The exchange and distribution of recorded music has become very difficult to legislate and control. While it eventually became possible for the Recording Industry Association of America (RIAA), after extensive legal and political efforts to take action against and eventually close Napster, it is unlikely that it can have the same results against millions of individuals all over the world. When it has attempted to pursue these, it has come out in publicity looking simply like a blundering bully. Also, just because it may succeed in one country (e.g. the USA) does not mean it will succeed in another with a different legal system. Technologies like Gnutella, Kazaa and Morpheus made this even more unlikely and complex. Commenting on the RIAA’s attempts to block Napster, Charles Nesson (cited in 7), professor at the Berkman Center for Internet and Society, Harvard Law School had this to say of Gnutella: There is a generation of young people out there who have already learnt that music is something you get on the net, rather than buy. The only way for the music industry to stop Gnutella is to turn off the Internet”. He added, “”And, as no one owns it or controls it, that is impossible.”
The case of Betfair has seen some interesting reactions from incumbents and also governments at various levels. Traditional competitors have attempted to cry, “No fair”, as they struggle to contend with a player whose methods they don't fully understand. Sports bodies are anxious to understand the possible impact of a firm such as Betfair on the potential for financial abuses in their domains. Governments, while supposedly welcoming competition as a force in consumer interest, will immediately seek new ways to tax new entrants such as Betfair, for it seems like, yet is not like, traditional firms such as bookmakers and totalisators.
In the United Kingdom, Betfair has been the focus of lawsuits by the major British bookmaking firms such as Coral, William Hill, and Ladbrokes. They have charged that by allowing individuals to lay bets (rather than merely take them), they are acting as bookmakers, and are not licensed to do so. Graham Sharpe, spokesman for William Hill argues, "If you have a bet on an exchange, you don't know who it's with; if [the person] is offering extravagant odds, you don't know why."
The British courts have thrown out all the cases and rejected the bookmakers’ arguments, and Betfair has been allowed to proceed with its business. While bookmakers might not like the idea of the site, it is evident that many of them are using it, either to buy back bets at advantageous prices, or to lay bets for which they might otherwise not have been able to find takers. The substantiation for this is the significant amounts of money that are available to be traded on many events.
In Australia, not only have bookmakers objected to the site and attempted to close it down through legal action, it has also been the focus of an aggressive advertising campaign by TABCORP (essentially a consortium of Totalisator operators), a listed company that is the world’s fourth largest gambling and entertainment business. Its advertising has attempted to cast Betfair in a negative light by claiming that betting on exchanges encourages dishonesty in sporting events and racing, a similar argument used in the United Kingdom by bookmakers. Betfair has disabled certain features on its Australian site to comply with Australian gambling legislation (for example, Australian players are not able to bet “in the running” – that is, after an event has started or a race is running). Gambling is more a matter of state than federal legislation in Australia. While the legislation is not quite clear whether it is legal or not for Australians to bet on betting exchanges or online casinos outside of Australia, there is no legislation prohibiting players in one state betting on operations in another.
The real effect of the flock-of-birds phenomenon is that access is equalized by mechanisms such as Betfair when they operate online, unlike what occurs in traditional operations such as bookmakers and totalisators. In a very real sense, no one has a “better right of access”, and no one, even the largest corporation, can shout louder. The smallest player, the individual, has a right and opportunity to be seen and heard. Furthermore, many laws designed to regulate a physical world don’t work as effectively when no one owns or controls the medium. This has been apparent in the lack of success in the traditional incumbents’ attempts to fight Betfair in courts of law.
It has also been demonstrated by Betfair being a better, not less effective, mechanism for the detection of dishonest dealings in sport. If a particular player has inside information on an event, there is nothing stopping them exploiting this advantage by placing large cash bets either with bookmakers or totalisators, and reaping the benefits of this insider trading anonymously. Betfair is arguably in a better position to deal with this type of problem. For example, in July 2004, Betfair was dragged into the spotlight when it reported suspicious betting patterns on its exchange to the Jockey Club in the United Kingdom just before the Lingfield race in which leading jockey Kieren Fallon, riding favorite Ballinger Ridge, lost to Rye after seemingly easing down before the finishing line. News of the World alleged Fallon had told an undercover journalist that Rye would win. No proof was found that the race was fixed, but a Betfair spokesperson was quoted as saying: "We are putting a searchlight on the sport and helping it clean up its act. There is a clear paper trail on our site that doesn't exist in high-street [betting] shops. We are entirely transparent. We have no vested interest in the outcome of a horse race."
As observed, there is also the issue of how governments will attempt to tax firms such as Betfair. Ideally, from the firm’s point of view, tax would best be levied on net profits (which in simple terms would amount to net commissions on winnings less other direct costs). However, governments might not see it in that way, and might attempt to tax market makers such as this based on other measures, such as turnover. Such a measure could be very detrimental to the firm and its thousands of players, because turnover is not an accurate measure of financial performance.
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