Gambling related articles

Mark Read's opinion on the issue of betting exchanges

January 2005

Our view - Australia's Wagering Future Needs Critical Revamp, says Read

(Article reprinted by kind permission of Mark Read's

Australia's unique wagering model, which served the racing industry, government, betting operators and punters well for 25 years has been under considerable stress in the past decade and may not be sustainable in the future. In a hard-hitting commentary on the future viability of Australian wagering, Australia's biggest corporate bookmaker Mark Read said:

Totalisator betting is becoming too expensive for the average punter because of the massive deductions taken out by TABs. Market share of racing, which is already in decline overseas at the expense of sports betting, will diminish dramatically in Australia unless urgent steps are implemented to give the consumer a better return.

Read, who has 30 years' experience as a rails and corporate bookmaker, made the comments as debate increases in the lead-up to the Betting Exchange Task Force report being delivered at the Australian Racing Ministers' Conference.

He said that while racing had a virtual monopoly for decades as a gambling medium, the proliferation of gaming machines in Australia in the 1990s, resulted in stagnant race wagering growth despite a high growth gambling market. This was brought about by factors including high TAB commissions, limited introduction of appealing betting products; lack of initiatives to attract younger players and an explosion in head-to-head sports betting which attracted miniscule deduction rates compared with that of race betting.

Read said that while Australian TABs posted increases in turnover and revenue last year after a long period of stagnation, if Governments and racing authorities placed unreasonable constraints on a particular type of betting product or betting provider, this would simply drive the betting offshore and diminish the opportunities for Australian racing. "With globalisation and the rapidly expanding Internet wagering medium any punter is able to access service providers worldwide. It is necessary for the whole industry (racing and wagering) to address its approach to the new technologies, new market conditions, new forms of competition to position itself as a growth industry for the future," he said. "The industry needs to be internationally competitive and be prepared for the incursion of offshore-based wagering providers. The world has changed from the 80's and even the 90's. The Australian wagering model is redundant," he added.

Read said Britain had recognized the global opportunity. It began restructuring the industry in October 2001 by dropping a 35-year-old taxation regime imposed on consumers. In its place a negotiated 15% tax was introduced and applied to bookmakers' gross revenue. Part of this negotiation was an undertaking by major English bookmaking companies to repatriate their operations from offshore jurisdictions like Gibraltar, Malta, the Channel Islands and the Caribbean. The outcome was an increase in turnover and income of 50% across the board and a net increase for government revenue.

"Instead of putting their heads in the sand and signalling alarm as is the current situation within certain quarters of this country's racing industry, Australian racing and government regulators should embrace and become a host to the fastest growing global commodity market – sports wagering," Read said. "Like Britain, Australia has a heritage of legal wagering best practice with the world's biggest market place in our time zone. The question must be asked -why would State and Territory Governments turn their back on such a great export and development opportunity?".

Read said this lack of foresight did not ensure the long-term viability of the racing and wagering industries in this country. He said the solution was to licence Australian service providers and expand the market through competition…. and do it immediately! He said competition was good for the industry. "As the number of industry players grow, the number of operators grow, the racing industry benefits and importantly the needs and wants of the consumer, the forgotten stakeholder in these matters are satisfied."

Read said that betting exchanges, which are now turning over billions of dollars worldwide, attract a different customer profile to that of other users of gambling web sites. Attracted by the low commissions associated with betting exchanges, characteristics of these users are:-

They invest larger amounts per transaction

An interest in trading including the taking of opposing positions in relation to the outcome of betting events – to guarantee themselves a small marginal profit, regardless of the outcome of the betting event

They are not concerned by the object they are betting on

Read said that in effect, these traders were arbitrageurs who mopped up excess liquidity in a global marketplace in exactly the same manner as their counterparts in the financial, stock market and futures exchanges. "Many traders are price and margin motivated and trade successfully without knowledge of the sport, financial market, race or whatever the subject of the bet exchange might be," Read said. "It is especially this last factor that makes them a new class of player on the betting scene and one that has the capacity to radically grow the global betting market in volume - without cannibalizing the revenues generated by the better known and currently more popular forms of online gaming and wagering. "This will invariably increase the interest in Australian racing on a global scale. Customers of Bet Exchanges are not in the main recreational punters."

