News that someone won the Scoop6 this weekend will probably not strike many people as an obvious spanner in the works of the BHA’s quest to get money out of Betfair customers in levy. But in my view, it deals their arguments a huge blow.
If you’ve missed it, a punter won £663,164 for a £10,000 bet, with a chance to add another million to it (as part of a bonus) next week. Doubtless, this will be characterised as a lucky punter, and the BHA will, if asked, make lots of warm noises about how wonderful it all is. But the reality, I suspect, is rather different.
First of all, this was not, I think it is fair to say, a small bet. I don’t know about you, but I wouldn’t wager £10,000 myself. I have nothing against people who do – good luck to them – but they are, well, about £9,995 out of my league.
I suspect (without evidence; but hey – the BHA can do it all the time, so cut me a bit of slack) that the punter in question is quite savvy. That suspicion is not entirely unfounded: it is based on the fact that I know people who have won the Scoop6 before; and I know people who bet large sums of money; and I know professional punters who bet into Tote pools all over the world and narrow their chances down something chronic in a way which my poor mathematically-addled brain finds hard to understand. So, I know what makes a successful strategy for some people, and the people in question tend not to be much like me, at least insofar as it comes to placing bets.
Second, the bet was placed on Betfair. So, the plot is thickening: a savvy punter has placed a bet on Betfair, and has come away not far off a million to the good. I can sense the BHA’s antennae starting to prick up.
Third, I suspect it is fair to say that some kind of narrowing down of the odds has been done by the punter in question. Why else would you put £10,000 on the line, unless you felt that you were beating the odds? This punter seems to me to fall into the definition of ‘shrewd’, which the BHA’s submission to the Levy Board says is one of four ‘techniques’ which singles out what it calls ‘high volume profitable users’ – the people whose money it wants a slice of. (The others, if you’re intersted, are “trading”, “arbitrage – namely, locking in a profit”, and “utiilising bots”.)
So, assume that our winning punter falls into all of the first three categories mentioned above: he has placed a large bet, on Betfair, and he’s shrewd. Let’s say that all his other activity also puts him into the other categories, too: he uses a bot, he trades, and he arbs. The BHA want a piece of him.
But wait! His bet was on the Scoop6: a bet which he could have placed with…er… the Tote. Or anyone else, in fact.
So, let us assume that the BHA has its way. Somehow, it persuades someone who makes a difference that Betfair customers who fall into these catgeories should be subject to levy. What now? Well, the punter who wins £660,000 on the Scoop6 with Betfair has to pay 10% in Levy. But if he places the same bet with someone else – oh, lucky him: he doesn’t.
Now, we’ve already established that the man is a shrewdie. Certainly, we’ve established that he is at least more shrewd than me. But what would you do in his position? I know sure as hell that next time I bet on the Scoop6, I would place my bet somewhere – anywhere – other than Betfair. The BHA’s policy is therefore quite plainly and demonstrably anti-competitive.
I am sure that the BHA will say that they will exclude this type of bet. “No!” they will cry. “It isn’t about the Scoop6 at all! People can win the Scoop6 all they like!” But this will show how little they understand about it. It will reveal that they think that the Scoop6 is just for small punters and is like a lottery, when in reality I know someone who has won the Scoop6 three times (or possibly, who knows after reading the weekend’s papers, four). The reality of the BHA’s position is that they cast around looking for people they can fit into definitions that suit them, and then seek exclusions from those definitions wherever it makes their lives difficult.
Their submission to the Levy Consultation demonstrates as much. Early on (paragraph 3.4), it includes a line which says, “This paper does not seek to identify the level of exchange activity at which a liability to pay levy arises, i.e. the threshold of activity, above which, [sic] one might argue that a user is in business”, which is a straight admission that they think that someone changes category from punter to leviable bookmaker by volume (or profit – it is not clear which: the BHA apparently believes that in this category, one equates to the other).
