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Old hat, new hat

It’s all been kicking off, everywhere you look: Ladbrokes are in the frame to get the wagering licence in Victoria; Barney Frank’s bill has got out of Committee (hoorah, hoorah); William Hill are moving their telephone betting operation offshore; and Bwin and Party have finally announced what we know they’ve been talking about for years, that they’re going to merge. The times, they are a-changing.

Maybe, maybe not. As half the world moves towards the future, the other half is intent on trying to legislate for the 20th century.

Let’s start abroad. Greece will need dissuading from the idea of a turnover tax next year a la francaise and potentially limiting the number of operators, in the belief that this is the path to the future; Cyprus, rumour has it, will need similar cajoling in the coming months; and the French themselves are running around trying to enforce their absurd legislation, today taking seven ISPs to court to ensure that they block access to sites.

Good luck with that, mes amis, although it strikes me as being a bit like Agincourt: a battle you’re never going to win. The Right2Bet campaign highlighted this week just how short-changed European consumers are by countries which are seeking to limit choice in a way that they’d never get away with for any other industry, and whatever you do try to the ISPs, consumers today will vote with their mice: unless you have the co-operation of the betting operators, attempts to prohibit are doomed to fail, as the United States has clearly shown. All sorts of sources suggest that the number of offerings is spiralling, a process accelerated if consumers are forced to look outside the country for a product which satisfies their demands. (Incidentally, I wrote snippets about this last month but only got around to publishing them today. Other newly-published short thoughts appear here about Australia, and here about the French, and I’ve also put up a posting about Svenska Spel).

I know: I’m boring; I say it all the time. But sometimes, things people say all the time make for front page news. Like today, for example. Victor Chandler, a man previously notable for saying of betting exchanges that “the only thing wrong with them is that I wish I’d thought of them first” calls for action on “exchange layers”, and it leads the Racing Post.

In itself, a call for ‘action on layers’ can’t constitute a news item. (Indeed, you would think that anything on the levy debate didn’t constitute news any more… It’s been rumbling on for so long and there’s been so much said and written about it; although if you’re a levy debate junkie, I have posted a previously-unpublished post on it today). But here’s the twist… Chandler says that if every lay bet were treated as a bet by a bookmaker, he would pay levy from his offshore business and encourage others to do the same.

Excuse me for a moment while I pick myself up off the floor and put my cotton socks back on, but this must be one of the funniest things I’ve heard in a decade.

For starters, I can’t see why anyone thinks it is relevant to listen to a point about levy from a man who, as I understand it, has been offshore and therefore not paying it since around 1995 (on anything other than one shop in Mayfair).

But more importantly, the premise of his argument is hugely ironic. Because if anything in the world proves the fallacy of the oft-cited adage that Betfair’s prices are better than anyone else’s “because its layers don’t have to take into account the costs a bookmaker would have”, then it is Victor Chandler’s business.

Why? Because ultimately, the point that is always made is that it’s too hard for bookmakers to compete with Betfair’s prices because Betfair’s prices, so the story goes, are made by people who don’t have to account for tax and levy. But Victor Chandler makes his prices without having to account for tax or levy either, so how come his prices aren’t the same as Betfair’s?

Of course, the reason is that the pricing of bets has nothing to do with the levy debate at all. The price differential is created by superior risk-management: Betfair manages risk perfectly, and so doesn’t have to add a risk premium into its prices. The commercial margin of both exchanges and traditional operators is not all that different, which is why the price differential on football is so much less obvious (with fewer outcomes to add risk premium for) than it is on horseracing.

Which brings me back full circle to William Hill’s decision to move their telephone business offshore. Ralph Topping cited as the reason for the announcement “Government’s inertia over the issue of creating a level tax and regulatory playing field. William Hill,” he continued, “pays more in taxes and levies than it makes in profit while the betting exchanges flourish under a favourable system where they only account for taxes and levies on the commission they charge to exchange users.”

Ignore the fact that the commission that Betfair charges its users is the differential between what Betfair take in in losses and what they pay out in winnings, which was what William Hill got charged on too, last time I looked. Instead, consider the thoughts of a coffee companion of mine on Tuesday – a man who left the horseracing industry back in 2003.

“It’s hilarious,” he said to me. “If I stepped back into horseracing today, I could pick up exactly where I was when I left off. It’s all the same arguments, with all the same rhetoric. You’d think they’d have worked it all out by now. When will they see the light? The rest of the world’s moving on.”

So the times are indeed a-changing, at least for some. How ironic that it’s the French who should sum it up so well: plus ca change, plus c’est la meme chose


Posted in Betfair, Betting industry, Europe, Regulation.

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Continuing the Discussion

  1. Why Betfair shares are still a buy linked to this post on November 5, 2014

    […] people shared our view that we had built a better machine. In some respects, we were right, because what we created was the best risk-management system out there; but in fact we had only built half of it. For various reasons, we failed to deliver the other […]

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