You Bet: The Betfair Story and How Two Men Changed the World of Gambling

The idea that enabled this range, scale, and rate of trade was Andrew Black’s, originally. The thought occurred to him while he endured another boring evening after a day’s work at GCHQ, in Cheltenham. Away from his friends and family for another working week, Black had time to think and after a few hours had what seemed, not uncommon for him, a reasonable enough notion. The difference with this thought was that, the following morning, the idea still seemed a good one. At the same time, Ed Wray was rooted in J.P. Morgan’s prestigious and rewarding debts and capital markets division. Wray was committed to the Square Mile. The City was equally committed to him, and paid accordingly. Black’s plan was good enough for him to break completely the ties with all that he had known professionally and draw him away to another world (he even abandoned a cookery course). Then with Wray’s help, Black’s idea became a reality.

Today, the pair are partners and co-founders of one of the greatest modern success stories of the current business age. Betfair is the multibillion dollar gambling world’s own version of Google based on a solid business foundation that will endure long after other web gaming operations have imploded. If Google is the number one ranked Internet enterprise, Betfair claims top-ten status by the yardsticks of growth rate, revenue, and profit. By value, some reckon that of the globe’s digital start-up success stories there are only two others worth more of which you have probably heard: Wikipedia and Facebook. All this in less than a decade.

Black and Wray originally teamed up because both have a taste for making money. Wray has always been particularly thirsty for a profit. He saw the potential of Betfair and, after venture capitalists snubbed him – most just couldn’t understand the idea that Betfair allowed gamblers to bet with each other, directly and legally – simply invited favoured colleagues to bankroll start-up costs.

A sign that those who invested would be rewarded by being part of a successful business was in the reaction to Betfair of traditional bookmakers. While continuing to attack Betfair on the grounds that allowing punters to take as well as have a bet is a deregulation too far, a steep improvement in shop comforts was not entirely a coincidence. Above that, bookmakers then looked more to the web to shore up a business encumbered by having a portion of retail outlets in poorly-sited inner-city locations. Indeed, for new bookmakers, the Internet is now a point of departure. The web has advantages. For starters, once up and running the overheads are lower. Plus the anonymity allows women, previously put off gambling by the old-style, testosterone culture of the traditional casino and betting shop, to become major players and, in some cases, when finally happy to go public, millionaires and poker world champions. In addition, the Internet allows players to gamble at their convenience. The web is always wide open with broadband. Blackberrys and WAP phones enabling gamblers to bet on the move. Companies like Betfair never close, which in turn is great for business.

According to figures published by the International Federation of Horseracing Authorities, betting on the sport alone reached €89 billion in 2008, up 3 per cent on the previous twelve months. Gambling has experienced extraordinary growth in recent years, and Betfair has been both a contributor to this and well placed to profit. Since the millennium and Betfair’s arrival, gambling has tapped into an era of unprecedented disposable income – although this has been tempered by the recession from 2008. Betfair was brilliant marketed, so what is, after all, a simple concept, took a significant and growing slice of the cake; moreover it can claim credit for increasing the size of the cake, itself. Betfair also utterly prevailed over betting exchange market rivals. The most established, Flutter – which just predated Betfair but was a blunt instrument by comparison – fought to the end until the inevitable occurred and Betfair bought them out, absorbing them into the Betfair fold. In a market where there should have been room for any number of companies, one stands alone, at the top, without a serious threat to market supremacy in sight.

