Dangers of getting caught in the net

Lydia Hislop13 April 2012

Internet and interactive television has hugely increased punters' access to gambling. Fuelled by the National Lottery, betting has become a normalised pastime for a wider band of society. It's quick and non-threatening to use. But is your money safe?

Naivety rather than skulduggery is usually to blame when bookies go belly up. But the impact on the punter remains the same: money lost.

Since the 1845 Gaming Act, gambling debts have been irrecoverable by law, although this issue is currently being examined by the Government's gambling review body who are due to report in June.

Yet the internet has opened up a new, barely regulated sphere for crime and mismanagement, in betting as in other walks of life. A net bookie may be based anywhere in the world and their clients must often rely rather more on trust than information when depositing money into their betting accounts.

But it's not surprising punters seeking the best deal stray from the Ladbrokes and William Hills of this world, especially a couple of years ago when the big names were lagging behind smaller companies who had spotted the tax-free opportunities of the internet.

While your UK telephone account and local betting shop required you to pay an extra 9p for every pound staked, the inter-net offered tax-free betting from companies based in less strenuously taxed locations.

Generous each-ways terms, better-than-SP (starting price) payments and large betting limits enticed punters to bet with these brave new firms.

Punters had never had so much choice. But something had to give and two high-profile inter-net bookmakers have hit the dust since the New Year.

On 22 January, betachance.com ceased trading. They started trading in August 1999 with the headline-hitting gimmick of being the brainchild of an eight-year-old boy. They now owe their clients £30,000, although director Richard Ryan has pledged payment by the end of this week.

In the fallout, it's emerged that Ryan and fellow director Godfrey Allen (whose nephew Joseph, was that eight-year-old boy) previously ran Top Form Racing. That firm stopped trading without notice less than two months before betachance was set up and they still owe some clients money.

Customers of firststake.com can count themselves relatively lucky. Shares in Bristol-based, OFEX-quoted parent company Firststake plc were suspended a week ago today and their inter-net business collapsed 24 hours later owing more than £217,000 to their 5,000 account holders.

But online rival sportingbet.com struck a deal with London receivers Kingston Smith & Partners, taking on Firststake account balances in exchange for the opportunity to augment their customer base. Only ante-post bets are not being honoured by Sportingbet - a relatively small price to pay.

It's unsettling that Firststake was a larger, more established company than betachance. But the fact is UK law is equally lax in handing out betting permits whether you're Joe Coral or Joe Bloggs.

This point was proved with devastating clarity four years ago by punter-protection lobbyists who were given a permit by post from Richmond-upon-Thames magistrates court without having to prove anything more than a clean criminal record. Financial security was not questioned. The judge didn't even turn up.

The Home Office took note and told magistrates to be more rigorous, but the example of betachance hardly instills confidence.

The problem with deposit accounts is the temptation for their holders, if struggling, to delve into them like their own capital.

As a stopgap at first, perhaps, but debts can snowball fast. In the last decade, high-street independent firms fell like ninepins - Bowmans and Sonny Purcell lead the roll of dishonour. Now it's the net.

But not everywhere is as relaxed as Britain. In Alderney, where Sportingbet hold one of three electronic betting licences, their Gaming Commission demands that a firm retains at all times 1.25 times the amount in cash of their clients' deposited monies. This is underpinned by quarterly independent check-ups on the firm's financial health.

"I have a 20-year background in finance in the beer and advertising industry, but have never before encountered a regulator that takes its role more seriously than Alderney," said Sportingbet's finance director, Nigel Payne.

Punters are well advised to remember any new internet book-maker could struggle if seeking to carve out its customer base in the UK alone, where the market is already over-served and brimming with established brands. Companies like Blue Square, who have targeted the UK interactive market, and Sportingbet are rare success stories.

Most e-bookmakers agree the Far East is the real growth market, with the advent of an inter-active TV betting service of global import still three to five years in the future.

Sportingbet have 59,000 clients in 104 different countries, trading in more than 24 different currencies. The UK accounts for only seven per cent of their business.

Payne believes the reasons his company - who achieved AIM listing last month at £1.20 per share and now trade at around £1.30 - will prosper are fourfold: global branding, multi-currency transacting ability, worldwide user-friendly software and the reassurance of Alderney's stern regulatory system.

You have the checklist - be warned.

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