Let’s leave aside the implication that the BHA think that I am a passenger on a bus if I take two trips a day, but that if I travel as far as the driver, or get on and off a lot, I need a driving licence (even though I am never at the wheel). Let us concede, instead, that there is an argument for charging profitable people over a threshold, as happens with Capital Gains Tax in share dealings. But where, after that, is the BHA’s consistency? The taxman cannot charge a customer of Hargreaves Lansdown and not a customer of Charles Schwab; but on the levy, which (perversely) the BHA wants to separate from tax, apparently they want to argue that you can.
It’s a tragedy for racing that the BHA remains at sixes and sevens over an issue which should not be hard to solve. Their quest to fund the sport effectively is admirable; but their strategy is woeful, and its implementation, worse still. If they’re trying to say that “anyone who profits by a sum over a given amount on British Horseracing should pay a percentage of that to British Horseracing”, it’s a fair enough argument. But then they should first say it, and then be consistent in their approach to having it put in place. As it stands, they are doing neither, which is why they have no hope of getting anywhere at all with their arguments. As the Scoop6 has underlined this weekend, any legislator which follows the BHA’s suggested path will simply encourage (not to say force) betting customers away from one licensed operator and on to another, in a manner which is directly damaging to the business of the first.
No British government is ever going to sanction that.
Mark
I assume you haven’t yet finished reading our submission or maybe read it too quickly.
As you know, it’s really straightforward. People who are “bookmakers” under the Levy legislation have an obligation to pay levy. “Bookmakers” are defined as people who carry on “whether occasionally or regularly, the business of receiving or negotiating bets”.
The typical Scoop 6 punter will not fall within this definition. If, however, he is carrying on a “business of receiving or negotiating bets” he would have an obligation to pay levy whether or not he’s placing his bets via Betfair, the Tote or anyone else.
And the other misunderstanding in your post is that we’re not asking for any legislation or for any approval from the British Government. The law has been in place since 1963 – all we’re asking is for the Levy Board to enforce it.
David
I assume you haven’t read your own submission Mr. Zeffman.
It’s disingenuous to say that the typical Scoop6 punter won’t fall into your definition, because the typical Betfair punter won’t either. Could I suggest that comparing like with like, as Mark has, might be more productive?
Your own submission confusingly says that it won’t attempt to define the threshold above which a punter is “in business” (para 3.4): “This paper does not seek to identify the level of exchange activity at which a liability to pay levy arises, i.e. the threshold of activity, above which, one might argue that a user is in business”.
It then goes on to do precisely that, from para 5.35 to the end of section 5, defining the threshold as any customer who makes £1 or more for every 85p they lose, but only customers of Betfair. As Mark quite rightly says, the big Scoop6 rollovers are almost invariably won by pros, people who make a living betting, who submit thousands of bets robotically to cover the permutations optimally, and who win more than £1 for every 85p they lose. What about a customer of William Hill who wins more than £1 for every 85p lost? Why isn’t the BHA after them? After all they do meet the definitions in your paper.
It’s a fair question, regardless of how uncomfortable it makes you feel to dodge it.
I presume that inconsistency, not to mention all the other mistakes, is just down to shoddy proofreading. Did the BHA not pay enough for Olswang to do a thorough job?
“The typical Scoop 6 punter will not fall within this definition. If, however, he is carrying on a “business of receiving or negotiating bets” he would have an obligation to pay levy whether or not he’s placing his bets via Betfair, the Tote or anyone else. ”
This seems very unclear. Has an ‘obligation’ means what? That they should pay it but you won’t be chasing them to do so? If a winner on the Tote is placing his or her bets in various different shops how do you intend to enforce this?
Thanks PPBox.
As I said in my post, if a Scoop 6 punter (or any kind of horse racing punter) falls within the “bookmaker” definition he has a statutory obligation to pay levy. The reason why our submission focuses on exchange users is because that’s what the Levy Board has decided to consult on.
That’s a rather feeble answer if you don’t mind me saying so. You appeared in a Racing Post article back in May, before the consultation was even announced, talking only about customers of Betfair. There was nothing then or now that forces you to consider only the customers of one betting platform, so why aren’t you asking how many “business customers” of the Tote, or of Ladbrokes or William Hill are dodging Levy?
