In this article our contributors E.J. Minnis and Roman Koz discuss the ins and outs of Betfair, the UK betting exchange with plans to operate in Australia and, naturally, creating concern among racing authorities.

E.J. Minnis: You've often stated that you would like the opportunity to play 'bookie', Roman, so now's your chance with the UK betting exchange called Betfair. Explain to me how it works.

Roman Koz: Well, firstly, E.J. let me tell you I am looking forward to this challenge like you would not believe. It is most exciting and, I think, for the serious punter, it's the best thing since sliced bread.

For far too long we punters have been treated disgracefully by most bookies by being asked to accept ridiculous odds where the percentages have been an absolute sham: the tide has turned. Here's how it works.

A punter can take a price on offer, ask for a better price or lay a horse at whatever odds they like. It is like them standing on a bookmaker's stand. When you back a horse to win, you are taking the odds on offer that have been laid by another (anonymous) punter.

Alternatively, if you bet against a horse winning (lay) then you choose the odds and if the bet is picked up (matched) by another punter, the bet is on and if you win, you pick up the stake. If you lose, you pay out, just like a bookie.

The other excellent aspect, and perhaps a key point, of Betfair is the anonymity: in a situation where you are actually known, eventually, if you are an excellent judge, you will not benefit properly as other punters will become wary of your prices. Not so in Betfair and again the punter who is prepared to work reaps the reward.

So far as I am concerned, when I am a 'bookie' I will only lay false favourites and true favourites that are at false prices. I will need to be very careful with the latter as they will still win many races because they deserve to be favourite. However, I had better be able to assess their prices very accurately.

As the 'punter', I will accept what I consider value, as usual, as there will be many 'bookies' offering different odds as opposed to the 'herd' mentality trackside. Each race will represent an opportunity unique to itself and it is a good thing that sometimes I will win both times in the one race - once as the punter and once as the bookie!

E.J.: What about the takeouts how much and where do they go?

Roman: Betfair takes out a standard 5 per cent from the winning portion of the bet. That is, if I were to lay a horse to lose $1000 at odds of 10/1, meaning it would take a total of $100 in bets to match my offer, and I won the bet, then I would have to pay $5 to the Betfair operators.

Those who lost would pay nothing as only winners pay. I can assure you I would happily pay $5 every time under this scenario. But wait, E.J., there is more. There are times when special offers are made to regular Betfair punters where the takeout drops to 3 per cent or even less, depending on the situation being considered. This is an enormous incentive to bet with Betfair.

E.J.: Sounds too good, but I smell a rat. What about the effect it will have on the racing industry? I mean, if too many punters start using Betfair and substantial betting money starts to flow from the TABs to Betfair, how will the industry get the funds it needs to keep racing going?

Roman: To be quite frank, F.J., as a punter I am out to maximise my returns and the cash flow problems of the TAB and race clubs are not my concern. I have paid my dues to the racing industry and the TABs across Australia for close to 35 years via the fractions that have (and are still) been ripped off my past returns. The industry needs to 11 embrace the tiger' and start its own exchange rather than go for the 'let's ban this' approach being bandied around by some administrators.

E.J.: Aren't you being a bit short-sighted, Roman? No funds, no racing. It's going to be okay for the greedy but it doesn't sound as if it's going to do much for the racing industry.

Roman: Look, E.J., the punt, even for a recreational punter like myself, is all about the survival of the fittest and if you want to stick your head in the sand like those bean-counters from the TABs and the bookies, then that's your business, but I know where the strength is and, as I said earlier, the tide has turned and I am swimming with it.

E.J.: Let's keep a bit of reason in this discussion, Roman. I'm all for maximising returns, but the effects of betting exchanges could be far reaching as well as long-term, so explain to me how you see the future in regard to the racing industry, the totes and the bookmakers.

Roman: What will happen, E.J., is that eventually someone will wipe away the tears and see this is a new punting frontier and that the whole structure of all racing in Australia IS going to change and that person will form an exchange. It is the ONLY way to go in the long term.

In the short term the industry will need to negotiate with Betfair to receive some sort of royalties for the use of 'the product', as some administrators call horse-racing, but they had better hurry or the 'horse' will bolt and they will receive nothing.

There is a dire need for sensitive and fruitful discussion/bartering to take place, immediately.

