Gambling through the ages - Part 3

Jonathan Barker

In this article, Jonathan Barker examines how corporate bookmakers have changed the landscape for Australian punters, and why they were forced into action.

The Corporate Bookmaker

A relatively new development on the Australian gambling scene, the corporate bookmaker was borne out of a mixture on frustrated entrepreneurs and governments hell-bent on maintaining a monopoly to line their own pockets.

Governments have long pursued the path of legalise it and tax it when gambling is involved. When bookmakers compete against TABs, the stakeholder who delivers the smaller portion of tax revenue - i.e. the bookmaker, is the one who gets the short end of the stick in terms of political support.

Bookmakers have been seen as a key part of racing since year dot. Racing without a thriving betting ring lacks atmosphere - if you've ever been to a run-of-the-mill meeting in Europe, New Zealand or the US, you'll understand why. No patiently stalking a bookmaker until the price hits a certain level, no haggling over an extra roll of the board, no walking away with a grin thinking you've won a battle of wits against an individual when collecting your winnings and no laughing at the guy down the end of the row of bookies who looks like he shops at Target.

Instead of growth in the ring in the 80s and 90s, the ring was deflating. The high-rollers were becoming few and far between and most bookmakers had toned down their risk profile, with the exception of a notable few.

Sick of no relief from archaic and monopolistic government legislation in NSW and Victoria, ambitious and entrepreneurial bookmakers looked for better alternatives to make their business work in the 90s. Vanuatu welcomed the likes of Dial-A-Bet and No.1 Betting Shop, while Bryan Clark and Terry Lillis had led the way in the Northern Territory, setting up Sportsbet and Centrebet respectively. Mark Read soon followed suit and took his operation to Fannie Bay racecourse under the name Darwin All Sports, later to become International All Sports and then simply IASBet.

The reason for their moves to remote locations? A better tax deal and governments with a small and transient population genuinely wanting their business for employment and taxation revenue. The NT deal was typically 0.5% turnover tax, a good deal lower than the 2-2.5% available in the southern states at the time. On top of that, a lower rate was applicable to any bets originating from overseas - the NT govt was actually encouraging international business, something totally foreign to other Departments of Racing and Gaming, who still can't see past their own taxpayers.

Despite advertising restrictions in NSW in particular, the corporates found ways to get around it - Darwin All Sports advertising for staff every week on the back page of the Sportsman (partly true because the well-known volatile nature of the Mr & Mrs Read), Centrebet's Gerard Daffy pushing election markets on breakfast television and slipping some cash in the pocket of Ray Warren to plug their odds before every swimming race during the 1998 Commonwealth Games, Canbet in the ACT buying a sign in the North Melbourne coaches' box etc.

The ACT became a small haven for corporate bookmakers, with international firms Canbet, City Index and Megasports setting up at Canberra racecourse, to be later joined by Con Kafataris' SportOdds which sought to break free of the tax regime of NSW.

Interestingly, not one of the original ACT firms still exists in the same ownership - City Index, Australia's first spread betting firm became Sports Acumen - part of the Ebetonline empire, Canbet moved to the UK and after once being valued at over $200m was then bought out by IASBet for just a tenth of that in 2004 and MegaSports, originally owned by shareholders in Leroy's Casino in Las Vegas were forced to sell after a case of entrapment by the FBI was likely to endanger their casino licence, then became BetWorks and went bust. (New owners have now taken over the still-existent licence and re-opened under the same name).

No.1 Betting Shop had the notoriety of being the first offshore operation to have a law especially created to stop them. The NSW Government, in a moment of pure greed, attempted to maximise their return from selling off the NSW TAB and created the Unlawful Gambling Act in 1998 which was devised to prosecute any NSW resident who dared to secure better odds by betting outside of Australia. The confidence in the Act was so strong that the vote was rushed through after midnight when just enough MPs were in the house to pass a bill. All the law did was give No.1 a great burst of free advertising as most punters had little idea there were any offshore betting outlets!

The government and TAB made a big song and dance about the new law through all their commercial media outlets, but nearly a decade later, not one person has ever been charged under the Act. Anecdotal evidence suggests that No.1 Betting Shop found a punter willing to be a martyr, lined him up with two QCs, signed statements, transcripts and taped conversations, walked him into a Sydney police station to give himself up and no-one was willing to take the bait. Having a fundamentally flawed piece of legislation challenged and beaten in court was not on the agenda of the NSW Dept of Gaming and Racing so the matter was allegedly let pass without incident.

