More Betfair Fun

It is becoming more and more interesting to watch old time racing fight the new in the UK.

As most know, the UK "levy" is a charge based on gross profits. So if you and I own an ADW or bookmaker and we make $100 million dollars, $10M of it goes back to racing. It's simple. It is actually a darn good system, because it encourages you and I to make more money, innovate and sell our product to as many people as possible. If we are selling and innovating to more and more people, racing grows. It is not unlike me writing a book and getting it offered on, and them giving me 2% of all sales. I am happy when they sell a million books, because 1 million times the price, times 2% is a lot of money. It's better than me selling it on my own website, and selling a fraction of the number at 20 or 30% of sales.

Well, now, after some time, the British Horse racing Authority wants to change the way they tax exchanges. And it could not be more wrong-headed, showing us what we all know as bettors - they do not have a clue what makes a gambler bet their product.

What they want to do is treat an exchange differently than a bookmaker. If I bet $100 to win on a horse with a book, the book prices their margin (profit) into that bet when I bet it, and a corresponding percentage goes to racing.

On exchanges, this volume of betting is on steroids, so using the number of matched bets and taxing them the same way, is nothing short of insanity.

For example, I bet $500 to win on the seven at 10-1. If the horse wins I make $5000. If he loses I lose $500. He moves down to 5-1 late, so I sell $800 at 5-1. Now if he wins I make $1000 and if he loses I make $300, so I am "green all over". When the horse loses, I make $300, so I am taxed at 5% of that $300 ($15) and a percentage of that goes to racing.

I have bet $1300, but that $1300 I have bet, by backing and laying, never resulted in $1300 of betting volume in the traditional way. You can not tax the $1300, because officially the $1300 was never bet. In fact, I could bet that $1300 with only a $500 cash balance in my account. How do you bet $1300 with only $500 in your account? You can't.

This is simple common sense to punters, but racing, who tends to want to tax and shove people into their traditional view of the world, has serious trouble with this concept.

We saw it for some time with the offshore sites in racing. Those sites, by offering better pricing, were being frequented by bettors. Racings response was expected, and in no means wrong - let's shut them down. However, they assumed if they shut them down that this new volume would come back to racing at 22% takeouts. That was a pure fallacy. People were flocking to these places and playing more and more volume because they could play every track and get better takeout. These bettors would not go back to a system they hate - one with high prices, signal disputes, no rebates, and sites which offered them only a portion of racetracks they wanted. It was common sense to any bettor that handle would not go up; and it didn't.

We see the exact same thing happening now. Case in point, the head of the Irish bookmaker assn:

“If the money that Betfair turned over from Irish customers in 2008 had gone through betting shops, it would have generated over €12million in duty and corporation tax, and provided over 300 jobs. Instead, HRI accepted a voluntary contribution of €1.2million.”

No, that is not correct. Mark Davies explains it better than I.

Horse racing authorities have a purpose and can do good work. But when they do not understand even the most rudimentary items that we all understand as bettors, there is a serious disconnect.

Several years ago I had the pleasure to speak with a betfair exec. It was myself, a professional bettor and him having a small chat, which ended up lasting an hour. After it, while conversing with my friend, we both agreed on one thing: We have never had a more enlightened conversation with anyone selling a horse race bet for as long as we have been betting this sport.

We need more people that understand betting running racing, and the people who do not need to consult with them, and defer to their judgement. As I have said here before, when my trainer wants to put a set of blinkers on my horse, I defer to him, because he knows how to train a horse. When bettors are telling that same trainer to take the blinkers off in terms of gambling, he should treat others as he is treated, and heed that advice as well.

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