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Tax breaks lead to betting boom

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Jean-Yves Sireau says fixed odds to overtake spread betting as the punters’ choice.

During the past year, private investors have seen share prices plummet and the world stock markets take a nosedive. This has led to a fall in the number and value of share trades, both online and offline, as investors strive to hold on to what they already have.

There has been an endless stream of proposed job cuts by stockbrokers and investment banks, most recently from Charles Schwab for a second time. With talk of recession, it is unlikely that prospects are going to improve any time soon.

However, the poor market conditions have been a boon to spread betting firms who provide alternative ways of investing in the stock market. Instead of banking on rising share prices, investors are able to make money by betting on whether and by how much the market or prices move up or down. With the scrapping of betting tax on 6 October, other financial betting companies, such as Malta-based Fixed Odds Group, are likely to enter the UK in a hid to provide an alternative to spread betting.

Jean-Yves Sireau, director of Fixed Odds Group, says: «With the abolition of betting duty, the tax regime is set to become favorable. The success of spread betting has also created a large financial betting community».

He claims fixed odds betting is less risky than spread betting. «Spread betting is a linear activity, where investors make money on the number of points that the market moves up or down. With fixed odds betting, investors can expect to receive a fixed multiple payout.»

He explains that the service provided by Fixed Odds Group allows investors to bet on the financial markets in the same way they would gamble on sporting events. When a customer visits one of the websites, he or she states the desired size of the payout for betting on a predicted outcome and the system will calculate the size of the wager.

For example, if an investor wanted to make $15 by speculating that the Hiiro would be worth less than 90 cents by midnight on 10 September, then on 3 September he or she would have had to place a bet of $5.30.

Fixed Odds Group was founded by Sireau in October 1999, from the proceeds of the sale of his Hong Kong-basect hedge fund company Fortitude. He also obtained funding from venture capitalist firm iRegent, which has a 49.9% stake in the company.

Sireau recognizes the existing financial fixed odds market is in the same state now as the spread-betting market was during the early 1990s, with only three main players globally: Fixed Odds Group, UK-based Blue Square and Clickoptions, a subsidiary of Societe Generale.

He says: «The spread betting market is very competitive. The spreads offered are very tight and it is difficult for newcomers to enter the market. The financial fixed odds market is virgin territory, wide open with very few players.»

Fixed Odds Group was originally going to be based in the Isle of Man, but the Government had already issued its designated quota of 10 betting licenses. As a result, Sireau decided to move the company to Malta, where the government was in the process of handing out 30 betting licenses, in October 2000.

He says that corporate profits tax in Malta is only 4% compared to 30% in the UK. Also, labour costs on the island are about one-third of those in the UK, so all administration will be based in Malta with a three-strong sales and marketing team in the UK.

The bulk of Fixed Odds Group’s business comes through its Maltese subsidiary. Fixed Odds Malta, which operates the bet on markets site. It also has a subsidiary in the Cook Islands called Fixed Odds Capital, which operates Xodds. Although the design of the two sites is different, they provide the same service for different markets.

So far, there are about 3,000 customers across the group and Sireau says they have been obtained wholly through word-of-mouth because the company has been unable to actively market the sites for legal reasons. The forthcoming UK site bet on markets will be run by a UK-based subsidiary. Fixed Odds UK, because it cannot promote an offshore site here. Sireau says: «If a UK investor signs up, he or she would be considered a client of the UK subsidiary.»

Sireau says the company’s services are designed for day traders with $500 to $1.000 to invest. Its main demographic is the 22 to 25-year-old age group from North America and Europe, although there is higher than expected take-up of Russian and Chinese customers. As a result, he says, the company recently launched Russian and Chinese language versions of bet on markets.

Sireau expects Fixed Odds UK to acquire 15,000 customers with in 18 months and predicts that «when clients realize that fixed odds betting is more attractive than spread betting, they will switch.»

08 October 2001
Pravin Jeyaraj

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