CFTC Oversight May Not be a Boon.

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I want to quibble with one of Dave Pennock&#8217-s comments on the CFTC request. Pennock wrote &#8220-It&#8217-s not often that an industry in its infancy cries out for more government oversight.&#8221-

It&#8217-s actually quite common. The term in the economics literature that includes this is regulatory capture. When there&#8217-s a regulatory body specific to a particular industry, it&#8217-s very common for industry to be the major source of expertise in the area, and so for the regulators to be reasonably friendly with the businesses. The businesses can work for regulation that limits entry, and cuts down on competition that reduces profits, and they can work together to ensure that public relations problems are addressed in a cohesive way. But cutting down on competition often means fewer choices for consumers by way of tighter controls on what products are offered.

In our case, the thing I worry about is a narrow ruling that only &#8220-socially valuable&#8221- questions can be asked, and an expensive process for deciding what innovative questions can be posed. It seems likely that some interests will work to ensure that sports and entertainment questions be declared off-limits. The companies that have the strongest interest in fighting that faction are mostly persona non grata in the CFTC&#8217-s eyes, since they currently operate outside the law (TradeSports) or outside the country (BetFair).

The narrower the set of approved questions, or the more expensive the process of getting approval, the less chance that markets will be commercially successful. I think the experiments within companies have indicated (though not proven) that a mix of valuable and popular claims is necessary in order to attract continuing participation.

My biggest worry about fighting for CFTC regulation at this point is that they&#8217-ll approve something narrow, and this won&#8217-t produce enough successes to demonstrate that loosening the restrictions over time would be beneficial. The alternative is to continue to find ways to introduce markets under the radar and demonstrate their value to the academic audience, which could lead to a friendlier hearing in a more distant future after prediction markets have demonstrated social value and little risk of harm.

Of course the other likely outcome is that the novel experiments don&#8217-t happen because of the threat of litigation or regulation. But that seems unlikely given the growth in internal markets within companies. I think there&#8217-s more likelihood of long-term success without regulation than with it, and we&#8217-re better off waiting until the chances that the regulations will provide a broad approval are significantly higher.

(Cross-posted from pancrit.org.)

People I come in agreement with about the need to free the prediction markets as much as possible -a short list, which will grow, I hope.

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  1. Chris Hibbert
  2. Steve Levitt
  3. Koleman Strumpf
  4. Tom W. Bell

Waiting to see the positions of Michael Giberson, Jason Ruspini, Caveat Bettor, Robin Hanson, Justin Wolfers, Eric Zitzewitz, etc.

Free Markets &#8211-&gt- Free Predition Markets

Folks, yesterday, I forgot to link to the PDF file posted by the CFTC (their concept release, how snobbish). Download it, and read it -well discuss it later, here. No need to rush an opinion, we have about 2 months to make up our collective mind. Lets have it open.

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Via professor Eric Zitzewitz of Dartmouth, the CFTC announcement.

CFTC&#8217-s Concept Release – (PDF file)

InTrade&#8217-s John Delaney&#8217-s message to the prediction market crowd.

Midas Oracle authors (and that includes PMIA&#8217-s Emile Servan-Schreiber) can post their views, here, if they wish &#8212-or link externally to their own blog, if they wish.

David Pennock has published a comment that rebuts mine.

One comment, over there.

Finally, I&#8217-m searching for a co-author, or a bunch of co-authors, who share my views, and would like to submit a short e-mail to the CFTC, before the end of June, 2008.

Ask anybody who suffered the recent bloodletting at HedgeStreet: CFTC regulation can impose crushing burdens. It has nearly driven that innovative business into the ground.

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That was Tom W. Bell, of course. And 5 months after Tom W. Bell&#8217-s pronouncement, HedgeStreet v1 ate the bullet and bellied up.

Doctor Pennock, isn&#8217-t &#8220-pragmatism&#8221- to take into perspective the hard facts povided by:

  1. the bankruptcy of the CFTC-regulated HedgeStreet v1,
  2. and the insolent health of the UK Gambling Commission-regulated BetFair?

Shouldn&#8217-t the &#8220-pragmatists&#8221- draw lessons from all that?

Or will the the &#8220-pragmatists&#8221- ignore the hard facts?

Of, yeah, please, let&#8217-s display &#8220-pragmatism&#8221-.

Back in your court, doc.

Here&#8217-s Tom W. Bell&#8217-s old take that prediction markets fall outside of the CFTC&#8217-s jurisdiction.

CFTC Requests Public Input on Possible Regulation of “Event Contracts” -a.k.a. event derivative markets, event futures markets, betting markets, bet markets, prediction markets

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Via professor Eric Zitzewitz of Dartmouth (one of the top 5 economists studying prediction markets), the CFTC:

Release: 5493-08
For Release: May 1, 2008

CFTC Requests Public Input on Possible Regulation of “Event Contracts”

Washington, DC – The Commodity Futures Trading Commission (CFTC) is asking for public comment on the appropriate regulatory treatment of financial agreements offered by markets commonly referred to as event, prediction, or information markets.

