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Kevin Smith

P2P in the States' Hands Down Under

20 July 2004

A week after the Australian federal government's decision to allow states and territories to license betting exchanges, leading P2P betting operator Betfair is busy trying to find a jurisdiction willing to go for it. The door was opened when the Communications Ministry elected to keep the Interactive Gambling Act of 2001 in tact, but the future of betting exchanges in Australia remains a mystery.

"We would have expected the federal government to understand that states and territories have no powers in relation to dealing with Internet wagering operators."
- Michael Wright
Minister, South Australia

Of Australia's eight states and territories, the Northern Territory looked to be Betfair's most likely option, but NT Racing Minister Syd Stirling said last week that the territory won't take the lead on betting exchanges as it has with other types of online gambling.

Stirling welcomes the government's decision to leave the IGA alone, but NT regulators, he said, will only license an online betting exchange if the jurisdiction gets the approval from either the Australian Racing Board, or all other gaming ministers in Australia.

Neither scenario is likely to happen, as the ARB has long been adamantly opposed to betting exchanges, and many ministers would vote against the licensing of an exchange in the Northern Territory.

Stirling added, however, that if another jurisdiction acts first, the Northern Territory will likely follow suit.

"If another jurisdiction went ahead with it (and licensed a betting exchange), I think we would be compelled to do so also just to stay competitive in the market," Stirling said.

The first territory to buck the trend could be Tasmania.

Like the Northern Territory, Tasmania has a low population (both have under 250,000 residents 18 years and older). Thus, the betting turnover via traditional betting is minimal, as is the tax revenue generated from it. This is precisely why the Northern Territory and Tasmania have been leaders in the Internet gambling space.

But Tasmania's P2P ambitions could be stifled by its current standing with the TABs. The state is part of the super-TAB pool (soon to be "mega-TAB"), and any jurisdictions that licenses betting exchanges cannot be part of the pool.

Tasmania could alternately apply to become part of the AusTOTE TAB, which would allow it to license a betting exchange.

"The federal government obviously is driven by an election imperative. They are in policy-free mode."
-Dick McIlwain

Tasmania's Department of State Development, which oversees the Tasmanian Gaming Commission, wouldn't comment specifically on whether it will pursue exchange betting regulations, but a spokesman for the department said regulators would consider all options.

With sizeable obstacles in the Northern Territory and Tasmania, the territory of Norfolk Island could be the wildcard. The island has been considered a potential alternative for Australian I-gaming operators since passing a regulatory law in 1999. Most recently, the gaming commission in April granted AusTOTE the first TAB license issued in Australia in decades.

Due to the competitive nature of the business, it's widely accepted that if and when one jurisdiction issues a betting exchange license, others will follow. This has some in the traditional betting industry concerned about the prospect of jurisdictions with very small portions of Australia's population essentially dictating whether betting exchanges should be licensed. Tasmania, Norfolk Island and the Northern Territory--which collectively represent about 5 percent (731,000 out of 14.7 million) of Australian residents who are of legal age to gamble--all fit the mold.

The governments of South Australia and Queensland, meanwhile, are adamantly opposed to the federal government's decision not to ban exchanges and have stated that they will not take part in the growing industry.

South Australia's minister for recreation, sport and racing, Michael Wright, said the federal government "copped out."

"Betting exchanges are parasites by nature," Wright said. "We would have expected the federal government to understand that states and territories have no powers in relation to dealing with Internet wagering operators."

Robert Schwarten, Queensland's minister for public works, housing and racing, said Prime Minister John Howard gave betting exchanges a "green light," and that they are a problem "waiting to happen." Officials from New South Wales, Western Australia and Victoria have joined him in this criticism.

Betfair is already available for Australian Internet users, but operates offshore and without an official license. Mark Davies, a spokesperson for the company said they accept Australian wagers from their headquarters in London and will continue to do so until they obtain an Australian license.

The company's latest pitch came in Tasmania, where they informed the government that they can create 150 new jobs if given a license.

"We're a very positive story for Tasmania and for any state that wants to license us because we're bringing jobs and state taxes that would come with that," Davies explained.

"It is only a matter of time before we are operating in Australia at the same level we operate in the U.K."
- Mark Davies

The challenge in Tasmania and elsewhere, Davies said, is convincing regulators that exchanges are good for their jurisdictions, and that entails overcoming a negative public perception.

"Imagine I was Mark Davies of eBay, saying that we wanted to set up our second global office in your state, and would bring 50 to 150 jobs in the first year, and would pay tax and rights payments in line with everyone else," Davies said. "You'd be offering me subsidies to come. The benefits of us coming are huge and obvious if the issue is looked at dispassionately and not in the context of heavy mischaracterization by those opponents who don't want us."

Regardless of what's been said so far, Betfair isn't ruling out any jurisdictions.

"I'm afraid I won't second-guess any of the jurisdictions," Davies said, "although I would say that contrary to public perception, I wouldn't rule anyone out at this stage."

Even those jurisdictions that have come out against betting exchanges could change their philosophies if the TABs decide to get in the game.

UniTAB Chief Executive Dick McIlwain last week called the federal government "gutless" for not taking a stance on the betting exchange issue. Nevertheless, he also said his company would create its own betting exchange if Betfair or any of its competitors obtains an Australian license.

"If there is one crack, my company will be straight in," McIlwain said. "We will either start a betting exchange in our own right or join an alliance with an interested party. And there will be plenty of interested parties wanting to set up business with us. I am not going to sit back and see our business undermined by Internet operators from outside Australia."

McIlwain added that "the federal government obviously is driven by an election imperative. They are in policy-free mode," he said.

An election is scheduled for 2005, but Howard could hedge on the negative effects of the U.S. election in November and call one as early as October.

And there's another twist to this story: If betting exchanges begin operating in Australia, the racing industry, TABs and state governments could jointly mount a court challenge.

Davies, nevertheless, remains confident that Betfair will eventually obtain a license in Australia.

"We have been saying all along that the only argument against us is a competitive one," he said. "It is only a matter of time before we are operating in Australia at the same level we operate in the U.K."

The bottom line, Davies said, is that Betfair is a high-tech firm that's changing the way online betting is conducted.

"We are a technology company bringing cutting-edge jobs to the region," he said. "We are also an award-winning company, and described by a national newspaper (the Guardian) as 'arguably the biggest Web success ever'. Wouldn't you want to have us operating out of your back yard?"

P2P in the States' Hands Down Under is republished from
Kevin Smith
Kevin Smith