Gambling Review... Restrictions... by Neil Channing
Back in the last century the betting market in the UK was split into two. On-course was where bookies put up prices as the horses left the paddock and big crowds would knock those prices into shape. The market was vibrant and strong with large sums changing hands and the Starting Price was derived from those prices. The off-course bookies became legal and betting shops were introduced in 1961, but even before that all off-course bets were settled at SP. Communication was much more difficult, so getting a show from the track so you could take a price didn't come until the end of the century, and the idea of races being priced up in the morning didn't become common until the early 21st century when a few handicaps a day would be priced at 10.30am.
On course bookmakers were essentially stakeholders who took on all-comers, bet to decent percentages, took about 60% of the bets on the front two in the market and knew the favourite would win around a third of the time. They could hedge easily into a strong market, and they didn't really care who won and who lost as they were getting their wages. The concept of an ecosystem wasn't a massive thought as the crowds were so big and if one shark was regularly taking money from the system year after year, there was no need to ban them as there was a never-ending supply of plankton to feed them. Off-course business was all done on credit until the introduction of debit card betting in 2001, so punters were vetted in advance and given a limit, thus making it easier for bookmakers to know who was winning and losing before they took them on as clients, as generally you'd need a referral from another bookmaker to open a new account. Not too many people were able to beat SP anyway and the bookmakers could hedge back to the course at a show price having laid SP. Some shrewd punters took advantage of inside-information to beat ante-post markets and others took money from the system due to the 1/4 odds a place all races for each-way bets, but generally bookies had the edge as the market was so strong and they could easily hedge, and they were really quite happy to have sharp punters as they could follow them in and share their knowledge.
As in all things in this world the internet changed everything. Betfair started in 1999 and at around that time the early priced races came in. A couple of years later fledgling internet firms attempted to price up every race the night before, and the big firms felt they had to compete and would price more and more races with the trickier ones going up at 11am. In 2002 the 9% off-course betting tax was abolished and although Oddschecker started in 1999, it was a few years later that people really started to use it to monitor prices. Betting could now be done at the click of a button with no need to ring up, and nobody needed to spend hours every morning getting bookmakers to read out lists of prices to scribble down and then to ring back with their selections and be put on hold while they authorised all the business with the "racing room". You now had a situation where punters could see the prices of all firms in real time, hours before the race, they could bet them online instantly, where they could see on Betfair what the amalgamation of the country's "Sharpest Minds" thought the prices ought to be, and more importantly where they could watch them move. This opened up huge opportunities for all kinds of people. Arbitrage players could spot situations where one firm was out of line and nip in and bet, before ensuring a profit by betting the other side in the general market, often laying the horse on Betfair. Line trackers could watch for horses that were being backed and looked live and back them as they "steamed" hoping to either watch the race with a good bet in their pocket or lay the horse at the new lower price and lock in a profit. Pro punters who had a skill edge at reading the form and working out the "correct" price of their fancy found these skills were now less important as the exchanges told everyone what the "true" price should be. What those shrewdies did gain though was that they now made fewer mistakes, they could see quickly when their assessment had been right and wrong and could stay ahead of the new fast moving market. The real massive edge that all these people had though was the ability to repeat-bet. In the past a clever punter might notice that the horse he liked was 5/1 on the show twelve minutes before the off and he assessed it ought to be 7/2. He had to ring up and get a bet accepted and often that bet might be taken but if he went too big it could be restricted and certainly time could be wasted being on hold and getting the bet authorised. If he was lucky he could ring three different firms. The really sharp punters would work together and teams of people would ring simultaneously, in order to get their large stakes on. None of that was needed now as you could complete your business in seconds at the click of a button and with races being priced up much earlier the prices were often wrong. Now we had a situation where you could bet a hundred times bigger on a much easier to exploit market and Betfair was always there to tell you if you were doing the right or wrong thing. Some punters grabbed this opportunity and scaled up their business enormously.
Ecology is a very important concept in the gambling industry. It's fair to say that in any given year around 20% of punters win and over three years maybe 7% win. If we look at how many are winning enough to live on each month it might be closer to 1% or less. If that continues the bookmaker can happily survive as long as they have a constant stream of losers who effectively pay off the winners and leave the bookies with a nice profit. Back in those early days of the internet the number of new customers was growing exponentially as debit cards meant you no longer needed to apply for an account and credit with a referral from another bookmaker. Anyone could use their mobile phone to call up and open an account and soon they would be able to open one online. The fact that the very few people that were winning became a bigger number didn't seem to matter too much to the bookmakers as the pool of total players grew enormously and although the money "leaking" to winners grew much bigger, the losers could easily afford to pay for them.
Two things slightly changed that...the bookmakers became parts of large corporations and under UK Company Law are obliged to promote the success of the company, this doesn't neccessarily mean they have to maximise profits and shareholder value as they could totally ignore responsible gambling if that was the case, but certainly allowing 1% of their customers to get a living can't really be justified. The main thing that happened was that some punters got really big...let's call those punters "Lizards" for now. These extremely sharp punters got together and decided to play much bigger. Not all had offices and employees but it is certainly true that during the noughties there were groups of punters taking hundreds of millions collectively from the large corporations. The operators needed to fight back or their businesses would be gone. If we look at Betfair they realised that the idea of them being stakeholders and not caring who won was fine when some small punters lost and some small punters won and they got their commission either way, but when they started adding up the cost of feeding their sausage machine with fresh meat so that one or two mega punters could rinse their new clients, the maths stopped adding up and the Premium Charge came in. For ordinary bookmakers we went from a world where you might ring for a bet and get halved quite regularly but you'd always get something and maybe once a month one of your dozen accounts might get closed, to one where being restricted to a tenner from £100 happened every day and all your accounts were now gone.
