Information from London Stock Exchange
My previous post was from a press release on the London Stock exchange. Below is an article from one of the London Newspapers detailing what Betbrokers is doing:
04 March 2007
By Mark Choueke, The Sunday Telegraph
Online gambling exchanges have brought a huge wave of liquidity to the market - but also worries about opportunities to abuse the system, says Mark Choueke.
When Britain's financial markets close on Friday evenings and tired traders crowd the City's bars looking for the first drink of the weekend, a parallel financial industry is still going strong and gearing up for its busiest trading day.
An estimated 15,000 former City traders and brokers currently make a living betting six and seven figure sums on horses and footballers - professionally trading on the sports gambling market as they would on foreign exchange, equities and commodities.
New middlemen such as Betbrokers, an Aim-listed betting exchange set up by former City broker Wayne Lochner, allow such traders to lay large wads of cash on sporting events.
Whereas ordinarily bookies may reject the bets or at least limit the stakes of a high roller with an abnormal success rate, Betbrokers' modus operandi is to take large amounts of money and break it up into smaller, more manageable sums before rapidly spreading the risk across a very large number of bookmakers.
Lochner says: "Where do financial investors and traders go after leaving the markets? These are street-smart market boys, many of whom lost their jobs when stock exchanges switched to electronic. Most don't know how to do much else but follow hunches and trade on their instincts."
Many unemployed traders try to trade from home, according to Lochner, but they find their margins reduced by the increasingly computerised nature of the industry. "By contrast the sports wager market is young, vibrant and perfect for these guys. You see traders buying and selling in fractions of a million pounds several times a week, with all their transactions totally tax-free."
Bookmakers use the service in reverse, hedging their positions to reduce potential losses by laying bets of their own through Betbrokers who then sell them to other bookmakers and traders.
Matchmaking of this kind - finding two parties whose needs complement one another - is nothing new in the industry, with betting exchange companies like Betfair having existed since the late 1990s.
But an explosion of interest in recent months has dramatically increased the scale of the gambling market, increasing liquidity and reducing spreads much as the Big Bang once did for the stock market.
Typical of the new breed of players is Steven Neale, a father of four from Barrow-in-Furness who, with three colleagues, quit his management job at BAE Systems four years ago. They pooled £17,000 between them and are now £1.3m up after matching bets of £500,000 every week.
Betfair generally pairs gamblers betting against one another with small stakes. Betbrokers, launched in 2005, gives gamblers and bookmakers equal status when it comes to buying and selling. Crucially, they aim to deal with very large stakes indeed. Such heavy betting activity is flushing liquidity into the sports betting industry, allowing bookmakers to take on ever more business and enabling them to offset losses.
According to industry figures, the phenomenon is responsible for almost doubling the value of the UK gambling market since 2001, from £27bn to £53bn.
National audit office statistics show that the value of the National Lottery, pools betting, casinos, bingo clubs and amusement machines remained fairly inert during that period. But the value of general betting, which includes sports betting through bookmakers as well as professional trading of this kind, exploded from £7bn to £32bn.
Many in the sporting world see a downside to anonymous betting exchanges on this scale. There is, after all, a good reason why traditional bookies have always been wary of accepting large bets from individual punters without first ascertaining what type of inside knowledge they might have.
The Horseracing Regulatory Authority suspended Robert Winston and three other jockeys from their sport last month for corruption through the use of Betfair.
While the betting exchange demonstrated the ability to adopt a strong policing role in the inquiry itself, many wonder whether the presence of such organisations fosters the potential for further such crimes - jockeys laying bets against their own horses - in the future.
Lochner discards the notion that Betbrokers should or could act as a regulator but says that it can bring extra probity to the industry. He says the team is determined to eliminate potential for money laundering and leads the market on tough rules over documentation and knowing its customers.