The TABs will have to restructure their whole operation and concentrate heavily on the exotics because their win-betting days are numbered - new punters these days are heavily into computer-oriented products and they will embrace Betfair for obvious reasons already outlined.

The bookmakers, for mine, are history, and will live only for carnival times, when many novice punters flock to the tracks. They will hope to reap profits from the inexperienced punters. However, they have missed the boat as most new punters do not bet with bookmakers due to poor odds on offer for 'value' 7/1-plus horses compared to the TAB.

There would be an enormous number of new punters who would not even know where the bookmakers are, let alone wait for 30 minutes for the markets to change from the opening 130-plus per cent to something close to the TAB's approximate 115 per cent. They are just not interested and the bookmaking fraternity has done nothing worthwhile, as a body, to encourage their patronage.

I am afraid the 'good old days' are just that, E.J., and the racing industry had best move with the times.

E.J.: Okay - you've given the bookies and the TABs a big serve the survival of the industry surely has to be of prime consideration, not only to all those who work in it, directly or indirectly, but to all who have a love of or involvement in horse-racing.

Roman: You are starting to sound like something from an episode of Love Story, E.J.

E.J.: It's all right stating that the 'industry' needs to negotiate with Betfair for some royalties; I understand all of that and I think there have already been some early discussions with Betfair on this.

However, if the revenue that used to go to the totes, and therefore back (in part) to the racing industry, now goes to Betfair or other betting exchanges, then they (betting exchanges) could be the most destructive influence racing has faced in Australia for 100 years.

I still think the question remains of how racing will continue to thrive as well as survive.

Enough of that side of things. How about if I were an owner, trainer or even a jockey and I used Betfair to 'lay' my horse anonymously, knowing that it had no chance of winning?  Surely that's got to be a real worry to all punters; tantamount to pulling a horse up?

Given that something like this has already occurred in the UK, what have you got to say about that, old son

Roman: And what's different, E.J.? If a horse is pulled up now, the punter still loses, however, at least with Betfair, if you know the betting scene and its players, you can be alerted via the unusual fluctuations involved or even amount sizes. The message in the UK case you mention, where a runner drifted from 9/2 to 47/1, would have been obvious to even Billy The Blind Miner.

E.J.: Time to wrap this little chat up, so let's get a few things straight. Using Betfair I can play either bookie or punter, putting a limit on my liabilities, and if I win I pay just 5 per cent for the privilege - right?

Roman: They don't call you Fast Eddie for nothing!

E.J.: Let's look at an example. I think that the hype from the Sydney racing media has made Lonhro something more than what he really is. For mine at this stage of his career he's overrated and Defier will brain him
again, as he has in the past, when they next meet.

Roman: Bite your tongue, E.J.

E.J.: As we're having this discussion, the Doncaster Handicap is still a few weeks away. You think he will win and I don't and am quite prepared to take him on. The pre-post fixed odds betting has him as a 6/1 quote, so I am prepared to lay him at 7/1 to lose $1400 to $200.

So I post these odds on Betfair and you, the punter (not knowing who has posted them) accept $100 of the bet in the hope that it may still drift out to longer odds - the other $100 is taken by other punters.

As the race gets closer, Lonhro's price shortens and you are cursing yourself for not taking the full $200 on offer at 7/1 earlier.

A few days before the race, rumours about Lonhro's fitness start to emerge and the pre-post bookies drift the price out to 7/1.

Now I'm the one who gets really keen and I go in for the kill making a final bid on Betfair of 8/1 to lose $2400 to $300 - making my total liability $3800 if Lonhro wins for a collect of $500 if he loses.

Again, without knowing the crazy guy putting up these odds, you go in hard with that 'knowing' smile of yours, taking the plunge, and take the whole $300 on offer, making your total liability $400 if Lonhro loses, but with the chance of picking up a more than useful $3100 if he wins.

Whoever is the 'victor' pays Betfair 5 per cent of the winning portion only of the bet - right?

Roman: Spot on, E.J. Look at it this way - the TABs take out about 15 per cent, the bookies take about 20 per cent and Betfair takes 5 per cent. It doesn't take a rocket scientist to work out where the serious punters, and I don't mean gigantic bettors either, are going to go once they get onto Betfair.

E.J.: Go, Defier, you good thing!

Roman: In your dreams, E.J. - the odds you're offering on Lonhro, now that's what I call a fair bet!

With E.J. Minnis and Roman Koz

PRACTICAL PUNTING - MAY 2003