The Big Question: What are betting exchanges, and do they lead to corruption?

(Independent Graphics)

Why are we asking this now?

The BBC's Panorama returned to previous territory this week by reporting on the alleged antics of a professional gambler, Miles Rodgers, who tried to ensure that by betting on certain horses to lose, he could make more money than if they won. He was supposed to have "enlisted" the cooperation of a number of jockeys to fix races and there was a recording of a phone conversation with one of them. Much of the material had been handed to the BBC after a criminal trial at the Old Bailey, involving the same alleged conspirators, had collapsed last December, with all the accused, including the former champion jockey Kieren Fallon, being found not guilty of race-fixing in order to defraud the betting exchange Betfair.

What is a betting exchange?

At its most basic it operates as the stakeholder between two parties with differing views on the outcome of a sporting event. One party will bet on a horse, team or individual player to win (backing) while the other will oppose (laying) by offering odds on defeat. Protagonists have to be account-holders. The exchanges started up in the late 1990s as the gambling industry was deregulated. Most professionals gamblers use the exchanges because they can get bigger odds. It is betting for the computer age.

Why are such bettingexchanges implicated?

When they first opened they underestimated the effect of enabling punters to make money by betting on losers. The whole culture of betting was about finding a winner – now you could make money by finding a loser and "laying" it to unsuspecting backers. This was especially attractive to those who "knew", rather than just thought, that a horse would not be winning.

Who could these clairvoyant backers be?

There was nothing mystical about it. Trainers often prepared their horses for a race by giving it "a run" in another, at a different distance, or on different going, in which the jockey would be told to go easy on the horse. Stable staff, farriers, friends in the pub and sometimes owners would be let in on the secret and would get on to an exchange and "lay" the horse to lose, a concept that the high-born coves at the Jockey Club – racing's governing body – couldn't believe. It seemed to them like bit of insider-dealing, such as happened all the time in the City, and nobody got too fussed about it.

So how was the malpractice spotted?

A previous Panorama showed a secret film of a few trainers talking about winning money on their own horses by backing them to lose on the exchanges. Some of the exchange executives had already begun to get troubled, and the Jockey Club security unit, mostly staffed by ex-policemen, began to get a sniff.

What happened next?

The exchanges became the targets of the high-street bookmakers who were losing money to these upstarts, and so racing authorities, police and government were lobbied to close the exchanges if they wouldn't clean up their act. Soon, all customers' registrations were checked thoroughly. Any "suspicious betting patterns" – when a fancied horse whose price in a race mysteriously drifts out – had to be reported. Audit trails were established. And the Jockey Club, keepers of racing for centuries, were eased out of their "integrity role" by more modern organisations, under a new Gambling Commission.

Were the Augean stables cleaned out?

Not quite. The offences alleged in the recent court case, and in Wednesday's Panorama, mostly took place before the new regulations kicked in. Racecourses are smothered with "patrol" cameras, betting intelligence officers while bookies have their own investigators. Jockeys have to surrender their phones during racing and warned about the company they keep. Questions have been raised elsewhere, in tennis, for example.

Is tennis corrupt?

Well, several matches over the past few years have shown "suspicious betting patterns" prior to a surprise loss, most notably one involving the Russian star Nikolay Davydenko to a nobody in a Polish tournament. Somebody knew something was amiss with the Russian and tried to profit from it. (There was no finding against Davydenko). The tennis authorities are following the same path as racing, working with the exchanges on audits and information.

How did betting get to be so big?

Up to 1961, when betting shops were legalised, punters could only bet on course or by way of a telephone and an account with a bookmaker. This left the great mass of gamblers at the mercy of illegal street bookies who take bets in pubs, factories and offices by way of "runners". The betting shop, arguably the first of the great social reforms of the 1960s, made gambling accessible to the ordinary public. By 1962, more than 10,000 betting shops were established, albeit without television. The smoke-filled rooms with a single speaker relaying commentary finally gave way to more comfortable shops with seats, soft drinks and multi-screens showing every race of the day. The smoking ban has helped increase custom. By far the majority of bets are still placed in the shops.

Will betting always be open to corruption?

It is much cleaner today thanks to the vigilance of the bookies and sports authorities. In the old days, jockeys would find "presents" in the back of their cars, and get free drinks and women from bookies or punters for essential information. Dozens of trainers, jockeys and punters have been "warned off" (banned from course) over the years.

Betting within sport has a dubious history. There was the football team said to have bet on the opening scorer in a match, knowing that if they were awarded a penalty they would use the man they had placed their money on – not a regular striker – to take the kick. Tales of skulduggery in racing pepper the works of Damon Runyon, Graham Greene and many film writers.

Meanwhile racing folk will be wondering why Panorama picked on their sport on the very day that the BBC was fined £400,000 for fiddling phone-ins and deceiving viewers. A good day to bury bad news?

So can the betting industry survive?

Yes...

* More people are betting than ever, with up to £50 million a year in turnover

* Sport is pulling in huge crowds, and betting on these events is part of the pleasure

* Betting is inevitable – better to embrace it and police it than force it underground

No...

* The corrupters are always one step ahead: one day the public will lose faith

* The boom is a phase that will pass – recession-hit punters will go for the lottery instead

* Young people have different leisure interests to their parents; betting is so last century