Online betting exchange Betfair will contribute at least €4.5 million to the Irish racing industry over the next three years, under the terms of a deal announced yesterday.

Betfair announced that it had agreed to contribute 10 per cent of the gross profits it makes taking bets on Irish racing to Horse Racing Ireland (HRI), the State body that administers the sport in this country.

The payment will be worth at least €1 million a year, depending on the business that the exchange does on Irish racing. In addition, it will make a backdated contribution relating to the 2003-2006 period.

In total Betfair is set to pay at least €4.5 million to HRI over the next three years. The contribution will be voluntary.

High street bookmakers such as Paddy Power and Boylesports pay a percentage of their turnover to the State. The cash is used to develop horse and greyhound racing here.

Betfair is purely an online operation and not subject to the same rules. However, it has a similar agreement with British racing bodies. Graham Ross, chief executive of its Irish operation, said yesterday that its policy is to work with racing authorities in the jurisdictions in which it operates.

He said it was not designed to anticipate any move to charge it a levy similar to the one paid by bookmakers. "We've always been clear that this is a voluntary policy," he said.

Betfair is an exchange that allows people to bet against each other on racing and other sports. Its clients can bet against or "lay" horses in the same way as bookmakers, or bet on them in the conventional fashion. It has also signed a memorandum of understanding with the Irish Turf Club, which polices racing, that will allow the body to investigate betting patterns where wrongdoing is suspected.

Betfair already has 23 such agreements in place with bodies responsible for governing a range of sports, including horse racing, soccer, tennis and rugby.