Updated on 09/17/2011 1:19PM

Turning losers into winners

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WASHINGTON - Since the company Betfair began its operations in 2000, it has altered the world of gambling as profoundly as eBay altered the world of commerce.

The British firm calls itself a "betting exchange" and allows gamblers around the globe to wager against each other while eliminating the racetrack or the bookmaker as a middleman. If a horseplayer wants to bet his choice in a race at 2-1, he wagers against another player who is willing to lay those odds. Betfair's computers handle the transaction instantaneously, with the company taking a commission of 2 to 5 percent - a modest fee when compared with the 20 or 25 percent that U.S. tracks extract from every dollar.

Long oppressed by the cost of placing a wager through tracks' tote systems, horseplayers everywhere have hailed the advent of betting exchanges. But in recent weeks, even their most dedicated customers have recognized one great danger associated with the exchanges. Their existence makes racetrack larceny almost too easy.

Of course, schemers and crooks have tried to execute betting coups for as long as the Thoroughbred species has existed. Ensuring that a given horse will win a race is never easy. But it is relatively easy for an insider to be sure that a particular horse will lose - and Betfair enables him to profit from that knowledge.

That is what happened last summer at Carlisle, a minor English track, in a race that only recently has made headlines.

Hillside Girl was a contender whose odds were 7-2 when wagering began, but on Betfair her price started drifting higher and higher and higher. Somebody was so confident Hillside Girl wouldn't win that he was willing to accept almost any bet on the filly, at any price. By the time the wagering had closed, Hillside Girl was 21-1. There were few worries for the people who would have to pay those 21-1 odds if the filly won. After running barely a quarter-mile, Hillside Girl went lame.

Subsequent investigations unearthed the startling fact that Hillside Girl's blacksmith sometimes bet nearly $200,000 against horses on Betfair. The Jockey Club this month charged the blacksmith, the trainer, and the jockey with committing "a corrupt or fraudulent practice" by running a lame horse "in the interests of bets laid on the betting exchange markets."

A British newspaper, the Guardian, wrote that the practice of deliberately running a lame horse "will surprise even the most hardened betting-shop cynics." In fact, two recent races have astonished Britons even more than the Hillside Girl scandal.

* Ice Saint was the early odds-on favorite in a steeplechase at Fontwell, but his odds drifted as high as 5-1 on Betfair. In mid-race, jockey Sean Fox literally took a dive and jumped off the horse, producing newspaper headlines across the country about another Betfair coup and earning the jockey a 21-day suspension.

* Kieran Fallon, one of Britain's most prominent riders, told an undercover reporter for a British paper that Ballinger Ridge was going to lose a race at Lingfield. Before the race, Betfair notified racing officials of suspicious betting patterns on the race. After Ballinger Ridge opened a 10-length lead, Fallon eased him up and was caught in the final stride - touching off a major scandal and earning the jockey nationwide opprobrium.

These suspicious races have led to denunciations of the betting exchanges and calls for restrictions on them. A spokesman for the big bookmaking firm William Hill declared, "Racing's integrity jumped out the window the moment the exchanges jumped in."

But many such complaints are self-serving. Betfair now handles $14 million in wagers per day and it has taken business away from the bookmakers and the racing industry.

Betfair officials respond that instead of causing corruption they have uncovered it, and there is merit to their argument. The company looks for abnormal betting patterns and reports them to racing authorities. It maintains a "watch list" of gamblers who are wagering large sums and achieving extraordinary results. It has ferreted out evidence of misdeeds in the sport more effectively than most racing officials.

Although the controversies involving Betfair have been centered in Britain, the operations of betting exchanges permeate cyberspace and concern racing officials around the world. Betfair takes wagers on events everywhere; it handled $100,000 in action on Monday's first race at Gulfstream Park. And while Betfair doesn't accept customers with U.S. addresses, other betting exchanges - such as the English company IbetX - are willing and eager to sign up U.S. customers. So even now it is possible for a gambler to wager substantially that a horse in an American race is going to lose.

While horseplayers may worry about the possibilities for dishonesty associated with the exchanges, they like even less the idea of paying tracks 20 to 25 percent of every dollar they push through the parimutuel windows. Because the exchanges offer such value to their customers, they are going to thrive and proliferate. The controversy over their operations has barely begun.

(c) 2004 The Washingotn Post