That long history lesson is all my way of explaining how we got to where we are and why I totally understand why restrictions are in place and why I think that people who suggest that "bookmakers don't have to put up a price and if they do they should lay it" are just being unreasonable. For punters to be able to have a bet they need bookmakers to exist, and a world where bookies have to lay unlimited amounts on any price they put up is a world where those bookmakers will either go broke or they will give up and do something else. I don't think the debate ought to be whether there should be restrictions at all, but it ought to be based on how far they have gone.
Bookmakers in the UK are licensed by the Gambling Commission and the GC works with the Competitions and Markets Authority, who are the lead regulator in consumer protection law, to ensure that gambling companies treat their customers in a "fair and transparent way" as a condition of their licence.
We have gone from a world where it was seen as reasonable that 20% of customers won in any average year and 1% took a living out of the game, and that was seen as an aspirational thing causing punters to keep trying, knowing they could one day get there, to a situation where the operators think of themselves as leisure companies and the idea that punters aspire to win is to be dismissed. Operators now want EVERY SINGLE bet taken to be -ev to their customer and accounts will routinely be restricted after just a few bets if it is clear that the customer is not going to lose quickly enough.
Many within the industry would argue that punters had it too good for too long and a recalibration was needed, but things do seem to have gone too far. You may ask why would the shareholders of bookmakers want the company to give the full amount requested to a losing punter even if the amount requested is a tenner, where they have suddenly realised the price was out of line and the punter has an edge on it, but I would argue that expanding the percentage of accounts who get restricted year on year is driving people away from the game and it definitely doesn't strike me as fair and transparent. If punters are going to have their accounts restricted just for stumbling on a decent bet one day then maybe that should be made clear to them at the start. In my previous article I spoke about companies all having different sets of rules and they also have different sets of terms and conditions but I have seen some that say accounts are to be used for recreational purposes and I've heard people in the industry say that punters should not be attempting to make a profit. If it is to be the case that all firms establish a position that they believe no customer should win in the long run then maybe that should be explained when you sign up just so you are being transparent.
Clearly the betting firms have very good information about their customers now and I'll talk more about that in a future article, but in the same way as I believe they easily have enough information already to detect problem gamblers I do think they also have enough information to detect those who will become long-term winners and I don't really see a problem in those people being restricted. I have no problem with restrictions applied to those who abuse bonuses, arbitrage players, matched bettors, line trackers and those attempting to play on palpable errors, (who should be instantly closed even if the bet is voided).
The following are a list of things where I think restrictions have gone too far...
Automatic factoring, (reducing stakes on all markets to a percentage of the normal stake allowed), in cases where someone simply beats the price regularly due to skill and not because they follow a popular tipster or are part of a team of punters betting the same selections.
Where people are restricted to an amount that is way under a reasonable stake, offering people less than a pound is just ridiculous and brings the industry into disrepute in my opinion. Obviously the algorithms can be set to make the minimum stake a round amount and people will get a fiver or a tenner and never £4.72 or £9.23.
Restricting people who play on an established market where the bookmaker has clearly taken a view and gone top priced as an opinion seems unfair. If you choose to offer the best price the favourite in the Derby and it wins then factoring people that took that price just seems like sour grapes.
Not allowing people to repeat bet after a reasonable period of time seems wrong...I can bet on the favourite in the Grand National as the weights are launched but if I want to bet it again on the day I won't be able to as I had my maximum the first time. This is annoying to customers and must hugely reduce turnover for bookmakers. The reason they do it is to avoid building up huge liabilities when new information suddenly hits the market, but it must be a problem that can be solved by software.
Factoring people after just one or two bets. This is normally done when the customer is suspected of betting for someone else but it can often happen just because the first bets are larger than average win singles which seems ridiculous.
Setting the maximum stake on a market to a certain amount and then never moving it brings way more people into the world of restrictions. Of course in January The Derby is a weak market where inside information is key, but on the day with an hour to go the limits on it should be a lot higher. This could happen in all events.
Choosing to restrict people on all of their business. Some people may have been restricted as they are extremely good at beating the market betting early on horse racing and maybe they should be restricted for that, but there is no reason to restrict those people on a golf major, Wimbledon, football on a Saturday especially in the bigger leagues or NFL on a Sunday.
Many people looking at that list will just say that the companies are doing the best for their shareholders, it's up to them to decide who they want as clients and why should they care about people who are "caught in the cross-fire" of restrictions if it stops the 1% from potentially destroying their businesses? However, I do think we have spent much too much time in this Gambling Review talking about a tiny percentage of people who are Problem Gamblers and not really discussed a wide range of important topics. If this legislation and the review were truly a once in a generation chance to reshape the industry and we don't talk at all about restrictions, then the review has been a failure. It's definitely possible to argue that the corporations are not interested in customers where they have to "work for their money" a little, who can have winning runs and who maybe "only" lose 3% a year instead of 8% a year and who definitely require more time and some care from staff to manage. There is a knock-on effect in making that decision though and that is the corporations needing to take their profits from elsewhere and often that means the money coming from those losing much larger percentages which is perhaps why they have got themselves into such a mess over PG and why we are now having to talk about it so much.
A review that doesn't even consider these issues isn't much of a review at all.
If you want to write to your MP and tell them what you think about the Gambling Review there is still time. The White Paper showing what will be in the Gambling Act is probably still a few weeks away from publication and a lot of letters going in can create the pressure that brings change. If you want to use my template letter you can click here...
Do make the effort to send off a letter to your MP. I've written one for you here
Neil
