Racing: Board's concern over betting without bookies

Rise of one-to-one online gambling sparks fears from regulatory body over lost revenues

What with the deadlock over the next Levy scheme and the haggling over its replacement, you might think that the British Horseracing Board would have better things to worry about than what consenting adults get up to in the privacy of their own homes. You might think that, but you would be wrong.

What with the deadlock over the next Levy scheme and the haggling over its replacement, you might think that the British Horseracing Board would have better things to worry about than what consenting adults get up to in the privacy of their own homes. You might think that, but you would be wrong.

Last week, the Board published its response to the proposals of Sir Alan Budd's Gambling Review, including two sharp – indeed, aggressive – paragraphs on the subject of person-to-person betting websites. "BHB is very concerned," the report said, "by the rapid growth in the turnover of person-to-person betting exchanges. These facilities pose risks to the integrity of racing, represent a threat to the revenues of government and racing, and effectively involve persons who are not licensed bookmakers acting as such. BHB therefore urges government to examine the operation of these exchanges with a view to introducing appropriate control and regulation of their activities."

For a medium which is less than two years old, it is quite an achievement to provoke the BHB to such irritation. Some might also see it as a sign that person-to-person (or P2P) betting sites are doing something right. The concept of P2P, like all the best ones, is simple: a punter offers odds about an event, and if another punter likes the price, they take it. It is the cyberspace equivalent of betting your mate that Arsenal won't win when you're watching a match in the pub.

The crucial consequence for backers is that they can take the profit margin which is built into a bookmaker's odds, and divvy it up between themselves (or, if particularly shrewd, they can hog it all for themselves).

As a simple example, consider a tennis match in which Player A is a hot favourite to beat Player B. If a bookmaker reckons A is a 1-6 chance, he is compelled to offer just 7-2 against B, to preserve a profit margin of just under eight per cent. If a P2P punter fancies the outsider to win, though, he can lay player A at, say, 1-5, thereby effectively getting odds of 5-1 against player B. The profit margin is shared between the pair of them, and both feel that they have got a good deal.

There are several P2P sites in existence, including the recent arrival Betdaq.com, which is aimed at the high-roller end of the market. By far the market leaders, though, are Flutter.com and Betfair.com, which launched in January 2000 and June 2000 respectively. Both make money by charging a commission on winnings. At Flutter, you pay a flat rate of 2.5 per cent, but Betfair employs a more complicated, floating rate system. If you bet like JP McManus, it can be as low as two per cent, but for normal punters, it is far more likely to be fixed at, or close to, five per cent.

Clever punters have always known that one of the best ways to get value is to identify a favourite with dubious credentials, and find one to beat it. What P2P does is to remove the second part of the equation. If you don't fancy a favourite you can lay it, just like a bookmaker, and everything else will be running for you. It is a fundamental role reversal which can transform the way you look at the business of betting, while the result for those who prefer to take odds is that whatever they fancy, it will almost certainly be a bigger price at Flutter or Betfair.

It is this ability to switch from punter to layer which worries the BHB. "We have concerns at the potential integrity issues which arise from individuals having the ability to lay one particular horse to significant sums," Alan Delmonte, the BHB's communications manager, says. "We're not saying we want it to stop, but we feel current legislation does not necessarily respond flexibly to all new types of betting."

They worry about their slice of the action, too. "At the moment, they don't have to have a betting permit, so they don't have to pay Levy," Delmonte says, "although it's not just about money."

Flutter and Betfair do have betting permits, though, and Flutter already has an agreement to make levy payments, while Betfair is in negotiations to do the same. "We intend to pay levy and we will pay levy," Andrew Black, Betfair's founder, said yesterday. "I also think we should be regulated, and that there are certain things we have to do to cater for certain scenarios. We have records going back forever, with a betting trail and a name against the numbers, and if the Jockey Club's Security Department came to us with a serious concern, we would do everything we could to help them. There's no regulation forcing us to do that at the moment, but we are doing it, and I assume that Flutter are as well, because we think it's important and correct."

As yet, the amount of money matched on betting exchanges is tiny when compared to the immense sums which the mainstream bookies turn over in the shops and on the phones. It is growing exponentially, though, and exchange betting is also, as marketing types would say, "sticky". Once you've tried it, it is very hard to go back to the old way of doing things. This particular genie will not be returning to its bottle, whether the BHB likes it or not.