The Levy Board could get Norwich Pharmacal orders against William Hill or the Tote to find out which of its customers meet your definition, and are therefore acting as illegal bookmakers and shortchanging the Levy. Given the Consultation is over, there’s nothing restricting you to targeting only Betfair, unless you’re advising the Board to discriminate against one class of betting operator. Surely Olswang wouldn’t advise that. Even if that area of English Law is a weak spot for you personally, there must be someone at Olswang a bit more on the ball regarding discrimination?
Can I just say that it is refreshing to be able to have a civilised debate with someone from the anti-exchange lobby. Usually when you point out the gaping flaws in Racing’s anti-Betfair rhetoric the culprits run away and hide under a rock. It’s great that you think you’ve got half a case here and that you’re prepared to defend it.
On that topic I have to confess to being somewhat baffled by the claim in para 5.36 that there are a group of customers who “generate commission of £400m”. That’s some going, given that it’s about double the total of all commision Betfair collects each year. Didn’t anyone proof read your document before you submitted it?
PPBox, it’s nice to know that you’re such an admirer of my collected works.
On your final paragraph, I think you have a point – para 5.36 should probably have said “commissionable winnings of £400m”.
So, not only have I entered into the debate, I’ve even accepted we got something wrong!
By the way, it’s more than half a case.
David,
How would you respond to those that say this argument is effectively the same as that in 2005 when the matter was settled by HM Treasury in Betfair’s favour?
To quote their analysis:
‘After careful analysis, the Government has concluded that the current tax treatment of betting exchanges and their users is fair and equitable and that consequently no changes are required.’
‘The Government has concluded that taxing their commission is the fairest way to tax betting exchanges. This reflects the fact that the commission is the exchanges’ gross profit in the same way as net stakes receipts are for bookmakers.’
‘Whilst there are clearly differing levels of activity on exchanges and some users do bet in high volumes, there is not sufficient evidence to characterise these users as running a business, as opposed to merely being high-volume gamblers, who have traditionally been outside the tax net.’
I suppose the key thrust of your argument rests upon whether certain users of Betfair are involved in “business of receiving or negotiating bets” whereas the government’s previous verdict was that “there is not sufficient evidence to characterise these users as running a business”.
Are you arguing that the key facts have changed since this verdict – and if so, which facts – or that the original decision by HM Treasury was wrong and they should reconsider?
Mark
You really need to read our submission but the short answer is that the Treasury review was a policy review about whether to extend betting duty to exchange users whereas the issue here is a narrower legal question about whether those users are or are not “bookmakers” as defined in the Levy legislation.
It’s clear from the internal Treasury and HMRC papers obtained by Betfair under a Freedom of Information Act request that HMRC/Treasury did identify users who were probably in business but their concern was that if they taxed those people then unsuccessful punters and share traders and speculators might be able to claim tax relief for their losses and, in net terms, the HMRC would be worse off. That’s why they reached the policy conclusion they did. But that has no relevance to the legal/factual question of whether, for Levy purposes, there are users who are “bookmakers”.
Ah ok, thank you David.
I had a look at the proposal put through and have a few other questions.
I would like clarification on what sort of activity you see as being in the “business of receiving or negotiating bets”. You quoted in the submission an exerpt from the HMT report which gave the following information on the kind of high-volume winners on Betfair:
“We believe they are following strategies such as betting on the movement of odds and spotting mis-pricings in the market”
If this is their predominant form of betting activity I cannot see how this is similar to a bookmakers; it is far more similar to a professional punter than a bookmaker per se. Indeed I don’t understand how what anyone would understand as bookmaking activity can be understaken profitably on Betfair. A bookmaker typically offers prices on all selections with an overround built in as a profit margin but the lay side of Betfair’s book (The ‘bookmaking’ side in the traditional sense) is set to a <100% book and on top of that these users have to pay commission. Indeed, if it was obvious how anyone could offer an overrounded book on Betfair (and get matched) I'd quit my day job and start doing it myself!
As offering an overround book is impossible it appears that the HMT concluded the profitable methods of operating on Betfair are:
a) Bet on the movement of odds
b) Spot mis-pricings in the market
I don't see how either of these two strategies appear similar to the bookmaker 'overround' strategy. In fact the second one is pretty much the definition of professional gambling (Finding a horse that the market has undervalued and betting on it) and the first is just trading (Which again is a matter of skill, as the hundreds of posts on the Betfair forum with tales of failures from this endeavour can attest to).