During the past several years, the CFTC has received numerous requests for guidance involving the trading of event contracts. These contracts typically involve financial agreements that are linked to events or measurable outcomes and often serve as information collection vehicles. The contracts are based on a broad spectrum of events, such as the results of presidential elections, world population levels, or economic measures.

“Event markets are rapidly evolving, and growing, presenting a host of difficult policy and legal questions including: What public purpose is served in the oversight of these markets and what differentiates these markets from pure gambling outside the CFTC’s jurisdiction?” said CFTC Acting chairman Walt Lukken. “The CFTC is evaluating how these markets should be regulated with the proper protections in place and I encourage members of the public to provide their views.”

In response to requests for guidance, and to promote regulatory certainty, the CFTC has commenced a comprehensive review of the Commodity Exchange Act’s applicability to event contracts and markets. The CFTC is issuing a Concept Release to solicit the expertise and opinions of all interested parties, including CFTC registrants, legal practitioners, economists, state and federal regulatory authorities, academics, and event market participants.

The Concept Release will be published in the Federal Register shortly- comments will be accepted for 60 days after publication in the Federal Register.

Comments may also be submitted electronically to secretary@cftc.gov. All comments received will be posted on the CFTC’s website.

WOW.

UPDATE: Eric Zitzewitz tells me that comments are sought 60 days after publication in the Federal Register. So, the deadline for commenting will be somewhat around June 30, 2008.

If the British legal betting companies offer bets on the sport, it is because there is demand for bets on the sport -and if that demand were not offered in a regulated environment, it would be filled in an unregulated one (like what we see with TradeSports-InTrade and MatchBook in the US market).

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Mark Davies of BetFair (PDF file):

International Leaders in Sport conference, Auckland, New Zealand. April 3-4th 2008.
Keynote speech, April 4th. Mark Davies, Betfair.

“New Understandings in Sports Betting”

Minister, ladies and gentlemen&#8230- Thank you very much for your kind invitation to speak to you today. I have once before been asked by sport to address it, as a member of the bookmaking industry, and it was apparent when I got there that they expected me to tell them that sport was their business, and making money out of it was ours. I can tell you that those who spoke to me afterwards said that they left the conference surprised to hear that a bookmaking operation could hold views so different from what they expected. I hope to be able to break down a few perceptions today.

A number of perceptions have grown in recent years in relation to betting and sport which I believe are completely false and misleading, the first of which is that sport suddenly has a new problem as a result of sports betting on the internet.

Betfair is at the forefront of this debate for one very good reason. When we launched the business back in 2000, we did so under the bold slogan &#8220-revolutionizing betting&#8221-. By that, we meant not just that we planned to revolutionise the experience for the customer, by allowing him better choice, better value, and – for the first time – control over what he did- but, crucially, that we were going to transform the way that betting worked with regulators, both in the sport and government sphere.

The basis of our model was the business that the founding team had come from, in the main, which was the business of finance. I used to trade bonds at JPMorgan, and I can tell you that what our customers do is exactly the same as what I used to do in my previous life, with the single exception that where I had to pore over balance sheets and income statements, they pore over form and team-sheets. It could be argued – indeed, it has been – that they will therefore know a great deal more about the underlying mechanics of their markets than I ever knew of mine- but the principles are exactly the same. You express a view of value about a given outcome or a given currently-traded market price about an outcome. The extent to which this is true was really brought home to me when I was asked to speak at the Swiss Futures and Options Association&#8217-s annual gathering at Birkenstock – you can see I get all the good gigs – which was attended by all the leading exchanges of the world: The Chicago Board of Trade- the Swedish stock exchange, whose platform powers another eleven stock exchanges worldwide, the London Clearing House and representatives of the LSE, Nasdaq, and many more. My presence there was an irritation to many: what place had a sports betting exchange at such an event, people wanted to know. But by the end, they were so ready to accept that what happens in the sports betting world and what happens in their world is actually identical that they wanted to know why we weren&#8217-t taxed on the same basis.

So we came to the sports betting market saying this: why is it so opaque? And by that, we didn&#8217-t mean just, &#8220-why is it not clear what the customer is charged?&#8221- but &#8220-why doesn&#8217-t anyone know who is betting? The City had gone through the Big Bang in 1987: the sports betting market was continuing to exist as it had done for most of its legal history: with the power in the hands of a few, and everyone else ignorant of what was going on.

