Reversal of Levy Scheme a Huge Victory for England's Betting Exchanges

The good news continues to roll in for the U.K.-based betting exchange industry.

Days after the leading P2P exchange, Betfair.com, was awarded an unprecedented seat on the Bookmakers' Committee, one of its competitors won a court ruling based on the upcoming levy scheme.

Officials with Sporting Options, with the support of Betfair, filed a judicial review in the High Court in London earlier this year when the Levy Board announced details of the 42nd levy scheme.

Justice Hooper ruled Thursday that the impending scheme was unlawful. Hooper agreed with claims from Sporting Options that the scheme shouldn't move forward because the Levy Board failed to properly consult all interested parties before introducing the scheme.

In the judicial review, the board argued that it was under no duty to consult with exchanges in relation to levy schemes.

Hooper described this approach as "seriously flawed" and held that there was a duty to consult, that this had been inadequate in this case and that as a result, serious unfairness had resulted.

Officials with Betfair had long criticized the process as well but only lent their public support to Sporting Options during the judicial review. Some in the industry speculated that Betfair's addition to the Bookmakers' Committee, which was announced earlier this week, was a result of betting exchanges feeling left out of the process when all ideas were considered for the levy scheme.

The Levy Board ultimately chose to change the levy scheme for 2003-04 to include a 10 percent tax on gross profits of individual bet-laying customers on the exchanges. Exchanges argued the levy should be based on the gross commission of the operator, as it was during the 41st levy scheme.

Tthe Levy Board and the Bookmakers' Committee are expected to apply to the Court of Appeal for leave.

Sporting Options' managing director, Kevin Griffiths, told reporters after the decision was handed down that betting exchanges would be taxed fairly compared to traditional bookmakers.

"The ruling allows betting exchanges to compete on a level playing field with traditional bookmakers," Griffiths said. "This is in line with the government's treatment of exchanges in calculating Customs & Excise General Betting Duty as a percentage of their commission revenue."

Many traditional bookmakers say betting exchanges are the main reason the expected revenue from the current levy scheme was short of expectations, a claim that Griffiths discounted.

"There has been much debate recently about the shortfall in funds raised by the 41st levy scheme compared with its estimated yield," he said. "Sporting Options would be prepared to pay 12 percent of its gross profits (commission) derived from British horseracing as levy if traditional bookmakers were required to do the same."

Griffiths said his firm (and probably other leading betting exchanges) was willing to pay more taxes, but would fight any proposal that would force exchanges to pay more than traditional bookmakers.

"The company will, however, continue to oppose any attempts to saddle betting exchanges with a higher 'tax rate' than traditional bookmakers," he said.

Because Sporting Options was the only exchange to challenge the scheme, the ruling technically only affects its payment structure for the upcoming scheme.

Rodney Brack, the chief executive of the Levy Board said the "obligations" of other betting exchanges will be considered during the next Levy Board meeting in September.

The Levy Board is expected to bring the entire scheme in line with the ruling to prevent other exchanges from seeking a similar court ruling that would most likely be returned in their favor.

Brack put to rest concerns over whether the ruling would impact the expected revenue from the levy scheme (creating a shortfall for the second straight year).

"The board's forecast of levy yield, agreed at the last meeting, were taken on a prudent basis and there is therefore no immediate implications for the Levy Board expenditure plans," he said.

Griffiths said all Sporting Options wanted was a clarification of the betting exchange levy portion of the scheme, leaving the rest of the 42nd scheme intact.

Griffiths and Sporting Options got high praise, even from some of its most stout competitors, after the ruling was announced.

Rob Hartnett, director of rival P2P exchange Betdaq, said the decision was a huge victory for the entire industry and may cause some of its most staunch enemies, mainly traditional bookmakers, to see exchanges as allies instead of rivals.

"Although we have always considered ourselves to be a bookmaker, we are nonetheless very pleased by this decision because in the same way as the general betting duty draws no distinction between old and new style of betting, now neither does the levy," he said. "We have always believed that exchanges are an evolution of traditional bookmaking and this is another vindication of that view."

Click here to view a copy of the decision.