Remote gambling: betting exchanges
Betting exchanges involve offering a service designed to facilitate the making or acceptance of bets between others. This differs from other betting types (for example, pool betting and fixed odds betting) where the player bets against other players. Bookmakers are known to use betting exchanges to hedge their bets. Users of betting exchanges are often categorised as either ‘layers’ (similar in nature to bookmakers) or ‘backers’ (customers who bet on an event happening at a given price/odds)
- A layer selects an event, say, a football match between Rotherham United and Sheffield United, and judges the odds of a Rotherham United win at 3-1. A backer places £50 and is matched by the layer. If Rotherham United lose, then the layer collects £50.
- Exchanges will usually show the 3 best prices for a given event. Using the same event described above, it might be that the best layer price is 4-1 for a Rotherham United win, but with a maximum stake of £10. The next best prices are 3-1, with a maximum stake of £50 and 2-1 with a £100 maximum stake. If a backer wanted to stake £30 on Rotherham United at the best possible price, he would place £10 at 4-1 and the remaining £20 available at the next best price of 3-1. The backer could lose his/her stake of £30 and has the chance of winning £100.
- The source of revenue for most exchanges is a commission charged on customer winnings. The charge usually varies between 2% and 5%, with lower fees for larger and more frequent customers. For VAT purposes we currently regard this commission as consideration for an exempt supply of the provisions of facilities for the placing of bets under VATA 1994, Schedule 9, Group 4, Item 1.