How will bookmakers react to Racing NSW new regulations?
By now I am sure you have heard the news that racing NSW have made the wise decision to force online bookmakers to accept bets on all its races to lose a certain amount, the same rule that has been around for decades for the bookmakers at the track. This will increase turnover on these races and therefore increase the tax that Racing NSW earns, which they can put back into their product to make it even better. This has been a long time coming and the bookmakers would have known this was always going to happen and have had time to plan how to counteract these measures. The first phase started today with the Australian Wagering Council (which is in fact just a collection of all the British owned bookmakers), releasing a statement asking for a freeze on the minimum bet rule. They know that every day they can keep this rule from being implemented is millions in revenue for their companies. When this fails, they will then take it to court to keep it from being introduced for another couple of months. If they could, they would keep it tied up in the courts for years.
It’s clear to see that they have no legal leg to stand on. Racing NSW owns all rights to its product and if the online bookmakers don’t want to follow the rules then they are free to not accept bets on NSW races. What is amusing to me is how the AWC has been saying that it is a very small issue and it only affects 1 in 10,000 bets. If this was the case then they would not be fighting so hard to stop this.
These online bookmakers are not idiots, they know exactly what will happen if this rule is introduced. NSW Racing will start to see a massive increase in revenue, other racing codes will say, hold on, we should be doing this, then other sporting codes will do the same. In a few years bookies will have to take everyone’s bets. This won’t work for them, as they are not actually bookmakers, they are marketing machines. Their entire business plan is to entice everyone to enter their shop by offering incentives, screen them to see who the mug punters and problem gamblers are and kick out all the rest. They have invested millions to get their customer base and will spent many millions more to protect the way they do business.
Bookmaking 101 – How it should work
Bookmaking is a pretty simple concept, and I’ll try and explain it quickly. The bookie sets prices on all the horses in a race, into these prices they have set their overround, which is basically the bookmakers profit. As people bet on certain horses, they move all the prices to make other horses odds more appealing. A fair book would be a 100% book, but after the bookmakers have applied their take the book then becomes closer to 120%. So for every $120 that is bet into the market, the bookmaker pays back $100 and pockets $20.
This seems simple enough. In a real world example, they might take $100,000 on a NSW race and they will make a profit of about $20,000. They then need to pay a turnover tax to Racing NSW, so $1,500 of their profit goes to Racing NSW. But the bookmakers are not happy with taking 20% of this pool and have found an even more profitable way to run these markets. They know that mug punters are going to lose much more then 20% long term so instead of operating a book, they happily take the risk of taking on these losing punters while not allowing any of the potential winners to take them on. Now that same $100,000 bet on the race will on average make them 30-50% profit while still only paying the same amount to Racing NSW.
This new rule will cut their profits back to the 20% level while also increasing the payments that need to be made to Racing NSW, as a race that would have only turned over $100,000 will now likely turnover $200,000.
How will they counteract the new rule?
If you think the bookmakers will simply accept that they will lose 20-30% of their profits overnight then your not very bright. This lost profit will be paid for by you, their customer. There are a number of ways I feel they will try and counteract these new rules.
They will close account
This is what has already happened, anyone they don’t want to take a bet from they simple close their account or limit them to small stakes. Racing NSW is aware that this would make their new rules pointless and I’m sure that a stipulation that no accounts can be closed will be part of these new regulations.
They will increase their over-round (decreasing prices)
If they have to take bets from everyone they will just offer worse prices to increase their profits. Instead of getting $3 on a horse you will get $2.8. This won’t work as it would only take 1 bookmaker to offer the fairer odds and customers would move to them.
Remove fixed odds
They will simply not offer fixed odds, only tote prices and their own tote equivalent. Same issue with above though.
So now that these measure won’t work for them, they are left with a few other alternatives. The profitable customers accounts have already been marked, they know which customers will cost them money. This is where they will decide to attack just those customers. They can do a few things to try and make them stop betting with them. Let’s see a few things I’m sure they will try.
For any customer who they don’t want to bet with them, they will introduce a ridiculous deposit fee. Currently bookmakers absorb the fee that Credit card companies charge them to take deposits. Bookmakers will simple charge undesirable customers 5-10% or even more for every deposit they make.
They will also charge these customers a turnover tax which is equal to the tax they pay Racing NSW. Which in essence is lowering the odds on them. So if a customer bet $1,000 on a horse, an extra $15 would be taken from their account even if the horse lost. Betfair already added this fee (on wins) to their product years ago.
The bookmakers will also segregate accounts into two tiers. Tier 1 will be mug punters and problem gamblers, they will continue to see the best odds and bet as if nothing has happened. Tier two account will see a complete different set of odds which will be much lower. Tier one ‘s over-round will stay at 120%, while Tier 2 will have an over-round of 150% or more, making it highly unlikely they will bet. All bets by Tier two customers will also likely be sent to a trader, who will then say the price has moved and offer an even lower price.
A long road ahead
The bookmakers will do everything they can to make it pointless for the profitable gamblers to bet. If people can beat a 120% market, then they will add fees and lower prices to make it a 150% market. There would be very few people who could make a profit against odds that high.
While I am very happy with what Racing NSW is trying to do, I still see a very long road ahead before we are anywhere near a fair wagering market in Australia.
What other measures do you think bookmakers might implement? share your thoughts in the comments section below.