Basically – do you draw a distinction between the very successful gambler (which do legitimately exist, have no right to pay levy and as this blog post points out can utilise any betting operator) and a 'bookmaker' and if so how do you define it? Do you mean that if the users offer prices on Betfair they are bookmaking as they are 'negotiating' bets rather than just taking what is offered?
Oops, just noticed another good quote from that same extract:
“We have struggled to find agreement on an adequate definition of what these betting exchange users are doing (given that they are not bookmaking in the traditional sense), perhaps we could call it “speculating on betting exchange markets”.
HMT’s conclusion: “they are not bookmaking in the traditional sense”
Mark
Have to get on with my day job (!) but being a “bookmaker” for Levy purposes is solely about whether (as per my first post above) someone is carrying on “whether occasionally or regularly, the business of receiving or negotiating bets” and that has nothing necessarily to do with whether someone is making a book in the way that traditional bookmakers do.
David,
I appreciate you’re very busy – I’m grateful for your responses as this is a debate that interests me (and I must admit I read a lot more of Betfair’s side than the other as I’m on the Betfair forum a lot).
In that case, what action by a Betfair user would you define as “whether occasionally or regularly, the business of receiving or negotiating bets”? Do you refer to the option of offering a price on Betfair as opposed to taking what is available? I’d imagine that this action is not limited to just big players on Betfair; I for one often leave prices up to try and trade my positions on Betfair and yes, I do win overall (albeit to much smaller amounts than described in your submission) – does this mean I’m a bookmaker?
Apologies, typing too quickly and not thinking:
I’ve realised that you might be referring to the section in your submission where you point out that in the Betfair Ts and Cs they say effectively “you are betting against other punters”.
If that is the case aren’t you a) arguing that ALL Betfair customers are bookmakers by virtue of using Betfair and b) if Betfair just changed the Ts and Cs to say “we are the bookmaker, we take all liabilities, handle the payout, hold the money etc etc – the bet matching software is just a clever risk management tool” (as I believe Mark once mentioned in a long ago post was an option) would this change the debate?
Mark
Probably the best thing is if you read this http://www.britishhorseracing.com/levy/Racing's%20Response%20to%20HBLB%20Consultation%20on%20Betting%20Exchanges.pdf
This sets out all our arguments – not that the host of this blog is (or will ever be) convinced by them!
Thank you for the candid reply Mr. Zeffman,
“By the way, it’s more than half a case.”
I would probably agree with you if confusing commission with winnings was the only howler in your paper. Based on the actual paper, if that’s your price I would be a seller at a half.
The biggest weakness with your paper must be Section 5, and I’m really surprised that a section of the paper that’s so vital to your case was clearly trusted to a junior member of staff and not checked for accuracy.
The bit that I’m sure must baffle everyone is how you arrive at the £300m number in para 5.39 (on which your table in 5.41 depends, and on which the whole case that there’s any “missing” levy hinges). You can’t have just assumed that 15% of the total money won will be by those more than 15% from the median, as that would be complete mathematical gibberish. I appreciate that maths can sometimes be tricky, but think what that would mean: is 20% of the money won from those customers more than 20% from the median? Is 99% of the money won by customers more than 99% from the median? Obviously not. That would be complete rot, and your paper can’t have made such a hash of it.
Could you explain where the 15% comes from please?
Once again thanks for clarifying these vital pieces of your case.
David,
I’m making my way through the report in my spare moments. In terms of whether certain users are in ‘business’ on the exchange I’d say I agree with your argument; some of these people do indeed fit the definition of business that most people would accept and have that degree of ‘commerciality’ about their actions. I’m less sure on the point about the negotiating/receiving point though. Through your interpretation of a definition of a bookmaker you can easily come to the point where ALL parties involved in a betting arrangement are bookmakers! A professional gambler placing a bet at William Hill is a bookmaker under your definition, no different from William Hill.
