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Reply to Racing Post letter

There was a letter in the Racing Post just over a week ago (on Sunday 27th March) from Mark Usher, the owner and trainer of Katmai River, which had won a Class 6 handicap at Wolverhampton on 18th March.

It stated that win market (£434,000) and the place market (£92,000) on Betfair for  must have resulted in £18,410 in commission, on a day when the owner’s prize money for the winning horse was £1,342. The conclusion was that “surely this is an area that can be looked at regarding the funding of these low-grade races”.

You can see where Mr. Usher’s numbers come from, because on the face of it they might seem quite logical. A total of £526,000 in turnover, with an average 3.5% commission (guessed at, I presume, but fair enough with a 2-5% scale), comes to £18,410. But herein lies the reason for ten years of debate: it is clear, from the mathematical route taken, that Mr. Usher lives in the world of the overwhelmingly vast majority who do not understand the Betfair numbers, who therefore perhaps understandably also find it very hard to get to grips with the complicated Betfair argument. I expected that someone better-placed than me who does understand them would send the Post an explanation in response, but given that none has been printed for seven days, I have lost my own personal battle in resisting and am endeavouring to write one myself.

Betfair’s commission is on net winnings, not matched-bet turnover. The £526,000 could in theory have been generated by one punter making 132 back bets of £1000 and 131 lay bets of £1,000 for a total net position of having backed the horse for £1,000, while on the other side might have been a punter making 132 lay bets and 131 back bets for a total position of having laid the horse for the same £1,000. Assuming an even-money chance and a win of £1,000 for one punter and a loss of £1,000 for the other, the commission generated (at the same average commission rate chosen by Mr. Usher) would have been £35 from the winning punter, and nothing from the losing one.

I accept that this is a highly improbably situation, and the reality is that it would have been somewhere between this (at one end of the possibility scale) and Mr. Usher’s (which assumes that matched turnover also equalled net winnings) at the other. The fact remains that to believe that £526,000 in total turnover would have generated £18,410 in commission for the exchange is fundamentally to misunderstand the business that is being discussed, and certainly, I’m afraid, provides no solution of any merit in the funding debate. I’m surprised that no-one, at the Post or otherwise, has taken a moment to point that out.

Posted in Betfair.

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10 Responses

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  1. guywalters says

    It’s not the mathematics that make my head hurt, but the position of Mr Usher. Frankly, what business is it of his if somebody makes money by opening a betting market on the back of races that happen to involve his horse? It would be like me moaning if someone made money by backing and laying against the progress of my books on the amazon chart (don’t look now). I’m sure I’m ignoring the fact that the betting and racing industries are entwined in some way, and I’m probably speaking from my derriere, but why should the betting industry be under any obligation to provide for the racing industry (if that is indeed Mr Usher’s implication)? Betfair, Coral, Ladbrokes etc – they all advertise at courses, right?

  2. MD says

    Ah-ha: it takes an outsider to show that the Emperor has no clothes…

    Well, I think you’re half-right, and the half you’re right on is the relevant bit. The bit you’re (a little bit) wrong on is equating it directly with bets on your book sales and Amazon chart levels, because Racing is a ‘special case’ in that there is a statutory obligation (the Levy) through which 10% of whatever money is made is returned to the racing industry. Where you are 100% correct is that, that 10% aside, then the level of money that is made, and indeed the way it is charged for by the person who makes it, should be of no relevance at all: the 10% is paid, and that is that.

    The wider question you raise, regarding why the betting industry should be under that ‘special case’ obligation with racing, is the big question. The short answer is basically that it is historical: racing and betting are seen to be inter-linked, and there has been a statutory levy for decades as a result. The longer one is whether that levy is now fit for purpose or not. Both sides of the argument argue that what is needed now is to move to a “commercial mechanism”. Inevitably, both sides want it because one believes that it will deliver more money to racing, and the other believes it will deliver less.

  3. PPBox says

    £18,410 commission = £1,841 of Levy at the old 10% rate, or even better, £1,979 at the new Levy rate of 10.75%.

    If Mr. Usher was right about the amount of commission Betfair make then that means they paid all his prize money plus £500 on top, just on their own and without considering the contribution of Ladbrokes, William Hill and all the others who took bets on the race. If he thinks Betfair’s paying that much Levy which bookmaker is he actually complaining about?

  4. Trigger Happy says

    The most disappointing aspect of this was that the letter made the paper in the first place. One for the conspiracy theorists like myself as I find it hard to believe the Post’s editor and sub-editors didnt realise that the figures quoted were total B/S.

    As for Mr Osborne telling you on twitter that BF needs friends…. pot and kettle comes to mind for “racing”.

  5. Trigger Happy says

    *In case Mr Usher is looking in I remember a well-known person on the Betfair forum revealing he had traded £100k on a race for an all-green book of about… (drum roll) £20 quid.

  6. OccasionalGambler says

    Trigger Happy,

    I actually have an even better example than that! Below is a link to a screenshot of my P&L after trading the 5th Test of the Ashes in August 2009.

    Total volume traded (as would have been shown on Betfair’s market): £110,156.08 (this obviously includes the other side of my bets). This was achieved using a bank of around £500.

    My profit on all of those bets was: 76 pence!

    BF made 3p commission on this!

    http://img215.imageshack.us/img215/4682/englandvausashesbetfair.png

  7. guywalters says

    @MD Thanks for enlightening me! However, I know that advertising is voluntary, but presumably millions is injected into the Racing industry via adverts?

    I wonder when other sports will demand a levy. Or have they done so already?

  8. guywalters says

    @MD Incidentally, why do you use the word ‘returned’? It was never the industry’s money in the first place, no? G

  9. MD says

    @guywalters Good point well made re. ‘returned’.

    Re. other sports demanding a levy: yes, the campaign is well under way. The Sports Rights’ Owners’ Coalition (an organisation apparently created to make you think about where your apostrophes should go), which was until recently chaired by Nic Coward, the same man who was CEO of the BHA, has campaigned at length for a levy for sport, in Westminster and in Brussels. The campaign scuppered a grass roots initiative which would by now have delivered £6million to sport, on the basis that this was small fry and would be significantly bettered by the creation of a ‘proper levy’. If you’re interested, I’ve scribbled about this stuff in the past in old postings (although you’ll seriously need to have nothing else to do with your day!)

    http://www.markxdavies.com/2010/01/14/how-to-fund-sport-through-betting/
    http://www.markxdavies.com/2010/10/15/england-2018-hoping-for-a-corrupt-world-cup/
    http://www.markxdavies.com/2010/09/07/sport-should-be-lobbying-for-betting/
    http://www.markxdavies.com/2010/08/30/sport-should-know-better/

  10. MD says

    @OccasionalGambler – nice one!

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