He also insists on a no-credit policy. "Customers can only bet with what they've got so we're promoting responsible gambling," he says. But sceptics remain. Gala Coral Group chief executive Neil Goulden admits his firm occasionally uses the exchanges and notes firms like Betbrokers are heavily relied upon by individual on-course bookmakers, but says: "The exchanges will tell you they monitor patterns and are able to help convict disreputable jockeys. But without the exchanges these fellows wouldn't be able to do what they're doing. The exchanges are not licensed, not regulated and not taxed."
Other industry figures and bodies are more positive about the exchanges however - and that includes bookmakers. Lochner says 20 per cent of Betbrokers' revenue came from bookmakers using the company to hedge their risk in the second half of 2006, compared to 10 per cent in the first half.
The likeable 49-year-old, who flew back from a week-long business trip to Las Vegas this week in time to host a charity virtual horse-racing gala sponsored by Betbrokers, claims that percentage has now reached 30 per cent, with bookmakers numbering 200 on his customer list compared to just 30 in January 2006. Revenue in 2006 was just over £1m. If analysts' predictions are correct it will be £ 500m in five years' time.
Lochner and his managing director John Raymond describe how former City traders transform themselves into experts on niche corners of the sporting world to ensure success. They examine trends and outcomes and know their market as they once knew gold, steel or futures. One trader may come to know a particular horse and everything that makes it tick; another may trade solely in Major League baseball or American football, hoping to garner advantage over a UK bookmaking industry less knowledgeable about the subject.
One Betbrokers client has become an authority on Nationwide Conference football and buys and sells hundreds of thousands of pounds worth of wagers every Saturday.
Listening to Lochner and Raymond, also a former broker, describing their clients' activities it is notable how strongly they see the similarity between what they do now and what they did when they worked the financial markets all over the world.
Lochner distinguishes between customers who are "jobbers", those who are "day-traders" and those who are "long-term-position traders, patiently risking high margins over long periods of time".
The technology in Betbrokers' trading room allows customers betting on the horses to lay a £200,000 wager across a number of takers as late as one minute before the traps open - when the price is most attractive and the wider market has made all its moves. Such customers might typically lay three or four such bets a day. Some Betbrokers customers trade in packs, hiring cheap office space and filling it with computer screens.
But typically, most trade on their own from home, preferring to keep their identities secret for a variety of reasons.
Many of the firm's clients refused to talk to The Sunday Telegraph on the record because remaining under the radar is important to them.
Some suggest that such large-scale tax-free betting may not remain tax-free for very long if attention was drawn to it.
Others - perhaps paranoid, perhaps not - claim they don't want bookies gathering information and being able to identify them as having specialist knowledge in the future.
Raymond says there is one football-betting client in particular who refuses to deal in stakes smaller than £50,000 but works full-time within the football industry and, though there is "no question of any impropriety", he treasures his anonymity.
One Betbrokers customer who is willing to talk is former foreign exchange trader Roger Mahoney. "These traders can access every price being offered across town through the likes of Betbrokers," he says.
"The smarter guys among them can do enough homework and hedge enough risk to make a lot of money. Leaving the City came as a shock to many of them: it can be difficult to earn a living with such specialist skills. You miss the income and the buzz of making deals. Many City traders feel like the luckiest people in the world - getting paid so well for doing something they love and when it's gone they feel the loss."
Another client, a former banker named Peter Askew, says: "I don't miss being a banker. While gambling doesn't replace the City for me it does substitute for it in many ways.
"Do I miss the commute or the stress? No. Do I miss the feeling of making a deal that I spotted before anyone and seeing it pay off? Yes of course. That's the part that is eased by trading on sport. If you've been in the City you're always looking to use your instincts - that never leaves you."
Both Mahoney and Askew deny that they deal in sums anything like as large as some of Betbrokers' other customers but both are aware of the grand scale on which some of this is taking place. Askew says: "I'm not a big spender like that - I wouldn't sleep at night. But it is natural for former City traders to need to replace their daily dose of risk with something.
"They have a natural talent; it's the barrow-boy syndrome. You can't be a City guy one day and switch it off and be a normal person the next."
Copyright: Telegraph Media Group Ltd