I guess this comes down to interpretation of the original draft of the law. The submission claims that the original intention of the draft was that all punters are bookmakers and the only difference is whether they run it like a business – i.e. whether they bet with the intention of turning a profit. Here I’d disagree – I don’t think the draft in any way attempted to call professional gamblers bookmakers; they aren’t. If that had been the intention of the law at the time it’d have been obvious to try include some kind of way of making professional gamblers pay levy; they’ve been around for as long as betting has and aren’t a new phenomenon not considered when that law was drafted.
Consider the example of a friend I know. He doesn’t place thousands of bets but maybe more like a hundred a year. If I were to ask him why he bets, he’d tell you his overriding goal is to ‘make money’. Long-term, he’s a losing account to a bookmaker as he isn’t particularly savvy (or at least I don’t believe he is) and makes poor value bets however this year he’s been exceptionally lucky and has hit two 100/1 winners – he looks likely to be in net profit by the end of the year. Now, according to your definition, he satisfies all the criteria to pay levy. He entered into a venture with the primary aim of enacting an income, negotiated and received bets and turned a yearly profit. However I doubt you’d find anyone who’d look at him and call him a bookmaker!
I don’t believe the definition was meant to be derived based on a combination of profitability and income intention; there’s so much more to being a bookmaker than just this. Even ignoring the differences in business model which principally define what people generally accept a bookmaker to be, a bookmaker has other responsibilities a punter does not. I’ve never had to hold anyone else’s account funds, settle their payment, advertise for their business, resolve disputes etc etc that a bookmaker has to do.
However I appreciate that the distinction comes down to a matter of interpretation (doesn’t it always in law!) so it’ll be interesting to see what the levy board come out with in the end.
As a side note, In your submission you say that “(with regards to bet negotiation/acceptance) Betfair is a neutral party in this respect…it does not, in these circumstances, receive bets” and hence attribute the bet negotiating/acceptance over to the customers. If that’s the case, then why does Betfair pay levy at all? I’m sure they’d be much happier to have their customers pay it for them instead and should be on your side for this one!
markg,
It appears to change depending on which way the wind is blowing. Para 3.14 says Betfair doesn’t receive the bets. Para 4.41 says it does receive the bets. Para 3.4 says the paper won’t attempt to define a threshold for “business” activity. Paras 5.23 to 5.41 define a threshold for “business” activity. Surely the first rule for anyone considering legal action is “get your story straight”. No doubt Mr. Zeffman will be back on to smother us with fudge on those obvious weaknesses.
I’m a bit concerned that there’s been no response to my question about the source of the £300m figure in 5.39a on which 5.41 depends. Maybe David’s too busy to reply because he’s currently a bit tied up kicking seven shades of something out of the intern at Olswang who plucked that number out of thin air. Based on David’s previous answers he seems like the kind of bloke who’ll put his hand up and acknowledge Olwang’s ballsed up. I’m sure he’ll be on here soon to explain.
Mark – I’m pleased you seem to accept our argument. As to the “Betfair does not receive bets” point, you’ve only partially quoted what we said; so para 3.14 states “it does not, in these circumstances, receive bets AS PRINCIPAL” . The relevant section of the statute defines a bookmaker as someone who “whether on his own account or as servant or agent to any other person, carries on,whether occasionally or regularly, the business of receiving or negotiating bets” so both the exchange and its users can be receiving the same bet – the former as servant or agent, the latter on his own account.
PPBox – the reason for the 15% figure is that that is the point at which Betfair’s premium charge kicks in. I appreciate the close attention you’ve been paying to our submission but it’s clearly wrong for you to say that this is “a section of the paper that’s so vital to your case”. Actually, the vital bit is satisfying the Levy Board that there are exchange users who are “bookmakers”. As to how much levy is due from these users, in the absence of information from Betfair, all one can do is extrapolate from the available information. If you want to suggest an alternative basis of calculation, I’d be interested to see it.
But I think that’s enough blogging from me on this subject. It’s a shame, don’t you think, that Betfair have chosen not to publish their submission to the Levy Board’s consultation?
I’m sorry Mr. Zeffman, you’ve completely misunderstood my point.
