A curious question arises from the vehement opposition to betting exchanges expressed by both the Victorian Government and Racing Victoria.

Why, if they were so opposed to the concept, were exchanges not banned outright in the legislative changes to the Gambling Act which became law at the end of November last year?

In all of the Government's public reasoning behind the legislative changes, much was made of the insidious impact that corporate bookmakers were supposed to be having on Victorian racing, but betting exchanges rated nary a mention.

In fact, the substantive change involving betting exchanges wrought by the legislation was the creation of the new criminal offence of displaying race fields in Victoria without permission from the racing authority involved.

In order to make sure exchanges were covered by this law they had to be defined and surprisingly they were defined so broadly that even a bookmaker fielding at the races is now running a betting exchange according to Victorian law.

So the Victorian government clearly understands that betting exchanges are here to stay and wants this to be so. What is not commonly understood about the legislation is that the government is attempting to ensure that its own idea of a betting exchange gains traction while the most obvious alternative, Betfair is denied a start.

The government's idea of a betting exchange is the Bookie-IP project, a joint venture between Racing Victoria and the Victorian Bookmakers Association, which seeks to allow exchange like internet betting with a difference. Instead of the layers in the market being anyone with a view that a runner will be beaten, the only permitted layers will be registered Victorian bookmakers.

For Bookie-IP to have any long term future, it will have to compete successfully with Betfair. Normally a private start up venture looking to compete with an established player would have to do so on the merits of its product offering, which in the case of a betting exchange is a combination of market liquidity and ease of use.

But Bookie-IP has a powerful friend in the Victorian government, which with the "fields permission" legislation has created what it thinks is a neat way for Racing Victoria to become a wagering operator in competition with Betfair without triggering the anti-competitive measures of the Trade Practices Act.

The Victorian government has done this by appointing Racing Victoria as the integrity guardian, not only of all betting on Victorian racing, but also by default the rest of Australian racing and most Australian sports.

The Government appears to see no difficulty in Racing Victoria being in charge of the integrity of Bookie-IP, while simultaneously allowing it to part own the venture as well.

However, in an environment where it is crystal clear that Racing Victoria is not going to allow Betfair access to Victorian race fields on so called integrity grounds, any lack of integrity in the process by which Bookie-IP is established and run will immediately expose the spectre of corruption over the ruling body.

The situation where the ruling body is also the wagering operator creates the same potential for corruption as with the nearly bankrupt New York Racing Association where tote operators punched out tickets for themselves after the race and even the weighing machine attendants were on the take.

None of this seems to affect the Victorian Government or Racing Victoria, but their combined determination to push through Bookie-IP deserves more scrutiny than it has so far received.

In the next article on this issue we will examine more of the background of Bookie-IP.