In Britain, the collaboration of Black and Wray has been widely acclaimed. In 2008, a second Queen’s Award for Enterprise followed the first in 2003. Further afield, between the two gongs, Betfair secured a foothold in Australia with a view to cornering a slice of the market for gambling in Asia where the passion for betting exceeds that in Europe many times over. Considering the Australian nation’s rich reputation for ‘have a go’ culture that has spawned some of the world’s most powerful entrepreneurs this proved more of a struggle than you might expect. Resistance to Betfair setting up in Australia proved even more vitriolic than back at the mother country where established bookmakers like William Hill, Ladbrokes, and Coral challenged Betfair’s legality and integrity. In the end Betfair prevailed in Australia thanks to the strength of the company’s business model and the same arguments that persuaded British officials, reshaped and refined for use there. In Britain the company has successfully lobbied sometimes unenlightened government departments that Betfair’s new way of gambling is a win-win situation of more taxes and jobs, as well as personal profit, and that government should at the very least not hinder progress and development. With the argument for deregulation articulated by well-versed, socially-aware entrepreneurs, official eyes were opened to the wider merit of general liberalisation of domestic betting and gaming restrictions. Most important, the Treasury was convinced of the merit in blessing Betfair.

To the west America remains untapped, offering scope for yet further exponential growth. Gambling on the Internet hit a pothole in the Fall of 2006 when George W. Bush signed legislation banning betting with foreign bodies like Betfair through the web. That said, taming the Internet by government statutes is easier said and signed than done. Blocking access to a website is little more than an inconvenience to the determined gambler with resource to the necessary reroute software. The side door remains ajar. That said, while other Internet operators have ended up facing criminal charges for alleged breaches of the Wire Act, 1961, Black and Wray have approached American interests with offers of investment, collaboration and partnership – along with a warning that if gambling goes underground, governments kiss goodbye to billions of dollars in duty. This is a lesson for likeminded entrepreneurs facing similar statutory obstacles. America may not be able to resist Betfair. When the time comes for America to liberalise online betting coast-to-coast and open up borders, Betfair hopes to have remained an eligible suitor.

The story of Betfair, of Black and Wray, is a story of our cyberspace age. Even after being wedded together for over ten years now, they remain a most unlikely pair. In the same way that the web can unite contrasting strangers many thousands of miles apart, their differences merge behind Betfair’s slick, uniform corporate image. The inviting open-plan offices at Hammersmith spread over two floors with riverside views for open-minded thoughts convey a sense of togetherness. Their respective strengths do come together in a way that means the whole greatly exceeds the sum of the parts.

Black is a warm, avuncular family man – four children and counting – albeit with an eccentric side that can leave someone meeting him for the first time feeling unexpectedly detached at any point in a conversation as his thought process departs on an unexpected tangent. As good a companion, especially against a backcloth of live sport, Wray is rather more direct. There is a greater urgency in him to reach the point of a conversation. He has just the two children but might leave them with his in-laws while he travels. (He did on a trip to South Africa in 2007 to attend a wedding and ended up, to his amusement, with Chris Bell, chief executive of Ladbrokes, for company, instead). There is little ceremony with Wray. When they met at that garden party in 1998 it was perhaps only the strength of Black’s idea that held them together for long enough that the pair agreed to talk again. Otherwise, there would be no partnership, no corporate identity. Black and Wray would have disappeared back into their own worlds, as if they had simply brushed shoulders amid the bustle of bookmakers on Britain’s racecourses, at the casino, or found themselves temporarily facing each other across a poker table. At bridge, with the money down, they might even have been rivals, which could have added an edge to Jeremy Wray’s annual summer party. Instead, today they remain a study of contrasts, individuals who still exist apart but bound together, Wray as Betfair’s chairman, Black as a board member, with a shared founder’s stake.

Of course, both Black and Wray are gamblers by nature. In general, Andrew Black wins. He only ends up in the red when he becomes bored or sentimental. When he loses interest or focus, he also loses his edge, and likewise, his money (which also, incidentally, is as likely to underwrite a horse’s supply of Polo Mints as burden the beast with expectations of a weighty bet). Now nearly a decade since he and Wray set out together in business, and although now not involved with day-to-day matters, he remains a totem to Betfair’s future. His association with the company – he is still on the board – is comfortably the longest one of his professional life.