Betfair’s Premium Charge kicks in for customers who win 100 for every 85 they lose, or 15% (ish). I get that. That wasn’t my question. My question was why would that have anything to do with their share of the total £2bn GROSS winnings won by all customers?Your paper provides no explanation of that whatsoever. Why would people who have a 15% “margin” or more be responsible for 15% of total winnings?
Don’t just give a knee-jerk reaction. Please stop and think it through for a moment. Imagine the maths in your paper was correct. Now think what happens if Betfair raised the threshold for the charge (you needed a better strike rate to pay it): The total amount of winnings from that group would DECREASE (you’ve kicked some people out of the group). In other words there’s no connection at all between the level at which the premium charge kicks in, and the percentage of total winnings above that. It could be 100%. It could be 0%. Your paper’s number (£300m), is a complete guess that just happens to be the same number (15%) as that in a totally unrelated calculation!
The other MASSIVE error your paper makes at that point is, having said “don’t mix up net and gross” (at 5.34), it does exactly that at 5.41. You’re taking percentages of the £2bn GROSS number, not the NET number which is going to be a fraction of that, obviously.
My alternative basis of calculation would be this:
1. Only use numbers that you have some evidence to support.
2. Don’t pluck numbers out of thin air if you don’t have evidence.
3. Don’t mix up net and gross.
Now I’ve pointed out two massive errors in your calculation, will you be contacting the Levy Board to highlight the mistakes, or are you hoping to brush them under the carpet?
And I bet you don’t appreciate people paying close attention to your submission, whatever you say. As much as you try to play down the significance of enormous errors in the maths, it is vital. Whatever your legal arguments, the Levy Board couldn’t possibly commit to spending millions pursuing legal action unless it could be shown that there was some money at stake. You’ve claimed it’s millions, based on some of the most horrificly inept maths I’ve ever seen made public. If the amount at stake was really thousands the Levy Board couldn’t justify spending millions pursuing it.
As to your last question, from my experience in the City, Betfair wouldn’t be able to publish a document like that between IPO announcement and listing, without approval from their legal advisers, who I would imagine have got slightly more important things to worry about at the moment. Is that a surprise to you? You are a real lawyer, right?
PPBox
Thanks for all your considered comments.
I am indeed surprised that you think Freshfields are too busy to bother with the consultation response – which presumably they were involved in anyway. Perhaps you should check that with Martin?
Wow, I thought you said your case was solid gold Mr. Zeffman. That’s a rather sour grapes response to what were perfectly reasonable questions. No answer to any of my points about your numbers?
You’re like a second hand car salesman telling everyone that you’ve got a great motor for sale, any inspection welcome, when in reality it’s a dodgy banger whose wheels fall off the first time sometime looks at it too closely. Have I knocked the wheels off your case by pointing out that the maths is complete rubbish?
Still it’s not too late I guess. If you ‘fess up to the Levy Board that Olswang has made a complete hash of its numbers, then I’m sure they could file your submission in a suitable floor-mounted metal receptacle and spare you the indignity of having Olswang’s innumeracy mocked in a court.
Alternatively, you could just pretend this conversation hasn’t happened, and wing it. Your client will probably never know.
Not sure I fully understand your desperation to see Betfair’s submission in the public domain either. What are you hoping for? That it will have loads of flaws like Olswang’s, and you’ll be able to distract attention from your own submission? If you find the idea of Betfair not squandering money on pointless legal costs surprising, it sounds like you’ve been working for the BHA too long. While we’re still in the dark about the Levy shortfall due to “unlicensed layers”, could you at least give us an idea of how much Levy shortfall has been caused by Olswang’s legal fees so far?
David,
I feel like I didn’t really get a response to the real message of my previous post which was about whether that, given that it seems that you acknowledge (do you?) that you’re going after professional gamblers (or maybe even just lucky ones with profitable intentions, such as the example I gave) rather than what your man on the street would call a bookmaker whether you feel that this is the intended levy target by the original law and, if not, how you reconcile that with your argument?
Remind me not to get into an argument on logical grounds with this PPBox person.
Man, whomever you are, you are good. Slice and dice.
PTP