The Death of the Bookmaker -Betfair arrives in Australia

The bookmaker is dead, again
As the arrival of the online betting exchange threatens the TAB monopoly, will it also bring about the end of the bookmaker?

‘I’m living the dream’ says Nathan Snow, revelling in the manic tension of his first Melbourne cup as a bookmaker. The sleaves of his blue shirt are folded up neatly to reveal his slight elbows. The blend of adrenalin and anxiety beams from his wide blue eyes.

He is on his mobile phone, scribbling numbers on a paper, punching keys onto a small pad, scratching the back of his head, climbing up onto the podium and climbing back down again. He darts into the crowd, and hastily returns, followed reluctantly by his stiff red necktie.

Across the Randwick pavilion, veteran bookie Bill Waterhouse stands calmly by his board, hands behind his back, surveying his kingdom. Between them are a swelling mass of eager punters, and a full two generations.

The dream of 24 year old Snow and the legacy of 83 year old Waterhouse is under threat. The Tasmanian government has broken ranks with its mainland counterparts by granting the online betting exchange - Betfair, a license to legally operate in the state. Freedom of trade across state borders dictates that punters across nation will then be free to use Betfair.

It is a move that will dismantle a state established ‘tote’ monopoly and alter the Australian racing industry forever.

‘There’s a lot of scaremongering going on, I suspect the Tasmanian government has been worked on quite a bit’ says Greg Fraser a market analyst at SHAW stockbroking that has been following the fortunes of Betfair.

During its brief history, the online betting exchange has turned the betting world on its head, garnered the praise of her majesty the queen, and the infuriated Australian racing authorities. It’s a name the bet-crazy Australian public will be hearing more often.

The UK based Betfair can justly claim that it has revolutionised wagering. On Betfair.com punters bet against each other and not the bookmaker. Betfair’s complex systems match up buyers and sellers in an online marketplace with all gains and loses distributed between punters.

It makes its cut by charging a small commission for its service. The online innovation, that eliminates the bookmaker, and discounts the totes attracts hundreds of thousands of clients and turns over 50 million dollars a week.

Betfair and its sleek new market friendly wagering platform openly threatened the status quo. Its first marketing exercise, in 2000, was to march an actor placed in a coffin though the streets of London. ‘The death of the traditional bookmaker’ – proclaimed the accompanying banner.

Since then Betfair has done untold damage to UK bookies, slashing the takings of the established trinity of corporate bookmaking houses.

Last year Betfair turned its attention to Australia, and local versions of the bookmaker obituary were being redrafted.

“There were always fears for the future of bookmakers. Indeed, when my father started he felt it was just a short stint, as there was a new invention, the Totalisator, which was feared to be the death knell of bookmaking.” wrote Bill Waterhouse earlier this year.

The totalisator was in its original form a bizarre contraption invented almost 100 years ago by the son of a minister, who wanted to use science to give punters a fairer shot. His system, which tallied up bets, adjusted prices and paid out the winners was gradually modernized. In the 1960’s it was adopted by State governments in the form of the TABs to bring wagering under control.

The racing industry flourished as The TABs poured a sizeable percentage of their massive revenues back into the racing industry. When off-site betting was legalised in the mid 1980’s the TABs boomed, and the bookies began to feel the pinch.

The ‘dedicated’ punter now no longer needed to go to track and run the gauntlet of bookmakers. A good deal were culled. In 1985 NSW had 1500 registered bookmakers. Twenty years later only 300 exist in the state.

In 1992 the state governments set about privatising the TABs. As part of the process, competition was restricted but TABs now had to feed a new mouth – that of the shareholder. The state imposed dominance facilitated an increase in ‘takes’ – the commission charged by the TABs for facilitating the bet.

‘These agreements were essentially put in place to deal with the free rider problem’ explains Robert Raeher, the economist that was comissioned by the Australian Racing Board to investigate the effects of betting exchanges on the racing agency and government revenue. He explains that they ensure the racing industry is sustained from the revenue gained by the TABs from bets placed on its events.

