange allows operators of exchanges - and by extension the sports regulators with which they share information - to know in full what bets are placed, when, by whom, in what size, and with what funds.

Surely the best way to address integrity risks is to impose these policies on all regulated betting organisations. This could take the form of a new code of practice that would require the operators of all of the UK's 8,000 licensed betting shops, to reach the standards of probity, openness and transparency that have been set by the betting exchanges. We, for our part, would be happy to advise them on the investment required to support a new code of practice.

We are sure that you would agree that this would be preferable to any arbitrary punter registration system and most of all deliver the best public policy outcome for all concerned.