We sought to change that, and at first, people welcomed it. But the more successful we became as a company, the more people – led to a large extent by our commercial competitors – started to change their tune, for a very simple reason: that with transparency came issues which people had never been able to see clearly, and so had always wanted to believe didn&#8217-t really exist.

Before I go on, I want to give you a couple of analogies.

The first is perhaps a little high-brow. In his philosophical work Being and Nothingness, the French author Jean-Paul Sartre debates whether anything actually happens if we aren&#8217-t there to see it. The example he gives is of a tree falling in a forest. How can we know, he says, that the tree actually fell, unless we saw it happen? Just by virtue of seeing it lying down rather than standing up, he says, we assume it has fallen over. It is an absurdist argument which exists to enable philosophical theorising- but everyone would accept that in reality, you don&#8217-t need to witness something to be able to acknowledge that it has happened.

The second analogy is rather closer to home. As I understand it, the speed limit in this country is 100km/h. I would imagine that it was long-suspected that people broke this limit, particularly on the main highway. People observing cars drive past would have had a perception of this, but no evidence for it. Then, one day, someone came up with the idea of a speed camera, and a number were installed. The following week, a number of cars would have been recorded as speeding. Would anyone seriously suggest that what caused the cars to speed was the camera? It is self-evident that the camera did nothing but produce the proof of an existing fact.

The reason for these analogies is this: in recent years, there has been a growing clamour from the media and from sport that there is more corruption today than there ever was, and the cause of it is betting. In same cases, they even claim that the cause of it is Betfair, on the grounds that you will find very few corruption stories in the last seven years that do not mention Betfair, which has led some to argue that if the words &#8216-Betfair&#8217- and &#8216-corruption&#8217- appear in the same paragraph, that must somehow be evidence of the fact that Betfair is the cause, and corruption the effect.

Betfair takes a very different view. Our view is that we are the speed camera, showing you something that you never knew was there. We are shining a light into the darkness, and people give us a hard time for having a torch.

Why do we think that? Because the level of transparency which Betfair has brought to the sports industry is unprecedented. Every single bet placed on Betfair is recorded, to the second. Every click of your mouse- every movement of funds in and out of your account – we know where it has come from, and we know where it is going. As I mentioned, we brought financial markets best practice to the sports betting market. We came into a world that was entirely opaque, and made it entirely transparent. If there was anything hiding in the murk, it can now be seen.

An interesting example of this came in August last year, when a match at the Poland Open in Sopot between Nikolai Davydenko and Martin Arguello-Vasallo raised eyebrows, when Arguello won by default after Davydenko withdrew while leading. You cannot fail to have read about this: not an article about tennis and the ATP now appears without mentioning it. It was all over the press not just for days, but for weeks- and it continues to be brought up, as the ATP&#8217-s investigation into what happens continues.

Now, there are a number of things to note about this incident. The first is how it came to light. As I mentioned, we are fully aware of all the betting details on Betfair- but what I didn&#8217-t mention is that everyone looking at the site can see bets betting placed, and can see the prices moving in a free market. The 40 or 50,000 pairs of our customers&#8217- eyes that we have on our markets at any one time can all see exactly what is happening to the odds. And our forum allows sports punters to discuss what they can see.

Davydenko&#8217-s lawyer criticised Betfair for having sought publicity from the incident but the reality is that we were called by the media, not the other way around- and the reason for that was that what was happening was in the public domain. Everyone on our site could see that the World Number 4 had started at $1.20 and moved out by the end of the first set to $2.28, even though he won it with no apparent difficulty, and was paying $3.75 after losing the opening game of the second set on his serve. And well before he actually pulled out through injury, hundreds of people on our forum were speculating that he must be about to pull out.

I cast no aspersions here: it is entirely possible that the player was carrying an injury and some group of people were aware of the fact. There is no consistent rule across sports, as things stand, against insider trading– the rights and wrongs of which can be debated later perhaps, but it might be worth me mentioning as an aside that we don&#8217-t make the rules- we just help to enforce them once they have been made. So I am not suggesting that the match was corrupt. We, as a company, made a decision to void the bets on it, because we felt that the betting itself was not fair. It was clear to us that the betting was leading events, and not the other way around. But I would also mention here that another fallacy of this position was that it served us to do so. A number of people commented at the time that it is all very easy for a bookie to void bets when a result is going against him. But this misunderstands the whole business proposition we have: we are set up like a stock exchange, matching up supply and demand, and taking a cut in the middle. This means that we have no exposure to the result, or, to put it another way, we don&#8217-t care who wins. We make money if the event happens, regardless of the outcome, and we make no money if the event is voided. It is also worth mentioning, as an aside, that while many were crying foul about the movement in prices, we also, of course, had full access to the information as to who was betting. The complete audit trail created by our systems and our Know Your Customer checks mean that we know exactly who was behind the bets.