An example of how people are attracted to such exchanges can be gauged by the phenomenal growth of UK licensed company, which although only three years old has a projected turnover this year of 7 billion pounds. "The Betfair model obviously satisfies consumer needs," Read said. "Every professional punter, if not already, will be a player. "Betfair are not only operating on Australian racing but are also offering markets on every AFL match this season. Australian companies have lost first mover advantage and Betfair are reaping the rewards of what is driven by consumer demand. Betfair are taking the proceeds back to the United Kingdom. "

It is illustrative to see the reaction to the Australian racing industry, as seen through the eyes of the consumer. The following quotes are taken from P Lawrence, of Byron Bay, in a recent letter to the Sydney Morning Herald. When referring to the bet exchange industry forum held at Randwick in early April, Mr. Lawrence had the following to say:

"The most extraordinary comment came from TAB Chief Executive (wagering) Peter Kadar."

'What is critically needed is for the industry as a whole to immediately launch a consolidated campaign against betting exchanges.'

"Does Peter expect punters to join in this consolidated campaign? The problem for punters is that over the past 10 years an unlikely alliance has been struck between race clubs, the media, bookmakers and the TABs. The aim of this alliance is to maintain the status quo and in the process screw the punter as fast as they can. Now an even medium for betting has emerged that God forbid may give the punter an even break ….. "….The media almost never mentions that the TAB takes millions off punters each year by rounding down not just to the nearest five cents but to the nearest ten. If the right dividend is $1.99 the punter gets $1.90."

"How is it that no one cares less about the punter when he makes up 95 per cent of people involved in racing? Punters keep racing going. Without the punter there would be no TAB. Now, after years of being ripped off, the punter is about to fight back through a new way to bet," Mr Lawrence wrote.

Read said the internet audience was skewed towards the under 35's, the majority of whom hailed from the high socio-economic groups and were most likely to be receptive to innovative forms of betting such as those found on the betting exchanges. The experience of the stock market and E-trade was evidence of this trend.

Read said that while critics of betting exchanges argued that by allowing users to both back and lay bets encouraged fraud, the fact that they allowed for completely transparent markets, and sure-fire audit trails, mean they were actually helping to highlight and prevent fraud. In the case of Betfair, they are on record as saying:

"We conduct tests on a daily basis, not just to look at possibilities such as a trainer laying his own horse, but also to counteract credit card fraud, money-laundering and all the other issues, which are inherent risks within the site unless they are being monitored. We know who has won every bet, how that bet has been placed and exactly when that bet has been placed, arguably in a way which makes us more secure than the conventional cash bookmaker."

Read said the time had come for State and Territory Governments to level the playing field. His company, IASbet, and others, had the ability to operate betting exchanges with all the necessary checks and balances in place to ensure the outcomes claimed by English operators are achieved here. "Failure to recognize this opportunity will invariably mean that bookmakers will move offshore, where this type of highly regulated, profitable and customer centric activity is allowed to flourish for the benefit of all concerned," Read said. He cited the words of British Racecourse Association Chairman Keith Brown when speaking of the British Horseracing Board‘s decision to allow on-course bookmakers to use betting exchanges:

"We have to accept reality in life, we can't be dinosaurs. There may be a lot of things we don't like, but that's not necessarily a reason for fighting change. We have got to embrace change and work with it."

Read said the bottom line was that it would be the consumer who would determine what initiatives failed or succeeded in Australia, and provided service levels were equitable, the operator providing the biggest returns to players would always be the most popular. "The punters will vote with their feet – and unless something is done to ensure they get a better return - the Australian wagering industry will be the losers, to the detriment of the massive industry and tens of thousands of people that rely on it," he added.

Note: If you are interested in opening an online betting account with Mark Read's IASbet, click here

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