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Betfair needs to win back confidence of punters

One of the reasons Betfair was so revolutionary when it was first established in 2000 was that for people who liked placing a bet, there was a simplicity about the process that made them feel good about the venture. Once you possessed basic computer skills and had familiarised yourself with the elaborate mechanics of the website, it enabled you to feel that, while still gambling, at least the cards weren't so heavily stacked against you.

The beauty of the betting exchange was that it took the traditional bookmaker pretty much out of the equation. Against another punter whose opinion carried the same weight as yours, you were entitled to a certain degree of confidence. And, helpfully, Betfair stayed out of it, merely asking for a small slice of the winnings for the service of bringing two customers together. Such a simple concept and yet so brilliantly radical.

Over the years, however, that confidence has been steadily eroding and the calamity that struck the site during the running of the Christmas Hurdle at Leopardstown on Wednesday, when the mare Voler La Vedette was erroneously laid to lose €27.5m at odds of 28 to 1, has dramatically hastened that process and enhanced the feeling that a legal action against Betfair may be imminent, if not on this occasion, then over some as yet unforeseen disaster in the future.

We now know that the bet was placed by a UK-based operator with less than £1,000 in his account and that a "technical glitch" somehow allowed him to evade his exposure limit and run up potential liabilities in excess of €700m. But if we accept that even in the best systems, glitches can still occur, the hard truth for Betfair is that when swift and decisive remedial action was required it was found wanting on nearly every level.

The first question is an obvious one: as soon as the offending bet appeared on the screen, a mind-boggling €25m available to be picked off at 28 to 1, it was immediately obvious that something was amiss, so why was betting allowed to continue for the duration of the race while the winner's odds hardly deviated? Had they acted quickly, Betfair could have spared themselves a whole lot of subsequent trouble.

At the time, it was patently obvious what would happen. The in-running market would be declared void and all bets, even those placed in the 60 seconds before the market went ballistic, would be struck off. Those who thought they had made a killing were in for a dose of reality and it was hard to feel sympathy. The old saying that if something seems too good to be true, then it probably is, is more applicable to gambling than any other walk of life.

Yet their misfortune clearly begs serious questions. In its statement on Friday, Betfair cited "palpable error" as one reason why the bets were voided and it was an unfortunate term to use. In bookmakers' circles, "palpable error" is cited whenever a bet is placed at wrong odds and it is always settled at the correct price. To punters it can be a source of irritation: if they make a mistake they pay for it; if the bookmaker messes up it is "palpable error."

And harsh as that seems, in one way it is understandable that the bookmaker holds all the cards because if he ultimately loses, the entire system breaks down. That doesn't apply to Betfair, though. We assume they are entirely separate worlds. So whatever the reason for voiding all in-running bets on the Christmas Hurdle, "palpable error" should not have been among them.

And, for Betfair, there is a critical lesson here. The initial confidence its customers enjoyed is in danger of being shredded. They

hear that the offending bet was placed by a "bot", a computer programme that can strike or lay bets, and you would be surprised at the number of people who have been using the exchange for years and still have no idea what a "bot" is or the functions it performs.

They hear too that Betfair employs its own "bots" and, for all its insistence that they are designed for the benefit of the customer, the perception is still created that the exchange isn't the straightforward place for betting they once imagined. And when that trust is compromised, when people begin to suspect the odds stacked against them are too great, they lose faith in the business and its share price tumbles.

Not that it spells disaster for Betfair, of course. While its market valuation plummets, there's unlikely to be a stampede to rival exchanges where market liquidity remains too low to take full advantage of its embarrassment. Yet it shouldn't underestimate the level of anger and confusion unleashed by last week's disaster. In a sense it is in danger of becoming the Ryanair of gambling websites: punters still using the site but feeling unfulfilled and wishing heartily they were someplace else.

For Betfair, and its incoming chief executive, the challenge that faces them is a stiff one. Once it enjoyed almost total trust among a grateful customer base and it must now work its socks off to win that back.

Sunday Indo Sport