So, we voided the market, at a cost to us. But what happened next is perhaps the most striking of all. One after another, big players around the world came out and said that they had been approached to throw matches. One after the other, they said that they knew of players who had, or had themselves, been offered money by people who wanted them to rig the result. In several instances, these offers were made before the advent of internet-based sports betting.

Now, for me, the big question is, Why did it take a company that stands for transparency to make a stand before anyone mentioned that there was a problem? If we had not voided the bets on the match, would tennis be better or worse off? Is it helpful to know if you have a problem, or would you rather remain ignorant of it until it kills you?

The answer, with some in sport, would appear to be the latter. One sporting body, unconnected with this case, which we approached with a view to signing an information-sharing agreement, actually told us directly that they didn&#8217-t want information because they were frightened about the level of corruption it would reveal. Time and again, since the Poland Open, we have been told (although not by the ATP, I should add, who were among the first to embrace the information-sharing agreements we have pioneered) that we are causing sport a problem that didn&#8217-t previously exist. And yet, the evidence is there for all to see: we made our stand after people had been approached. Once we made our stand, people started to come out and talk about things. And yet a sizeable number of people want to return to where we were before we blew the whistle.

The reality of this point of view is that it is childish. Corruption is something that no-one here wants to see, and every one of us wishes didn&#8217-t exist. But it does exist. And, we cannot, like children confronted by a monster, hope that if we close our eyes, the monster will disappear. Even less can we credibly say that all the time we were sitting with our eyes shut, the monster that stood before us wasn&#8217-t there, and that it was only the person that told us to open our eyes that put it there.

The nature of sport is that it produces clear-cut results, and where there are clear-cut results, there is money to be made speculating on the outcome. This, again, is a basic truth. You may not like the fact that for some people, this is the sport- and I accept that for many, in a perfect world we would simply have no betting at all. Some sports bodies still struggle to accept just how great the demand for betting is. For example, I went to talk to the IOC about betting about eighteen months ago, and they, in line with many others I have met (to be fair to them) were totally incredulous that anyone would want to bet on who would win the 100metres in Beijing. Again, I accept that this is not the Olympic ideal, but it is a fact that they do, and rather than close our eyes to the fact, we should work with it. Because the reality, strange as it may seem, is that for many people, having a bet on the 100metres final retains their interest. If that hundred metres final comprises six Americans, a Jamaican and a Cuban, there will be plenty of people won&#8217-t give a monkey&#8217-s who wins it, unless they have had a bet to make them feel involved.

Again, I accept that this is not what sports bodies might want in a perfect world. But we don&#8217-t live in a perfect world. And if you want to live in the real world, you have to accept that there are plenty of people with strong opinions who want to express them through a bet. Plenty of people don&#8217-t accept this. Just this week, the coach of the Brisbane Lions AFL team, Leigh Matthews, showed that he is among those who don&#8217-t. Described as &#8220-certainly neither a wowser nor a saint, and having no intention of ever becoming either&#8221-, Matthews is a four-time premiership coach and was named Player of the 20th Century. He told a press conference just a few days ago that the Australian Football League should sever all ties with the bookmaking industry. Let me quote him: &#8220-The one thing that really annoys me is any thought that whatever we do as a game has something to do with people betting on it. I hate that,&#8221- he said. &#8220-I would prefer that nobody bet on the AFL. Then all innuendo would not exist. It&#8217-s one of the unfortunate progressions in the evolution of the world that betting agencies now bet on everything. I think that&#8217-s really unhealthy, really unsavoury and really unfortunate.&#8221-

As I say, I can understand this view in the ideal: he would rather no-one bet on the sport. But what I do not accept is that betting companies offering bets on the sport is what makes people bet on it. If the legal betting companies offer bets on the sport, it is because there is demand for bets on the sport – and if that demand were not offered in a regulated environment, it would be filled in an unregulated one. So while I do not argue with Matthews&#8217- picture of the ideal, I struggle with the argument that he follows it up with. Again, let me quote him directly: &#8220-I think [the AFL] should say to the betting companies `you want to bet on the footy, fine, but don&#8217-t include us. Don&#8217-t ask us to have rules and regulations that pander to people who might want to bet on a game.&#8221-

For me, this view is absurd. It is essential that there are rules in place, and essential that there is a mechanism for those rules to be upheld. The AFL&#8217-s own experience of having named information of who is betting on its sport has been that it has been able to help players with addictions, and drive out a problem which could, unchecked, lead to corruption. Having no rules or no means of enforcing them is precisely what leads to problems – not just here but in any walk of life. And yet Matthews&#8217- criticism was taken up by the press. They argue that when people were caught breaking the AFL&#8217-s rules preventing players betting as a direct result of the agreement the AFL signed, the sport was shown in a poor light. It wasn&#8217-t the fact that rules were being broken that was troubling, but the fact that it had become apparent. It should, wrote one commentator, be all about perception, rather than reality. In other words, it would be better to sweep things under the carpet.

