September 24, 2010

William Hill turns up the heat on Betfair

UK bookmaker William Hill has given its support to the Horserace Betting Levy Board’s calls to tax certain users of betting exchanges as though they were bookmakers, claiming that exchanges such as Betfair cost the British horseracing industry £30m annually. But the company wants to see the authorities go further and launch a wider review into exchanges and how they are regulated and taxed.

According to William Hill, the UK government failed to realise the implications for tax yield when it legitimised betting exchanges, saying that had the government anticipated the volume of betting transactions that now flow through exchanges, it would not have been so keen to allow market entry.

In its response to the HBLB consultation, William Hill said that it agrees with the argument that people who conduct business on betting exchanges should be subject to levy. According to the company, if only 10 per cent of exchange users were business users, the overall tax and levy loss could be as much as £75m and £30m per annum respectively.

William Hill believes that the current economic climate, and even offshore migration by British bookmakers, are less of a factor in causing tax and levy leakage compared to the failure to collect tax and levy from business users of exchanges.

The company singles out Betfair in its consultation response, accusing it of conducting a well orchestrated public and government relations programme “which has sought to oversimplify, to its advantage, the complexities of how betting exchanges operate within the wider UK and global betting market”. William Hill suggests that politicians, officials and customers alike have been duped by clever advertising and positioning into seeing the company [Betfair] as a technology success story facilitating betting between ordinary punters.

“Whilst exchanges may be a technology success story, that has certainly been at the expense of racing who no longer receive levy from a significant proportion of the commercial betting market as required by the current levy legislation.”

“William Hill, which is the largest betting shop operator in the UK and therefore the largest payer of levy is confident that the HBLB’s consultation will concur with our belief that those who have decided to operate a business via betting exchanges are not appropriately levied, taxed or regulated in the same way as traditional bookmakers,” said William Hill chief executive Ralph Topping. “While this disparity exists an unfair competitive advantage remains which distorts the market, resulting in a falling tax yield and dwindling financial support for racing.’’

Betfair’s view is that the HBLB’s efforts to change the way exchange customers are treated is discriminatory, unjust and legally indefensible.

Betfair’s chief legal and regulatory affairs officer Martin Cruddace told Gaming Intelligence: “On Monday, we submitted a detailed and comprehensive response to the betting exchanges consultation exercise.

“The consultation paper covers ground which has been exhaustively examined by a number of public authorities over the past 8 years, including the Government through the DCMS, last year. Each review has correctly concluded that exchanges should be taxed and subject to the Levy no differently to any other bookmaker and that exchange customers, by simple virtue of betting on an exchange, should not be treated as bookmakers for either duty/tax, regulatory or Levy purposes. No reason exists now to change that view,” says Cruddace.

“The terms in which the consultation paper has been framed suggest that the Board is acting in a biased manner against betting exchanges. It is a Consultation that has a number of flaws that are incapable of being remedied. For example; it has been launched without any evidence provided to justify its existence; it targets exchange customers only, which is discriminatory; and when you consider that a full time team at the Treasury looked at the matter for 20 months, it is hard to see what a process of under 12 weeks hopes to achieve.

“It is our unequivocal view that any conclusion by the Levy Board that advocates change in the way that either exchanges or their customers are levied as a result of this Consultation, would inevitably be unjust and legally indefensible.”

“We will let our arguments speak for themselves in our submission,” concluded Cruddace.

The question for betting exchange operators and particularly Betfair is whether the issue can be dealt with objectively.

Betfair announced on Tuesday that it intends to list on the London Stock Exchange, a business decision which the British Horseracing Authority (BHA) felt inclined to comment on in its war of words with the operator.

“Today’s announcement is no real surprise to the markets. What will be of great interest is that it comes a day after the close of a major consultation process by the Horserace Betting Levy Board, that strikes at the heart of Betfair’s model, at a time when the figure of an underpayment to Racing of £30m has been stated by a leading betting industry figure, and during which the future relationship between exchange betting and Racing is under close scrutiny by the relevant authorities,” said BHA chairman Paul Roy following Betfair’s announcement.

“The markets will understand that we are in the midst of a new process which will decide the basis on which all parts of the betting industry, including Betfair, will contribute to the Levy. It is clear the contribution is going to have to be on a significantly different basis to what has gone before. We are ready for serious dialogue with the betting industry, which includes exchanges, through the Levy Board. We await the betting industry’s position. A failure to resolve issues by agreement will see it referred to Government and the Secretary of State for Culture, Media and Sport at the end of October.

“British Racing is the sport upon which Betfair was founded, and from which it continues to generate a substantial proportion of its business. There are many in British Racing who for a great many reasons would not have allowed exchange betting, had it been our choice as opposed to the Government’s. The history of the last few years has proved those sceptics to have been right. This was compounded significantly by the failure of a system based on database rights which was intended to replace the Levy. Under that system, Betfair would have had to enter into commercial arrangements with Racing, as well as any betting operators wanting to offer bets on the sport.

“There remain a number of fundamental questions around the business of exchange betting. We are confident that these will be resolved as part of the wider issue of the relationship between racing and betting. The new Government has signalled its policy commitment to ensuring a value transfer form betting to Racing as it sets policy to catch up with changes in technology and the way people bet.

“We would entirely agree that Betfair has been “disruptive” and “fundamentally changed the sports betting market”. Whether intended or not, it has certainly disrupted British Racing’s finances, and has created severe consequences. It has indeed, for its customers, “eliminated the need for a traditional bookmaker”, and markets itself as “cutting out the middle man”. At the same time Betfair has argued it should be treated as a traditional bookmaker for the purposes of its contribution to our sport. Betfair cannot have it both ways,” says Roy.

“Our response to the Levy Board consultation states that it seems certain that some customers of Betfair and other exchanges that carry on the business of receiving or negotiating bets, and that should therefore be paying Levy. This is entirely consistent with Betfair processing more transactions per day last year than all European stock exchanges combined, with some of their clients making many thousands of transactions and data requests on a daily basis.

“Any international racing jurisdiction considering permitting Betfair to operate in their territory has to give very careful consideration to the impact on their sport, and learn from the British experience,” warns Roy. “ In fact, we understand that they are offering far better terms to other Racing authorities, and we call on Betfair to now engage with us constructively and end the uncertainty.”

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