Betfair’s Exposure of ‘X Factor’ Scam Shows Need to Fight Cheats

Betfair Group Plc (BET)’s system, in which customers bet against each other online, has been singled out by rivals as potentially making it easier for cheats to use inside information. The company’s response is to cite the “X Factor.”

In April, the U.K.’s Gambling Commission found three Virgin Media Inc. employees had misused access to company data on telephone voting on last year’s edition of the television talent show to bet on which contestant would be eliminated. They were caught after Betfair flagged suspicious betting patterns.

“If they’re trying to hide their identity, they can’t do that at Betfair,” said Susannah Gill, a Betfair spokeswoman. “All our systems are online, unlike traditional bookmakers. We know exactly who our customer is, where their bank account is. We can provide that to sport.”

While all betting companies have a clear interest in combating cheats, for Betfair the stakes may be even higher. The online gambling company’s betting exchange system, which allows betting on a horse to lose, is unfamiliar enough abroad to make it a tricky sell to regulators, making it harder for Betfair to expand abroad. The system isn’t allowed in France or Italy.

“This is a relatively new product, it’s not well understood outside the U.K.,” said Geetanjali Sharma, an analyst with Espirito Santo who has a “sell” recommendation on Betfair. “It is extremely important they monitor betting patterns to ensure there’s no match fixing, no money laundering, no collusion.”

European Regulation

Betfair and competitors including Ladbrokes Plc (LAD) hunt evidence of suspicious betting to help regulators. To grow, European gambling companies need countries such as Spain, Greece and Germany to approve betting rules flexible enough to let them make a profit. To help sway officials, they set up monitoring systems to hunt evidence of cheating and match fixing, said David Forrest, a University of Salford economist.

“Everyone’s very keen to be good corporate citizens, because everyone wants to persuade the courts and the European Commission,” said Forrest, who studies match rigging. “They’re all saying they should be the one to protect consumers -- that’s the great battle over betting in Europe.”

Concerns about betting and game fixing are growing, as the World Lottery Association estimates that illegal gambling is $90 billion worldwide. Two Pakistani cricket players are on trial in London on charges of conspiring to take bribes to fix plays in a Test match against England last year.

Of 197 cases of suspicious betting logged with the Gambling Commission between September 2007 and March 2011, 125 were reported by betting companies, according to licensing body data.

X Factor

In the ‘X Factor’ case, the commission voided bets totaling more than 16,000 pounds ($25,200) after Betfair’s integrity team, which can monitor up to 6 million transactions daily, reported suspicious betting patterns. The outcome of the competition last year, won by singer Matt Cardle, wasn’t affected, the commission said.

Betfair has eight people monitoring bets in London and four in Hobart, Tasmania, while Ladbrokes gives the job to its traders, who set odds. William Hill Plc (WMH) wouldn’t give details, referring questions to the company’s annual report.

Match fixers generally avoid markets such as the U.K., where data is reported to regulators and sports bodies, according to Detlev Zenglein, head of competition analysis at Early Warning System, which monitors sports betting for FIFA, soccer’s world governing body.

However they may be tempted to wager on Betfair because of the appeal of betting against another customer, who may not be as well informed as a bookmaker, he said.

The company itself is “quite open with us; good collaborators,” Zenglein said.

Information

Betfair takes a 2 percent to 5 percent fee on customer wins, while traditional bookmakers win when their customers lose and vice versa.

“The consumer doesn’t know who they’re betting against,” said Mike O’Kane, business director for Harrow, England-based Ladbrokes, of Betfair’s system. “You could be betting against somebody who knows something.”

Betfair officials say the company’s systems provide better information than traditional bookmakers, where a wager could be in cash registered on a paper slip at a bet shop.

“Setting up a Betfair account is like setting up a bank account,” Gill said. “We have all the information on you your bank does, which makes hiding corruption in sports incredibly difficult.”

The company’s data can be particularly useful to regulators, because it can point to whether people with inside information are wagering, said Paul Scotney, director of integrity services and licensing at the British Horseracing Authority.

“You can’t know a horse is going to win; you can know it’s going to lose,” he said.

To contact the reporter on this story: David Altaner in London at daltaner@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge in London at Ckeatinge@bloomberg.net

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