Reply to Racing Post letter

There was a letter in the Racing Post just over a week ago (on Sunday 27th March) from Mark Usher, the owner and trainer of Katmai River, which had won a Class 6 handicap at Wolverhampton on 18th March.

It stated that win market (£434,000) and the place market (£92,000) on Betfair for  must have resulted in £18,410 in commission, on a day when the owner's prize money for the winning horse was £1,342. The conclusion was that "surely this is an area that can be looked at regarding the funding of these low-grade races".

You can see where Mr. Usher's numbers come from, because on the face of it they might seem quite logical. A total of £526,000 in turnover, with an average 3.5% commission (guessed at, I presume, but fair enough with a 2-5% scale), comes to £18,410. But herein lies the reason for ten years of debate: it is clear, from the mathematical route taken, that Mr. Usher lives in the world of the overwhelmingly vast majority who do not understand the Betfair numbers, who therefore perhaps understandably also find it very hard to get to grips with the complicated Betfair argument. I expected that someone better-placed than me who does understand them would send the Post an explanation in response, but given that none has been printed for seven days, I have lost my own personal battle in resisting and am endeavouring to write one myself.

Betfair's commission is on net winnings, not matched-bet turnover. The £526,000 could in theory have been generated by one punter making 132 back bets of £1000 and 131 lay bets of £1,000 for a total net position of having backed the horse for £1,000, while on the other side might have been a punter making 132 lay bets and 131 back bets for a total position of having laid the horse for the same £1,000. Assuming an even-money chance and a win of £1,000 for one punter and a loss of £1,000 for the other, the commission generated (at the same average commission rate chosen by Mr. Usher) would have been £35 from the winning punter, and nothing from the losing one.

I accept that this is a highly improbably situation, and the reality is that it would have been somewhere between this (at one end of the possibility scale) and Mr. Usher's (which assumes that matched turnover also equalled net winnings) at the other. The fact remains that to believe that £526,000 in total turnover would have generated £18,410 in commission for the exchange is fundamentally to misunderstand the business that is being discussed, and certainly, I'm afraid, provides no solution of any merit in the funding debate. I'm surprised that no-one, at the Post or otherwise, has taken a moment to point that out.