Pruning The Bank

Simon commented the other day that in light of what happened with Sporting Options, he wouldn’t recommend keeping a large amount of money in Betfair.

Sporting Options, as many of you will know, was a betting exchange founded in 2000 by a couple of former BZW (one of my former employers) options traders, who went bust in late 2004 owing £3.5 million to 5,342 individuals, with a few owed in excess of £100k. Betfair stepped in and anyone owed £1,000 or less was repaid in full (or at least credited with that amount in the form of a Betfair account) while larger debtors 20% with the possibility of earning back more in the form of ‘commission rebates’.

For a time, it appeared that Sporting Options were matching bets worth up to 15% of those matched at Betfair, but allegedly the turnover was being financed by the owners of Sporting Options, who were using their own funds to create the liquidity.

At the time of Sporting Option’s collapse, Betfair issued a statement reassuring clients their deposits are safe. "Our client funds are held on trust in ring-fenced client accounts with the Royal Bank of Scotland and are completely segregated from company funds ... Under no circumstances could third parties have a claim on Betfair clients' money.”

Most exchanges take this approach although one notable exception is “BackAndLay, whose Chief Executive Ian Davies stated that no funds, whether in the hands of an operator or a trustee, are 100% safe, and that the customer simply has to make a judgement call about whether or not to trust the entity they are lodging funds with."

So while there might not be the same concern with maintaining a five figure balance with a FTSE 250 company with 3 million clients and a turnover in excess of £50m/week as there should have been with a small company based in Burgess Hill, it is probably not the best place to park a fairly large some of money, and yes, ’large’ is a relative term. Because I don’t need the cash on a day-to-day basis though, I tend to only withdraw funds when I have a ‘luxury’ expense to fund – a holiday for example, and I tend not to have too many of those.

And that’s how a betting bank should be. A betting bank shouldn’t be treated like a savings account, something that you dip into on a frequent basis to ‘pay a few bills’ - it should be money set aside that you will never need and can leave alone to grow. You don’t plant a seed and then keep digging it up if you want to grow a plant. You leave it alone. Once it has grown, it’s perfectly acceptable to do a little pruning, but let the thing grow first.