I think, in contrast, that we should accept that the demand of people to be able to bet on a clear-cut result is a fundamental reality, and in itself is not a problem. The trouble is that where there is money to be made, there are also people who would seek to corrupt. Sadly, this, too, is a basic reality of the world we live in. So we must protect against corruption, which means having rules and regulations in place, and a proper means of policing them.

The idea that corruption must be rooted out is uncontentious. The question is simply how we do it. In my view, agreement on this is hindered because many people think that betting causes corruption. But betting in itself is not corrupt. Corrupt betting is corrupt, but corrupt betting is not really betting at all, by definition: it is merely getting guaranteed financial reward through securing a fixed outcome, which isn&#8217-t the same as backing your analysis of a given contest and speculating on the chances of a particular outcome at all. In other words, the key part of the phrase &#8216-corrupt betting&#8217- is not the betting part, but the adjective that precedes it: or to put it another way, corruption is corruption, through whatever channel it happens to manifest itself.

This is an important point, because the first thing that must be done if the battle against corruption is to be won is to work out who is on whose side here, and what tools we have to fight with. At the moment, the perception exists in sport that betting is the cause, rather than on occasions (and by no means on all occasions) a facilitator, and the inevitable next step in sport&#8217-s logic is to blame the betting companies for their problems. And this means that we have a fundamental issue, because the betting companies – by which I mean the legal, regulated, and co-operative betting companies – are actually a tool in the fight.

You can accept that betting for betting&#8217-s sake is not in itself the problem, and that 99% of people who make money out of the sporting result, through betting on it, would never consider affecting that result to suit. But that still leaves us with an issue: using the money being generated by that 99% of people to make money out of a corruptly fixed result clearly is a problem. But here we must consider what added ingredient is needed to allow someone to do that – to turn betting from a pastime into a facilitator for corruption. Put simply, &#8220-How do you corrupt?&#8221-

If you or I decide we want to rig the outcome of a horserace, or a rugby match, or any other sporting event, it isn&#8217-t immediately apparent how we would do it sitting here. We can very easily have a bet right here, and right now, on almost any sporting event taking place in the world at the moment- but what we can&#8217-t do, sitting here, by ourselves, is affect the outcome. For that, we need the collaboration of the people involved.

Now, there&#8217-s a story about Winston Churchill which goes something like this. Winston Churchill, apparently a few the worse for wear – as was his wont – allegedly once approached a lady and asked her if she would be prepared to sleep with him for ?1million. She thought about it for a moment, and said she would. He then asked her if she would be prepared to sleep with him for a tenner, and she was horrified. &#8220-What do you think I am?&#8221- she exclaimed. &#8220-Madam,&#8221- he replied, &#8220-we have established what you are. We are now just negotiating the price.&#8221-

As was true of Winston and his target, so is true of sportsmen and corruptors. When I talk to people about corruption in sport, and protest at the idea that internet betting in particular has increased corruption just because the sums of money involved are that much greater, I think of that story about Winston Churchill. Because as far as I am concerned, either you can be corrupted, or you can&#8217-t. If you can&#8217-t bribe a sportsman or a group of sportsmen to rig a result, then you can&#8217-t get a result fixed. And what that means is that the heart of the problem in the issue of corruption in sport is not betting, but is sportsmen willing to be bought.

I realise that pointing the finger at sport, from what appears to be the betting side of the fence, might seem somewhat inflammatory. But the most important point I want to make is that when we consider whose side of the fence is whose, we are currently getting it absolutely wrong. The betting industry doesn&#8217-t want bad apples as customers any more than the sports industry wants bad apples participating- and just as more than 99% of your participants are clean, so are more than 99% of ours. Our less than 1% can do the buying- your less than 1% can deliver the goods. The challenge for us both is to rid ourselves of the 1%, and the best way to do that is to work together.

Put another way, the simple fact of the matter is this: if we are to draw a line – not to say dig a bloody great big trench – between sport and corruption, as obviously we must, then the first and most important thing is to understand that the legal betting industry is on the same side of that line as the sports industry. And I say this not just because it serves our purpose for sport to be clean, although it does: if people don&#8217-t have confidence in the fairness of the result, they will not bet. I say it because we were set up as a business philosophically because we are lovers of sport. And, having set up something which was designed, in part, to bring complete transparency to the market– and then having set out our stall to share information with sports to help them deal with problems that exist, it has been extremely frustrating to find ourselves attacked as if we are the cause of the problems. If ever there was a case of shooting the messenger, this is it.