‘The arrangement is an unholy alliance of racing bodies set up to pick the pocket of punters” says Bill Saunders, a veteran horse breeder and editor of the Virtual Form guide, a popular racing website. ‘They feel- We’re entitled to be paid a lot of money from people that lose on our sport’.

Then along came Betfair, who saw Australia as the perfect location to replicate its operational hub in London, and gain better access to a market of eager punters. The online exchange also made an alliance of its own when Kerry Packer’s PBL corporation took a 50% stake in the Australian operation. Its next step was to convince the state governments to grant them a license to operate.

The bookmakers may have been concerned but the TABs, and the racing industry heads who had flourished from TAB revenues, were terrified. They could not prevent Australians from logging on to Betfair to place their bets but they could hamper their progress by lobbying state governments not to grant them the license they needed to legitimately operate and promote their presence.

Their case against Betfair centred on the ability of the punter to essentially bet for a horse to lose by accepting a bet from another party who believes the horse will win. A privilege previously only given to bookmakers, who were licensed to accept bets.

"Betting exchanges ... will almost certainly invite corruption, conspiracy and in the extreme, criminal behaviour," says the NSW TAB. "Insiders can manipulate the odds, mislead the market and deceive punters. This could totally devastate the wagering industry."

James Packer the PBL chairman, not surprisingly saw things differently. He would ‘back the integrity of the Australian public over the bookmaker any day’.

One by one the state governments rejected Betfair, siding with the powerful racing industry lobby.

It seemed that they had seen off the Betfair invasion.

Tasmania was the only state that had yet to turn Betfair away. The battle moved across the Tasman, and the intensity was turned up. The premier -Paul Lennon would now determine the future of Australian wagering.
Victorian premier Steve Bracks was ‘not happy’ and openly opposed ‘the internet system’. Tasmania was accused of exploiting the racing industry.

"Tasmania is bludging off the rest of Australia by allowing Betfair to make money out of racing in other states while returning nothing to the racing industry," says Robert Schwatren, Queenslands racing minister.

Lennon remained defiant. Two days after the Melbourne Cup, he announced that his cabinet would approve Betfair’s request for a wagering license. Betfair would invest $50 million in building a second global headquarters in Hobart and would and distribute 15% of its racing revenues from back into Tasmanian racing.

"This is providing choice and opportunity for the people who keep racing alive in the country – punters. This is the best deal that punters could have - more competition in the marketplace.” he said after the announcement.

The bookmakers scuffle with shrewd punters and champion horses takes place on a daily basis. The threat of technological innovation always looms in the background.

Saunders thinks the bookies may finally be beaten.

‘They’ve got to get with it. They’re a great curiosity, but in terms of matching bets, they can’t afford to do what they do. Standing on their little stands by their boards with bags of money, it’s about the most inefficient way to run a book’

The rookie bookmaker is feeling the pinch -‘Betfair is grossly unfair for us, I have to pay stand fees, for the board, and wages – they don’t have any of these costs” says Nathan Snow.

‘But we’re not going anywhere, All the information that’s traded on Betfair comes from the course, we’ll always be a part of racing’

In all the madness, greed and fear of the Betfair saga, few seem to have asked why it is that Australia loves a punt.

‘It’s fundamental to the Australian psyche’ says Fraser.

Snow agrees, ‘It’s such a part of our culture’.

‘Betfair is not for everyone’ says Saunders. An avid computer programmer, who developed software to monitor horse breeding, he admits that he initially found the complexity of Betfair baffling.

‘I heard most of the users are actually stockbrokers’ says Snow.

The Betfair experience is hardly enthralling. ‘It’s tedious to spend your Saturday arvo in front of the screen watching price changes. ‘The process is pretty anti-social, its the exact opposite of going down to the pub with your mates, having a few beers and a bet’ says Saunders

And nothing beats the track - The hats, the champagne, the majestic horses, and of course the curious bookmakers. On Melbourne Cup day the glamour, revel and enchantment of victory reaches fever pitch. Snow loves it -‘It’s the best office in the world’. He ain’t going anywhere.