Sporting Options Ceases Operation

In a move that could signal the beginning of the much anticipated consolidation of the betting exchange industry, all betting activity was suspended Monday on the Sporting Options Web site as the company went into administration.

The company appointed administrators (similar to filing chapter 11 bankruptcy in the United States) and informed users through a message on the site's main page that trading was halted and that a decision regarding what to do with accounts will be made by the appointed administrators, Paul John Clark and Andrew John Duncan from Menzies Corporate Restructuring.

In its message to users, Sporting Options said it was "currently assessing the financial position of the company and reviewing its business operations."

Users are encouraged to continue visiting the Web site, where updated postings will be placed informing interested individuals where the administration process stands. The post indicates that anyone trying to contact the administrators should do so electronically and not via telephone.

"This is very important, as it will lead to a delay in the process of dealing with e-mail enquiries as well as the process of administering the company in a timely and efficient manner," the notice reads.

Officials with Menzies didn't say how many active account holders Sporting Options had, and there was no indication as to the fate of their accounts.

In addition to suspending all betting activity until further notice, Menzies informed all users that any active bets have been taken off the board until a clearer picture emerges for the Sporting Options brand.

"All unsettled markets have now been voided by the company," the post said.

Many in the P2P sector have been speculating that, despite the great success of betting exchanges, there are too many exchanges in operation.

Sporting Options billed itself as the third largest exchange, behind industry leading Betfair and Ireland-based Betdaq.

Upon learning about Sporting Options' situation, the Betting Exchange Trade Association (BETA) immediately revoked the company's membership on the basis that the exchange was in breach of the Code of Practice for Betting Exchanges.

Andrew Silverman, BETA's general secretary, said the decision was simple because Sporting Options was no longer operating as a betting exchange.

"BETA is committed to maintaining the highest standards of probity and integrity in the betting industry," Silverman said. "That is why we have acted swiftly to revoke the membership of Sporting Options Ltd. There is no room in BETA for companies that fail to meet the standards set in the betting exchange code of practice."

Silverman added that he regrets Sporting Options' situation and that he's hopeful for a positive resolution.

"Overnight we went from a trade association of six members to one with five," he said. "There is a certain amount of strength that comes from the regulations we have established, and if companies can't live up to that standard, we don't want them as part of our association. I do hope that Sporting Options can come back though, and not bring our industry into refute. It is vitally important that consumers are protected, and we would welcome Sporting Options back if they can prove themselves during this process."

Betfair and Betdaq quickly issued statements to their shareholders and users reaffirming their strength as leading betting exchanges.

Stephen Hill, Betfair's chief executive, stressed that his company doesn't mix operating funds with money being wagered.

"All client funds are held on trust in ring-fenced client accounts with the Royal Bank of Scotland and are completely segregated from company funds," Hill explained.

Both the trust account and Betfair's accounts are rigorously audited by KPMG, one of the big four accountancy firms, the company said. Under no circumstances could third parties have a claim on Betfair clients' money.

"Betfair has built up its reputation on fairness, integrity and transparency," Hill said. "Simply put, your money is as safe (if not safer) with Betfair as with a bank, and Betfair will always have 100 percent of its customers' money available for them to withdraw whenever they want it."

Officials with Betdaq, meanwhile, said they were surprised by the news about Sporting Options.

"We have sympathy for those who may be adversely affected and are keen to assure our customers that Betdaq remains in rude good health," the company said in a prepared statement.

As with Betfair, all of Betdaq's funds are ring-fenced from the daily operating expenses of the exchange. The company also said it placed a $10 million cash bond with its bank in 2001.

"This instrument was a first in the betting industry and continues to give Betdaq users an unprecedented level of financial protection in their dealings with the exchange," the company said.

Rob Hartnett, managing director of Betdaq's U.K. division, expects other exchanges to face a fate similar to that of Sporting Options.

"This is still a growing segment of the industry, but a successful exchange begins and ends with liquidity," Hartnett said. "Volume is a serious issue for many exchanges, and that is why currently there are two exchanges (Betfair and Betdaq) that are making money. But there are a lot more than two exchanges in operation. A lot of the smaller operators think they have a solution to their volume issues, but there is only one way to fix that, and that is to increase your volume and liquidity. It is about volume, first and foremost."