In fact, the finger pointing from sport to betting, and to Betfair in particular, has been so great that there are calls around the world for betting to pay sport, because sport now has to deal with integrity issues which betting has caused. Let me say straight up that Betfair has never been against paying sport on the basis of a commercial agreement which recognises that sport is putting on a show and Betfair is benefitting from that. This is not the same as saying that sport &#8216-owns&#8217- the product, but it simply recognises that there ought to be a symbiotic relationship between the two industries. And we are not suddenly coming to this party under pressure: I spoke at the Sport Accord conference in Madrid in 2003 and told the 80 or so delegates there from sports bodies all round the world that the two things they should expect from a bookmaker in the 21st century were information about what betting was taking place on their matches, to allow them to police their sport better- and a financial contribution to acknowledge that they were putting on the show. But I do have a fundamental problem with betting being asked to pay to &#8216-clean up&#8217- something that exists whether they are there are not. The integrity of sport is the domain of sport, whether Betfair, or Ladbrokes, or any other betting company in the world exists or not.

In fact, I would go further than that. Imagine a world where bookmaking is illegal. Take Betfair, and Ladbrokes, and William Hill, and everyone else you care to mention, and close them all down. What happens to sport&#8217-s problem then? Does it go away, stay the same, or get bigger? Clearly, it gets bigger – and if you doubt that, let me give you two reasons why.

The first is best exemplified by Hansie Cronje. No-one in New Zealand will be unaware of the scandals that affected the world of cricket in the late 1990s – an era, incidentally, which preceded internet betting, and in which cricket was not alone in experiencing problems: floodlights went off in top-flight UK football matches for reasons which at first were not apparent. Talk to the ICC about those times in cricket and they will readily acknowledge that their problems came from the Indian sub-continent, where – no surprises – bookmaking is illegal. And the source of floodlight failures, too, was eventually traced to Far Eastern illegal betting syndicates, but only because someone was eventually caught red-handed with his hands more or less on the switch.

The second reason is this: tell me why betting was legalised and regulated in the first place, if it wasn&#8217-t that it existed illegally and unregulated, and if, being illegal and unregulated, it was not seen to be causing problems which could not be dealt with? The whole basis of regulation is that regulating makes it more difficult to corrupt.

Betfair took the level of regulation a significant step further. I have already talked about our audit trail, but what I didn&#8217-t mention was that any sports regulatory body in the world can have the information gathered by that audit trail from us, free of charge. In fact, we can deliver it, via our Bet Monitor technology, in real time – as Stewards not so very far away in Victoria will tell you. In other words, we are providing, without any obligation, information which would otherwise be unknown about betting that is taking place all over the world – information which makes it easier to know what is happening, not harder. And it seems to me that asking the legal, regulated betting market to pay to clean up problems of integrity in sport is like approaching a High Street pharmacy and asking it to pay for the fight against cocaine-smuggling on the grounds that their business is in drugs. The difference between the legal, regulated market and the illegal market is the difference between chalk and cheese. And asking Betfair, or any other well-regulated, well-run global brand, to pay for problems which are seen to originate in the murky world of unregulated, illegal, bookmaking seems to me to be entirely missing the point.

To illustrate my point a little further, here&#8217-s the page from Wikipedia on match-fixing. You will see if you look at it more closely that it claims that cheating on sport started with the Ancient Olympics, and with battles between gladiators. When I once mentioned this on a radio interview, I was taken to task over it by a journalist from a British national newspaper, the Guardian, who accused me of being disingenuous. The amount of match-fixing today, he said, was of a completely different proportion, and the sums of money involved were much greater.

Even aside from my story about Winston Churchill, I would take issue with that. First of all, on what empirical grounds can anyone justifiably claim that there is more match-fixing today than there was before? Isn&#8217-t the perception that there is simply born of the fact that we can see it better today than we could a decade ago? Are there more diseases these days, or do we just diagnose them better?

To go back to my earlier analogy, are there more speeding cars, or are we now in a position to clock them? Did people start taking drugs to improve their sporting performances the week after drugs testing came in, or were they taking them before we had tests, and just doing so undetected? Was Jacques Rogge, the President of the IOC, justified when he commented during the Athens Olympic that, &#8220-Each positive test is a blessing for us because it&#8217-s eliminating the cheats and protecting the clean athletes. The more we find, the better.&#8221- I would say absolutely he was.

In truth, the basic fact is that it is simply not possible to make any judgment whatsoever on what the level of corruption in sport was before we had a means of tracking it, just as it is impossible to know how many athletes in the past used performance-enhancers to bring them medals. We might think that in a bye-gone era, the world was a nobler place- and on the whole, we might be right. But if the Chicago White Sox were throwing the World Series in 1919, and Liverpool and Manchester United were colluding over a result in 1915 – on that occasion, not for a betting return, incidentally, but to ensure survival in the top division at the expense of Chelsea, who consequently went down – and if these are scandals we happen to know about because someone happened to sing about them, then how can we possibly make a judgment about the bigger picture?