While the Act has had the effect of moving No.1 Betting Shop to Darwin under the ownership of global bookmaking conglomerate Sportingbet, and bringing a new player on the block, the ground-breaking London-based exchange Betfair, into Tasmania, this has only further frustrated NSW government officials as now they have no way of stopping wagering operators who are properly licensed within the Commonwealth of Australia. Had the NSW Government truly wanted to bring tax revenue from that wagering money back into their own state coffers, they could have opened up their state to competitive betting options - but as will
always be the case when you have politicians without the slightest interest in or understanding of betting, they naively believed that telling punters not to bet offshore would reroute all those funds through the local TAB.

The statistics show Australia as having a massive capacity for wagering, but only a small sector of the market is available to non-cash operations. The market pyramid of punters works in a triangle - cash, telephone and online. It is also closely linked to the intelligence level of the punters as well.

The masses form the biggest chunk, the heavy base of the triangle. These are the people who spend little time on their betting, perhaps spending the day in a PubTAB or dropping into their local agency on the way to the footy. Estimates put this sector of the Australian market at about 70%. This is the most lucrative section for betting firms - people who have little concept of value, do little research and don't particularly care if they can get a better price somewhere else because cash and convenience rule supreme.

The first step-up in technology is to telephone betting. Not a huge advancement but it does make the punter go through the process of setting up an account. Putting in this amount of effort means the punter is a little more likely to spend time and money on research - buy specialist form guides, take more than five minutes studying the form, perhaps even subscribe to a tipping service. This group takes up roughly 22% of the market in Australia.

The most advanced group are the online punters, the small tip atop the triangle. Access to statistics, odds comparison sites, live scoring services etc mean these punters are in general far more advanced than your average PubTAB punter. They are very discerning as competition is at their fingertips - getting them in the door is only the start of the battle. What's to stop them moving on when they see the next attractive offer from another firm? This group continues to grow but is still very small in comparison - current estimates place it at only about 8% of the Australian marketplace.

With the papers taken out of the equation for advertising, and racing radio stations controlled by the TABs, it's tough for the corporate bookies to compete. For bookies to make a profit, they need a spread of smaller, less-successful punters to balance out the winners. With so much competition for so few punters, companies can either promote the fact they exist or try to differentiate themselves by products and services. Promoting their existence only works with a big marketing budget and venturing into areas where no other firm operates or advertising to the smartest part of the market - the people who understand the benefits of best tote or SP guarantee.

To beat a sophisticated and well-researched client base, the corporate bookmaker needs expert odds compilers and risk managers - which cost money and can leave at any time. Some bookmakers prefer to be proactive rather than reactive - do their own ratings, lay horses on opinion, back runners they identify as overlays, identify winning clients and act on their bets/information. You can pick these pretty quickly when comparing odds - they're the ones who don't have 'vanilla' prices every time. Older school bookies take the less-work approach - take bets, count the money and if things go wrong, close down the winners.

The bean-counters who typically control the larger bookies prefer the stability of steady wins, rather than the nature of the gambling industry - highs and lows according to results. The simplest method of that - close down the accounts of winning punters, a 'disease' inherited from UK bookies who pay a premium for betting shops. Phone and particularly internet services from bricks-and-mortar bookies are usually run because they feel they have to rather than being able to turn a profit from them. Despite lower operating costs, it is that much harder to win against more sophisticated punters.

What else can we expect in the Australian market soon? With Racing Victoria and the AFL seeking further control with data rights, sooner or later the ACCC or the High Court will get involved and stop the heavy bias toward the TABs. Despite most of them being privatised years ago, they still hold considerable advantages over their rivals, purely by legislation which can no longer be justified. Bookies have always worked as individuals. When they finally decide to work together and invest in a proper legal challenge (using the likes of Lawrie Hammill rather than Dennis Denuto), they're a clear - but not unbeatable - favourite to overturn decades of overbearing government control and turn the dial firmly in favour of the punting public.

© 2007 Punting Ace.com