Wray’s big gamble was to back Black in seeking to introduce technological innovation that brought stock market computer software systems to the worlds of betting on racing and sport, and, along with brilliant marketing, made the pair multimillionaires. Wray gambled with his own time and at a sizeable opportunity cost. He gave up lucrative returns in the City for a tiny office space in Wimbledon, without trappings of his former corporate world. There was no guarantee that he would make a living from his new berth, and if not, be accepted back into the financial comfort of the City. He literally bet on Black.

Black and Wray won handsomely. Those venture capitalists who passed on the chance to invest in Betfair stock have reason to rue their poor judgement in not bankrolling the pair. Thanks to friends and contacts who, along with some of the more enlightened City institutions – in all 170 shareholders – came up with the multimillion pound funding, in seven years Betfair grew from a company with about ten clients to one with a turnover of billions returning a profit of £27 million in the 2006 financial year. Their stakes increased in value over 130-fold. In March of the same year, the 23 per cent stake in Betfair bought by the Japanese Internet group, SoftBank, for £355 million valued the company, overall, at £1.54 billion. This netted Black and Wray, who sold 1 per cent of their stakes, an initial £15 million each, still leaving them with a shared 26 per cent of the business. Others took the opportunity to convert holdings into real money. This is not a story of paper millionaires. The 330- acre farm in Surrey that Black today calls home is proof of the true substance to Betfair’s success. In September 2008, customer number two million – a 59-year-old Swedish national, wanting to bet on John McCain in the US presidential race – signed up for Betfair, less than two years after the one million barrier was broken. Others like him generated revenues in the 2007 financial year of £181 million and profits of £19 million, up from £32 million and £7 million, respectively, in 2003.

Both Black and Wray have already registered significant profit from Betfair, namely when 23 per cent of the company was sold, yet still leaving them with the biggest stake. What’s more, this initial private sale may be also simply a prelude to a wholesale flotation in the future. Then their return from the company will be worth many times more than what they have already redeemed, to date.

Ultimately, few begrudge Black and Wray their spoils and whatever else they clear when the company does eventually go to market. In particular, few begrudge Black. In his case, money will never compensate him for the double tragedy of his life. Two decades ago, his brother, Kevin, died of a brain tumour. In 1984, Black, at least now blessed with a wonderfully extended family, had dropped out – or been kicked out, depending on whose version you accept – of university and spent the two years nursing his sibling. The decade that followed claimed Black’s father, to whom he was particularly close. He contracted MRSA after a routine operation. Black was devastated. He resorted to a life that was simply eating and sleeping. He retreated socially. He felt numb. He stayed indoors watching television, listening to the radio, reading. On reflection he might well have been depressed. At the very least, he went into traumatic shock. Then, he snapped out of his trance. At this stage in his life, Black had already hit on the idea of Betfair. He had been devastated by his brother’s death and was also hit hard by his father’s passing. In the case of his father, the sadness actually served to galvanise him. He kicked himself up the backside. His refreshed thinking became: if I do nothing Betfair will end up just another idea, and when my own time approaches, nagging away would be the thought that perhaps the greatest opportunity of my life passed me by. His brother and father would have expected more of him, he thought. Then he met Wray.

That so much has ultimately stemmed from the initial meeting between Black and Wray – to them and to the world in which they live – cannot be underestimated and is perhaps hard to comprehend. It may be easier to understand by considering that had Black and Wray not been behind Betfair they would have both been clients. Both fit a modern-day profile of a new type of gambler that is a growing constituency of well-informed, technologically proficient, affluent risk takers. Betting is as much an investment hobby as speculation to them. Most important for Black and Wray was that the timing proved to be perfect. Betfair both coincided with, and helped to create, an upheaval in betting, the way we bet and the way we see betting, the way government perceives betting, and how betting engages with world sport. This book will encourage you to consider how much of this was the serendipity, foresight, and planning of two free thinkers meeting at a garden party at the right time, with the world ripe for change and hungry for innovations, and how much was what everyone who gambles needs: luck.

