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The state of New Jersey recently granted permission for the racing industry to conduct exchange wagering. Some leaders in the gaming industry believe that betting exchanges are the future, a means to reverse the game's fortunes. Others disagree. The take of Dr. Carlo Zuccoli follows:

“Do you remember the (Italian) television commercial in which George Clooney used to say, “No Martini, no party?”

Well, when it comes to betting, horse racing can say the same, and then more – “No betting, no show. No betting, no racing. No betting, no industry either.”

Every day, more or less, people all over the world write about betting and gaming, what we generally call gambling. And most of them write about betting on horse racing.

They write about takeout (concerning the tote system), about overround (concerning the bookmaking industry) and, recently, they talk about the wagering exchanges, very often without even knowing what this “instrument of the devil” is.

In addition to thinking about takeout, every North American racetrack that’s applying a takeout should consider the correct proportion between simple and exotic bets in order to create the maximum possible churn. Every track must satisfy the needs of the bettors as well as horsemen (prize money) and those of the State. This is a very complicated exercise: tracks that manage this “trick” properly succeed; those that don’t won’t succeed.

In England, for many years, a large portion of the funding for purses has been and continues to be generated by an entity called the Levy Board. The Levy collects money in the form of a gross profit tax (otherwise known as GPT) from the bookmaking industry. The bookmakers pay GPT at the rate of about 10 percent of their gross profits, if any, on a weekly base. The bookmakers pay another GP at a rate of 15%, in the same way, but this money goes to the English Government. All the profits which the Horserace Totalisator Board generates running the Tote all over the racecourse in the UK go back to racing; its subsidiary company, Totesport Ltd. works as a bookmaker and pay the GPT.

In addition, the betting exchanges contribute to the Levy, but they contribute at a much lower amount of money, despite their popularity, because they are taxed (GPT at a rate of 10%) only on the commission applied to the successful backers and layers. The commission goes from 5% (maximum) down to 2% (minimum) and the figures change according to the volume generated by the backers and by the layers who succeed (the bigger the turnover they generate the lower the commission applied). The lower GPT isn’t compensated by the greater value of the volume, and so the Levy suffers.
The big problem in the UK today is that the betting exchanges, are draining a huge amount of money from both the bookmaking industry and from the tote so the prize money is going down year by year dramatically. The racecourses are trying to make up for the money lost from the Levy contributions with sponsorships but they can’t bring enough in to offset the declines. The contribution that betting exchanges give to racing is peanuts, despite the volume of action they handle.

To work properly the exchanges need a lot of liquidity. Big liquidity results in overround very close to zero. It means commissions to the operators which is very small and means that the levy is very small too, compared to the one paid by the bookmaking industry. And it’s absolutely nonsense that the exchanges will attract young people to racing; the exchanges are populated mainly by big sharks who kill the sheep in every single market. At the same time the exchanges kill the integrity of every sport on which they open a market because for an insider the temptation of laying the outcome of an event is sometimes too high to be resisted, especially when the insider can determine that outcome.

It seems to me that nobody has understood that if the exchanges will work properly, regardless of who will run them (the tracks or a betting exchange) in the USA, they will drain huge amount of money from the tote, whose turnover will go down dramatically, and in the end kill the show.

Written by Dr. Carlo Zuccoli