Found the below article on another site, fingers crossed the approach described is adopted


Another option in the turnover tax debate

By David Nolan

When punters bet on any event they are competing against each other and it is the money wagered in various amounts on the competitors inthat event that creates the market. Bookmakers essentially act as aconduit for people wishing to wager on an event.They frame markets withan overound which gives them the mathematical advantage that allows them over time to retain a percentage of the money wagered. Bookmakers,Totes, and Betting Exchanges all are are conduits for punters to competeagainst each other. The punters aim is to back the winner. The bookmakersaim is to manage the money bet through him as effectively aspossible. Hence the term "bookmaker". In order for him to do that he has at times to trade the monies bet with him through other agencies (other bookmakers,totes or exchanges) to offset his liabilities. He may takebets of say 100k on an event but to limit his liabilities to anacceptable amount may need to trade a significant portion of that figure to balance up his book.

All bookmakers large and small, trade to offset liabilities. Eachbookmaker will operate to different business models regardingrisk/liability but all will have to trade to offset liability at somestage.

When I was involved in bookmaking in the UK through the seventiesand eighties a turnover tax was levied.To prevent the turnover tax being paid twice or more all hedged bets were deducted from the dailyturnover totals.

This is the only fair way to levy the tax. If a punter stakes 10k on a runner and the bookmaker hedges 5k of it with another agency he onlyhas a turnover liability of 5k. The other 5k is now with agency used forthe hedge.That agency may subsequently decide to hedge 3k of that withanother agency. The liability for the tax rests with the final agency.

The turnover tax for ease of collection is levied by the taxingauthority against the layer who may then offset it by levying acomparable tax on the backer.This used to happen in the UK where apercentage deduction was made on winning bets to offset the tax.In thecase of the proposed 1.5% turnover tax here in Australia that surelywill be absorbed by most agencies and offset by increasing the overoundin general or simply accepting that it will decrease profits.The taxtherefore is levied only on the LAY side of the book

If this system is applied to the exchange (Betfair) there should be no problem accommodating a turnover tax other that the obvious one of it being a tax andtherefore unpopular.A exchange trader may make multiple trades on anevent -accepting a liability and then offsetting it over and overagain.If for example he he takes 10 individual bets of $100 at 2.00 andthen offsets his liability 10 times at 2.10 he has traded successfullyto remove his liability and guarantee a profit of $50 by then accepting a final lay bet of $50 at 2.00. At each stage he has offset his liability and passed it on to another party except for the final lay bet of$50.It is this $50 that the turnover tax should be levied against asthat is the final destination for that $50.The other $1000 has beenpassed on and the tax should only be levied where it finishes.

The exchange (Betfair) needs traders to provide the liquidity itneeds to function effectively.The turnover tax will still be levied butonly on the real amounts that have been laid. When the exchange (Betfair) shows a "matched" figure on an event it is so totally misleading as tomake it virtually irrelevant as a huge amount of it is traded moneygoing back and forth.

The exchange (Betfair) has totally changed the betting landscapewherever it operates and allows player a range of options previouslyundreamt of. To say that it has stimulated competition would be anunderstatement it has been revolutionary in lowering margins in generaland has given the average punter not just the pro's a realistic chanceof finishing on the right side of the ledger. All serious punters use itat some time, some almost exclusively now as they have migrated fromconventional punting to trading. It's main negative here in Australia ispoor liquidity but that surely will improve over time.

The racing authority has had it's day in court and the tax is now adone deal. It is now time for the racing ministers in each state to stand up and show some leadership.It's in everyone's interests that we have a strong and vibrant racing industry here in Australia.That industry istotally reliant for it's future on the punting dollar and that ingeneral comes from working Australians.If we are going to be paying forit every time we have a bet then surely we have a right to have someinput into how these massive sums of money are distributed and the terms of trade that generate them. The racing ministers need to remind the racing authorities of whose money they are spending and asking them howthey intend to repay their chief benefactors by producing a product that will keep them engaged both now and in the future.

Competition is good for the consumer - the only ones opposed to it are the vested interests that benefit from the lack of it.If the exchange(Betfair) is forced out of the racing business here in Australia it will have a hugely negative impact on Australian punters and only benefitthe opposing vested interests.All the states racing ministers must bemade aware of what the Australian punting fraternity expect ofthem.There is no valid reason at all why the exchange (Betfair) cannotbe allowed to continue and contribute to Australian racing as I haveshown above.If it is forced out it will be because the other vestedinterests have had their way at the expense of the Australian punter.The racing ministers are elected representatives and need to be made awarethat we are watching developments and that we also have a vote and thatthere are a lot of us.Where I live in Far North Queensland the mostpopular male pastime is fishing. The wild rivers policy of the previousLabor government was hugely unpopular with anglers here.A common sightup here is the car sticker which reads "I Fish and I Vote". Punters need a voice here in Australia to protect their interests.

As I said at the beginningall punters are essentially competing against one another and inaccepting that, getting general agreement amongst them is probablyharder than "herding cats". Surely keeping the betting landscape openand competitive is one thing we can all agree on.



The exchange (Betfair) because of it's relatively low commissionstructure probably cannot absorb a 1.5% turnover model and retain it'scommercial viability. Some vigorous arm twisting by the ministers mightproduce a compromise that could be accepted as having merits all round, for example:

Betfair increases its commission on Australian racing by 1% acrossthe board ie the base fee rises to 6% the lowers proportionately to 3%.The other 0.5% is absorbed by Betfair

Betfair waives all of it's outrageous "premium charges" for businessconducted through the Australian wallet.This would make the Australianproduct attractive to the big hitters overseas and increase turnover and liquidity

David Nolan