The challenge now is to take the attitude that Jacques Rogge has to drugs testing and apply it to betting, not being fearful of instances we find to occur, but to be confident that transparency is rooting out the corruption and tipping the risk/reward ratio dramatically in favour of the regulator and away from the corruptor. For that, we first need to draw on another of Mr. Rogge&#8217-s pronouncements in Greece. &#8220-You have 10,500 athletes in the Olympic village,&#8221- he told the world&#8217-s press. &#8220-You do not have 10,500 saints. You will always have cheats.&#8221- We have to acknowledge that the only people who can corrupt sport are the players, and we have to educate those players about how they will be caught and how they will lose their livelihoods and their reputations when they are. And to do that, we first need to educate sport about how they can do the catching: the only way to know whether players are corrupted is to have the names of the people behind the bets, and then use forensic analysis to make the often easy links between the bettors and the participants. Any attempts to look at the betting quantum and make judgments on it are absolutely doomed to failure, and the only people who will gain anything from doing so are the media. So sport needs to put itself in a position where it has access to named information, wherever it can get it. If it is not doing that, it is not using the tools available. I find it amazing that any sporting body would turn down named information from a betting operator willing to provide it with no strings attached, and yet, from the top down, there are plenty who do.

Don&#8217-t get me wrong. I am not trying to suggest that sport is riddled with corruption. I am an optimist, and I hope and expect, like everyone here, that 99.9% of sport is played for the Corinthian ideal of winning. But it is clear that sports – perhaps because they are being told so by the media – now feel that they have a problem which they feel they didn&#8217-t have before. The immediate reaction is to point the finger, rather than take steps to do something to tighten regulation in a manner which perhaps should have happened years ago, and it is not difficult to see why this has happened. It is easy enough to make what appears at first a logical jump: betting has increased- corruption has become apparent- therefore betting is causing corruption. It&#8217-s like saying, &#8220-it&#8217-s raining, and I don&#8217-t have an umbrella, therefore I will inevitably get wet&#8221-.

But what if it&#8217-s pointed out that there is no reason for you to go outside? Suddenly, the argument falls apart. And what if you understand that the increase in betting has moved in parallel with the increase in transparency? Suddenly, the logic doesn&#8217-t hold there either. But that growth in transparency of betting has led people to believe that there has been a growth of corruption, and the result is that sport is setting itself against the very people it should be working with. Again, I can understand how this is happening. Many in sports regulation genuinely don&#8217-t see that this problem is not new, like a patient diagnosed with cancer who insists that he felt fine yesterday and still feels fine today. But understanding why we are where we are doesn&#8217-t mean we should continue to plough the same furrow. We have to get out of it before we dig it so deep that we&#8217-ll never be able to do so. As a first step, that means understanding that transparency is not to be feared, and the people who bring it should not be resisted and looked at suspiciously. And second – away from words and onto concrete actions – it means sport starting to use the tools provided for them by betting operators who want to work in partnership, which would make it easier to combat the problems facing them than any other measure. Use the audit trail, link betting to names, and root corruption out of sport.

Understanding this, and acting on it, would allow sport to make the most of the commercial advantages that the betting market brings. I am not talking specifically about betting companies paying them directly for commercial agreements, although that is precisely what Betfair is doing voluntarily in Australia with the AFL, NRL, and cricket among others- we have done it with British greyhounds, and Irish horseracing- and we have committed to doing it elsewhere. I am also not talking about sponsorships coming from the betting companies, although it is interesting to note that just last week, Reinhard Rauball, the President of the Bundesliga in Germany, affirmed that the ban on foreign gambling advertisements would cost German football between €100 million and €300 million every year in lost revenues. I understand that even if we got to the point where regulators and betting operators were working in partnership to stop corruption, many sports would prefer to keep at arms length from betting companies in other areas, and I fully respect that. Rather, I am referring to the notion that betting plays a significant role in helping sports to internationalise their marketplaces, and ultimately, we now all compete in the global village.

In other words, although sports today recognize that they need to embrace a modern, global audience, they spend a lot of time working against the very sorts of organizations which might help it to achieve one.

Let me give you an example. There is a racing newsletter published in Australia called BetAngel. It is dedicated to a whole new audience who, since the arrival of Betfair, trade the sports markets as if they were the financial markets. Their March edition began with the words, &#8220-Wind back nearly eight years ago, when Betfair started and I joined them, I had no idea what Cheltenham was all about&#8221- – before going on, for eleven pages, to lay out the best strategies for punting on Britain&#8217-s premier Jumps Racing festival. In a similar vein, Betfair this year had e-mails from all over the world eulogising about the up-to-the-minute coverage and ideas being distributed far and wide by Betfair Radio on that same Cheltenham Festival – from Cyprus, Belgium, India, Singapore and – yes – New Zealand. The extent to which we are broadening the appeal of British horseracing is incontestable if you look at our international audience and the 85 or so countries from which we list customers. By virtue of the mechanism by which we pay to British racing a percentage of the profits which we achieve on British racing, it is fair to say that today money is coming in from the four corners of the earth which just a few years ago was staying firmly put.

