How the “sport of kings” became a traded commodity.
In the great scheme of things the £600m that a Betfair punter could have lost on the Christmas Hurdle at Leopardstown last Wednesday is some way short of the €4.9 billion that Jérôme Kerviel managed to lose for Société Générale, one of the oldest banks in France, between 2006 and 2008. However, it’s not far off the £827 million lost by Nick Leeson in 1995. But why compare financial traders and horseracing? Well, these days it can be much the same thing.
Betfair operates a betting exchange which provides “trading” facilities for customers to buy and sell contracts, much like any other financial exchange. In fact, it seems to have cornered the market in it with 90% global market share. This form of trading allows such things as in-race betting that seemed to misfire last Wednesday.
Betfair faced a payout of £23m on the 2pm horse race after it offered “obscenely” favourable odds on Voler La Vadette, even halfway through a race it was clearly winning. Bets made on site started at 13-8 and were being matched at 28-1 on as the horse crossed the finishing line.
However, Betfair voided all in-race bets 40 minutes after the event had finished, claiming that one of its punters had been allowed to “exceed their exposure limit” because of a technical glitch. According to a Betfair graph, the customer had offered to take up to £21m of bets, leaving themselves potentially liable for a payout of £600m, although just £1,642,094 had been placed on Voler La Vedette by the time the race had finished, exposing the customer to a loss of £23m.
Whilst I’m sure that the customer concerned is relieved, Betfair’s other customers aren’t too pleased with all this and £40 million has been wiped off their share price since the race.
Unlike Barings, this isn’t likely to break the Betfair bank, but it has to raise questions about the value of what they sell. They have apologised for “a very poor customer and betting experience”. If only Barings could have voided Nick’s bets so easily. However, unlike the international financial markets, Betfair don’t seem to have much competition and if you want to trade this sort of thing you seem to have to play by their rules. Alternatively, you could return to more traditional forms of betting on the gee-gees.