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Betfair takes on Australia for punter protection

Freedom is just a word to gamble

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Analysis Western Australia legislators have threatened to reaffirm the stereotype that Australia is a “convict nation” by backing online gambling restrictions more draconian than those faced here in the US. And the bookies are less than pleased by the situation.

Over a year of acrimonious finger pointing between Western Australia and the UK–based Betfair has escalated into a full–fledged constitutional challenge by the world’s leading betting exchange against a law that recently went into effect in Western Australia outlawing betting exchanges. Betfair responded immediately by filing a claim with the High Court of Australia, seeking to have the law overturned as unconstitutional.

The law both makes it illegal to operate a betting exchange and criminalizes the use of betting exchanges by gamblers themselves, a step even the American Department of Justice has been too timid to take. Western Australian punters face fines of up to AUD$10,000 or imprisonment for up to two years for placing wagers on a Betfair–type of exchange.

You say betting exchange, I say betting exchange

Although Betfair has been around since 2000, betting exchanges first gained international notoriety in the middle of 2003, when the Defense Advanced Research Projects Agency, or DARPA, created the Futures Markets Applied to Prediction (FutureMAP) – aka the terror casino.

This kind of policy analysis market would have involved investors betting money that a particular event – ie., the next terrorist attack, natural disaster or assassination - would happen, on the assumption that the inherent wisdom of the market would provide the American Government with more accurate information on international events.

In essence, a betting exchange operates like a typical futures or commodities market, with gamblers posting contracts and odds that certain events will or won’t happen. Other gamblers can then purchase a contract or post one more to their liking. The action is peer to peer, with the exchange itself charging a flat per trade fee or taking a percentage of the contract.

Whatever the merits of the wisdom of markets, the idea that terrorists might somehow profit by gambling on their own attacks created a firestorm in Congress and the terror casino idea sank like a stone.

In spite of that setback, the private exchanges like Betfair or Tradesports.com continued to grow (sometimes with under the table help from DARPA), and in November 2005 Betfair applied for and received a gaming license to operate in the Australian state of Tasmania.

I punt in the land Down Under

Australians have a reputation as an easy going lot not overly concerned with the moral ambiguities of gambling. State regulated Totalizator Agency Boards (TAB) have offered off site wagering for forty years in every state in Australia, providing state guaranteed accuracy of the results posted. Casinos are legal, and online gambling giants like Sportingbet PLC are fully licensed. So what’s the big deal about Betfair?

The Australian horse racing industry, much like its American counterpart, had a fit at the idea of its cozy state monopolies being challenged by outsiders like Betfair. The argument before the High Court has some awkward similarities to the ones that have the US Government squirming in front of the WTO in its fight with Antigua.

Just as the American horse racing industry received an enormous “carve out” from Congress to allow it to continue wagering remotely while prohibiting foreign competition from doing the same, so the racing industry in Western Australia has fought tooth and hoof to protect its local industry. The claim is that Betfair will freeload off the local racing industry, not paying taxes and failing to support the racing facilities themselves. They also claim that betting exchanges provide an incentive to throw a race, since punters are able to bet on losers, rather than just winners.

However, Betfair has already addressed these concerns in a separate deal with the government of Victoria, and it’s hard to see how Western Australia is a special case.

High ho, high ho, to the High Court we go

Australia, like the United States, has a federal system of government, with state governments traditionally free to craft their own legislation on issues that impact local morality, such as gambling, and the federal government empowered to harmonize trade between the states or support national defense.

However, fair trade arguments aside, a recent decision by the Australian High Court has greatly expanded the jurisdiction of the federal government over corporate activity, even at a very local level, and will likely put a rude stop to Western Australian unilateralism.

The so–called Work Choices legislation passed by John Howard’s government in late 2005 gave almost plenary power to the federal government to regulate corporate activity, even at a very local level. This radical revision of Australian labor law was upheld by the High Court on November 14, 2006, and it’s highly unlikely that Western Australia has jurisdiction any longer over the activities of Betfair, even within its own borders.

Under the business friendly Howard government, regulatory harmonization between the states is the name of the game. When Betfair received its license in Tasmania, it walked away with a little more than it bargained for. ®

Burke Hansen, attorney at large, heads a San Francisco law office.

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