Betfair is committed to paying sports bodies a percentage of the profits achieved on betting on events run under their jurisdiction. But if the betting markets continue to be seen as a problem, then they cannot at the same time be seen as an opportunity, and sports worldwide cannot make the most of that commitment. In contrast, if we could get sports administrators to realise that we do not threaten their integrity in a regulated and open environment- if we could get them to work with us, on commercial terms, and not against us- if we could get them to understand that the utopian world of no betting on sport is exactly that – utopian – and that the sensible thing is to work with the regulated market to ensure maximum transparency and minimum outlets for those would corrupt- if we could do all these things, then it wouldn&#8217-t be a question of sport putting on the show and the betting industry benefitting. It would be a question of sport broadening and maintaining its audience- of sharing in the first derivative market which stems from it – the betting market- and of the two industries working together to ensure that every tool is used to keep both the underlying commodity and the derivative market clean.

So I am here today to try to give you a new understanding of sports betting. I want you to understand that as far as we at Betfair are concerned, the regulated betting industry today is not some backwater of corruption in smoke-filled rooms, but a modern leisure industry which engages its customers and allows them to get involved on a participatory level that enhances their enjoyment- that it is an industry which harnesses those customers, and wants to do so in partnership with sport rather than at the expense of sport- that what sport today should expect from a modern bookmaking operator, as I told Sport Accord back in 2003, is a financial return which recognises that sport is putting on the show and seeks to demonstrate the good faith that leads to partnerships that leads to everyone growing the cake- and – entirely unconnected with any commercial agreement – they should expect information on what betting is taking place on their product, and – and I cannot over-emphasize this enough – by whom, in order to allow it to fulfil its role of policing the sport.

There are plenty of issues facing sport today, as there always will be. But feeling it has to fight betting should simply not be one of them. Sport has to fight corruption, using every tool it can- and the betting companies, who also, like the sports bodies, have brand names to defend- and, in a way that sports do not, more often than not have market values and share prices to protect, have to fight it too. So in conclusion, let me say it one more time: the legal and regulated betting companies around the world want to work with sport, not against it. But they need sports to recognise that it isn&#8217-t betting that causes problems, but corruption. I hope we can fight it together.

Thank you.

Mark Davies of BetFair

Mark Davies (Managing Director of Corporate Affairs of BetFair)

The best text that I have ever read about sports betting.

It&#8217-s that kind of speech that the US Congress should hear.

The Winston Churchill joke was lame.

Took me like one hour to read it in full, but every sentence was worth my effort.

All the issues he raised were known to me, but it was fine to see them all gathered in one place.

I&#8217-m still persuaded that the Winston Churchill joke was lame.

Speculating on event derivative markets is not investing.

No GravatarUltra pertinent remark from the Club For Growth blogger:

[The New York Post video] is an informative video, but I want to quibble about two things. I view the term &#8220-investing&#8221- as the act of buying an asset with the hopes of it appreciating in value sometime in the future. Used correctly, you &#8220-invest&#8221- in a new home, a company on the stock exchange, or a baseball card collection.

However, you can&#8217-t &#8220-invest&#8221- in politics as the New York Post reporter said you could. The reason why you can&#8217-t is because contracts sold on prediction markets like InTrade.com are not assets– they are derivatives. Their value is based on the outcome of some event. Like futures contracts for frozen concentrated orange juice. [&#8230-]

I have been blogging about that for years, here, on Midas Oracle.

Previous blog posts by Chris F. Masse:

  • If Midas Oracle were to meet, would we use Huddle, and why?
  • WORLD’S SUCH A SMALL PLACE: Smarkets meet HubDub.
  • 50% of our prediction market luminaries have a MacBook.
  • STRAIGHT FROM OUR TRUISM DEPARTMENT: Money buys happiness.
  • Ron Paul (R) and Barney Frank (D) ally together to attack “the practical hurdles of the federal law, known as the Unlawful Internet Gambling Enforcement Act, rather than its legitimacy”.
  • Clicking on the “SPHERE: RELATED CONTENT” button, at the bottom of each Midas Oracle post, will bring you a list of external webspots.
  • FRIGHTENING: Jed Christiansen’s prediction market blog was briefly overtaken by web spammers, who inserted invisible links to their commercial sites so as to game the Google PageRank system.