Monday, 3 January 2011

Betfair in the USA - still a long way off

Over the past few months, there has been some excitement about the prospects of exchange wagering being permitted in the USA, particularly California and New Jersey. The governments of these two states have passed legislation to allow exchange betting on local horse racing, with Betfair heavily involved in the lobbying. All that has happened is the current gambling legislation has been expanded to include a racing-only betting exchange as an option, it's not a given, and it's certainly not a given that Betfair have the rights to it.

There are still some huge obstacles a betting exchange has to overcome before a Betfair-branded exchange is up and running in the USA.

1 - the debate over the ethics of laying horses. That hasn't occurred yet, and there's no reason to believe American racing people will be any less antiquated than the rest of the world when it comes to explaining that you can effectively lay a horse via current wagering systems, it's just more complicated with a fat margin on top. US racing has at least as much dross racing as Australia and the UK, with questionable standards of integrity and stewarding. Trainers found guilty of drug infringements in one state are free to move shop to another state and start all over again. Tracks have been known to have issues with owners/trainers running unfit horses in claiming races so they can ship them off to other owners. Without high standards of integrity particularly re vets and stewards, exchange betting becomes a risk for the industry - a PR disaster waiting to happen.

In Australia, Betfair had to cop such rubbish as senile Senator Bronwyn Bishop accusing them of laundering money for al-Qaeda, the NSW TAB mounting a billboard campaign accusing the company of being parasites on Australian racing, and all sorts of other ridiculous slander. They've got a long way to go to win the PR battle in the States, the negative campaigns haven't even started yet and if there's one nation that loves their baseless smearing political campaigns....

2 - the cut for horsemen and the government. In the UK, it's as simple as set up shop, pay the appropriate rate of tax, and then work something out with the racing industry. In Australia, it took a rogue state (Tasmania) and a big wad of cash up front from Betfair to get it over the line. The vote of racing authorities didn't particularly matter, although the Tasmanian industry was swayed by the big injection of cash. In the US, lobbying for legality is very different. It's state-by-state for starters, only the two states in question (at this stage) will allow it, no cross-border business at all (although a link between the two states may be possible). Currently the horsemen get a big chunk of wagering turnover to pay prizemoney. That's easy enough to do when the totes take 20% out of the pools on each and every race. Are the horsemen really going to agree to a deal which will equate to around 1/10th of what the tote (pari-mutuel) gives them?

According to the California bill, "All exchange wagering licensees must distribute a “specified amount of exchange wagering revenue to the existing jockey health and benefit welfare fund,” according to the Legislation."

So there's another hit. Betfair have already said that paying 1.5% of turnover on racing in NSW will severely damage the business. If commission rates have to go up significantly from a top rate of 5%, then the attraction of exchange betting diminishes rapidly. There's no way they will be able to cut a deal similar to the levy and tax rates they pay elsewhere. The horsemen groups have a history of incredible stubbornness and agreeing to nothing which will benefit the racing bettor. Why would they change their tune here if it means cannibalising the local tote pools to sign up to a betting platform which is unable to tap into the betting public outside of the state borders? California and New Jersey are big states - to splash the cash to gain the approval of influential authorities like they did in Tasmania will cost a lot more.



3 - Who will provide the liquidity? American racing bettors will have trouble embracing the exchange model. There is no fixed-odds culture in the US - it's all about pari-mutuel betting for racing, and handicap & H2H betting on sports. 'Laying' a bet in North America means betting on something to win, so the terminology is all wrong for starters. If Betfair can't tap into liqudity from other states or the rest of their active client base, then there'll be no odds to kick start betting. People who only know how to bet on something to win (at no set odds) aren't going to turn into layers in a hurry. Without significant laying money on the screen, the backers aren't going to get involved and will write it off as a stupid, complicated idea that's too hard to get their heads around. Not impossible to overcome, but infinitely harder if it's restricted to local players only.


New Jersey aim to be ready for exchange wagering in 2011, California in 2012. The Betfair share price is currently languishing at 964p. A green light in the US would create a surge, but I think it's a long way off yet.

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