In my last post I looked at the inclusion of ‘palpable error’ references in Betfair’s public statements on the Leopardstown in-running fiasco. Why would Betfair want to align itself with a defence previously relied upon by ‘traditional’ bookmakers? Well, the answer to that might lie in how some backers may be keen to define Betfair as exactly that. A bookmaker that has taken their bets and is now not paying.
Unthinkable? Read on.
Most of us think of exchanges as being quite different models to bookmakers. We tend to think of bets existing only once they are matched by other bets. As Greg Wood puts it in his recent Guardian piece;
…the truth is that the £21m worth of 28-1 offered about Voler La Vedette was a mirage. Wishing it otherwise will make no difference. You cannot win – or lose – what is not there in the first place and even the most opportunistic ambulance-chaser is likely to take one look at this fact and point to the door.
That was my starting point too. An exchange simply facilitates the matching of our bets with one another, doesn’t it? After some deeper thought though I’m not so sure it’s that simple. This is the $64,000 or, more accurately, the £23,000,000 question. What are the key differences between the bookmaker transaction and the exchange transaction? Did Voler la Vedette backers bet with a ‘mirage’ , or did they bet with Betfair?
Betfair describes itself in much of its publicity as a person to person exchange which matches peoples bets with their opposite counterpart. The adverts liken it to a couple of guys in the pub disagreeing about the likely outcome of a football match and having their opinions matched up in a bet. Therefore, as Greg argues, if the other person’s money does not actually exist then all bets are off, right?
Well, maybe. But then again, maybe not.
Betfair has also described itself as being just like other bookmakers. With the sole distinction being its method of risk management. An alternative description of the exchange, and one used by Betfair itself on occasion, is that they take bets at their discretion and manage their risk by passing on (most of the time) that bet to its opposite equivalent. This line has been adopted by Betfair when arguing that they should be treated in exactly the same way as bookmakers. In other words your bet is matched by the exchange and then the exchange goes on to deal with its liability.
Seen in this light, the Voler la Vedette bets look very different. A backer might argue that his bet was accepted, not by a rogue trader bot but by Betfair and it’s entirely the company’s own lookout what they do with it.
The fact that the layer of a bet on the exchange is considered the same as the backer and that neither are leviable or taxable would certainly give weight to this interpretation and would place the ball firmly in the operator’s court.
In this scenario the music stopped playing and the exchange found itself holding, much to its surprise, a £23 million parcel.
Betfair of course may argue that they would never have taken the bets had they known that the hedging facility they were relying on was a mirage caused by a technical failure. The punters in turn might argue ‘that’s your problem, pal’.
The issue is clouded of course by the fact that Betfair does treat some bets as a normal bookmaker would and stands them in their entirety (in the case of multiples for example) and by the fact that their own bots are active in their own markets too. And, further, by the fact that some hedging into its own markets can also occur based on bets taken on the multiple front, or elsewhere.
At this point, if we accept we are looking at Betfair as a bookmaker with specific liability management techniques, Betfair might then be keen to invoke the traditional bookmakers’ palpable error defence. ‘OK, we took the bets but look the odds were clearly wrong’, being the logic. Which may explain the appearance of words that hitherto had not crossed an exchange operator’s lips; ‘palpable error’.
The other point to make here is that if another bookie invoked the rule in similar circumstances he is likely to succeed in getting the price changed to the ‘real’ price. Maybe SP for example. He is less likely though to succeed in an attempt to get all bets voided. Of course the bookie will normally actually have a palpable error rule in place which specifically allows this. A bookie is also unlikely to have allowed its customers to create their own prices as an event was taking place and to have played at those prices himself.
If a rogue bot manages to post imaginary funds into an exchange who is responsible? The backers might argue their bets were matched by Betfair, not by thin air. Betfair may argue that they didn’t want to match those bets and did so under the false impression that they could match against the rogue bot’s funds. Who’s problem is that? Where does responsibility sit?
This really is becoming a fascinating story. Should such an event come under the palpable error definition? Is Betfair covered in such an event by its rules, given the lack of a palpable error clause? Is Betfair only obliged to honour bets matched up with cash or do they function as a bookmaker who simply chooses how much liability to pass on? Who is liable for what most would agree is an error in staking? Was the staking error a ‘technological fault’ that would warrant voiding the market? Is that argument undermined by Betfair’s own activity in its markets? Where did the fault lie? Is an exchange different to a bookmaker in terms of liability? Are we looking at a risk management failure rather than an error?
Lots of questions and a long way to run. For us disinterested bystanders its fascinating stuff. One thing’s for sure by the time this process is completed we’ll know a lot more about how an exchange defines its activity compared to a bookmaker and a lot more about what goes on between consenting robots behind closed doors!
