11/14/2003 12:00AM

Bet exchanges big business

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Gambling is a growth industry and the Internet is an excellent medium for expansion. One of the fastest-growing sectors of Internet gambling is bet exchanges, and the leading company is called Betfair.

I first wrote about Betfair back in September 2002 when I covered the Global Gaming Expo here in Las Vegas. An Internet gambling analyst said Betfair, a 3-year-old company then, was handling $30 million a week and that English bookmakers were pretty upset. The reason was that Betfair was siphoning off the bookmakers' customers and thus cutting into their business.

Since Betfair began, at the end of 1999, it has been joined by more than 20 competitors in the sector.

The premise of a bet exchange is simple, yet brilliant, and possibly dangerous to the horse racing industry.

A bet exchange is like the eBay of gambling. The players bet among themselves and the owners of the bet exchange take a small commission only on winnings. The losers pay no commission.

Players can offer their own odds or point spreads on sporting events, and if someone accepts the other side, a match is made. If no one likes the offering, there is simply no action.

According to the Betfair website, Betfair has sophisticated computer servers that tabulate all the transactions and payoffs immediately. Betfair claims to be hacker-proof and can trace an audit trail in case of any betting irregularities.

In many ways, a bet exchange is like the stock market, where you can buy and sell at the price you set. Betfair claims the average size of its wagers is about three times higher than the bets made with English bookmakers.

Betfair was so well received that the company broke even within nine months. It now boasts more than 290 employees and 30,000 regular customers.

The bet exchanges have drawn the ire of the racing industries overseas and in the U.S. One concern is that the bet exchanges can have offerings for a horse to lose a race, not just to win them. Industry leaders feel this could lead to the human temptation to throw a race for the right price.

"There is a threat to the integrity of racing, but we're working with the bet exchanges to combat any threat," said Owen Byrne, who is from the Jockey Club in England.

Two bet exchanges, Betfair and Sporting Options, have agreed to provide the Jockey Club information upon request about any customer or bet profile.

The second issue is takeout, or taxes, as the English call it. Bet exchanges not only bypass bookmakers, but the parimutuel system also. Racetracks, which bear the brunt of expenses of putting on the show, usually charge between 3 to 4 percent commission to a simulcast outlet, and more if it's a rebate shop.

The bet exchange commission on winnings ranges between 2 to 5 percent depending on the amount wagered. Owners of bet exchanges feel that the margin is slim to begin with and are not thrilled with the idea of divvying that up.

It will be interesting to see how these issues play out. But one thing is for sure: The bet exchanges are here to stay and they are attracting customers from all over, even the U.S.

Richard Eng is the turf editor for the Las Vegas Review-Journal and host of the Race Day Las Vegas Wrap Up Show.