Walk into the second-floor reception of Betfair’s Hammersmith offices and, as well as chairs that look suspiciously like they have been removed from the Big Brother diary room, there is a window into an office space. Above this window are the words ‘Global Network Operations Centre’. Through the window you can see a wall of screens, clocks telling you the time in London, New York, Johannesburg, Hong Kong, and Sydney. Central is a television screen showing whatever sport at the time happens to be the most significant in the world, from a betting perspective.

Behind two long desks which cover nearly the width of the room and face the screens are casually dressed staff who seem the essence of calm. That is despite their principal job being to monitor the smooth running of the systems and online status of accounts held by clients who in Betfair’s years of business have emerged as the biggest fish in Betfair’s sea. When the screens show green, all is well. When they become coloured in orange, there is a problem, which the team methodically resolves seemingly without breaking sweat.

Going back to 2003, the scene in London’s Old Whitbread Brewery, off Chiswell Street, was, in contrast, altogether more testosterone-fuelled and thick with perspiration. Up to this point, I had only a vague awareness of Betfair. Having accepted a commission from Esquire magazine to write about the growing popularity of betting exchanges, I also accepted, along with around eighty others similarly uninitiated, an invitation from Betfair to road-test the concept.

That night, a fag-end Champions’ League group game between Chelsea – already certain to qualify for that season’s knockout stages – and Sparta Prague was transformed into an epic encounter taking those present on an experience which will have changed many of their gambling habits, if not their whole social lives, permanently. What’s more the game was 0-0. Still, there was an intensity in the room. It was then illegal to trade or bet in real money at such a gathering. Instead, each table had an imaginary stake to invest and computers set up for gambling at high speed. Halfway through an otherwise drab goal-less draw in front of a largely lifeless, under-capacity crowd, you might have thought someone would actually be walking out with a real pot of gold, such was the intensity of trading and feeling contained in the room. An IT engineer on hand to fix any screens mid-match received an ear-bashing from one guest for the rate at which his computer was rebooting. From this reaction, you might have imagined that life-changing money rather than a Monopoly version was on the table.

Something was obviously afoot. And yet, some of betting’s shrewdest thinkers – Stuart Wheeler, who set up and ultimately floated the spread betting firm, IG Index; John Brown, who worked up from the shop floor to the chief executive’s desk and chairman’s office at William Hill; and the Tote chairman, Peter Jones – considered betting exchanges to be short-term, or with a minimal future ahead. The consensus at the start of the millennium? Betting exchanges generally were considered no more than niche potential. Betfair was underestimated on two fronts; as an example of a new concept in an industry full of potential for innovation, and as the company that would become the completely dominant market force in what quickly became substantively more than simply a ‘niche’.

Hindsight is, of course, a wonderful thing. No one who bets needs to be told that. Nonetheless, there was enough evidence in the many theories of why we bet, or are drawn to gambling, to suggest that person-to-person betting might indeed catch on with those already entrenched in the habit-forming world of gambling. Then there are those with a predisposition for what Betfair was offering – of a certain age and affluence, comfortable with technology and in circumstances that meant speculation was harmless. They may have begun the new millennium with little interest in high street outlets offering a product that had changed little, if at all, in forty years since betting shops were legalised. Yet, when offered the chance to try their luck through a different medium, drawn to something new and contemporary, they joined die-hard gamblers to ensure the success of Betfair.

The numbers tell the basic story. For the newly-born Betfair, revenue in 2001 was £480,000, profitability in the negative to the tune of almost £2 million. The first part of this book explains how technology that drew on the IT system of New York’s Stock Exchange and brilliant marketing – on relative shoestring budgets – established a company that was robust enough to absorb these early losses and Flutter, seemingly the only genuine rival in this newly-created market. In the space of under three years Betfair registered revenue figures topping £32 million and a profit of £1.76 million, carrying the company into the black where it has firmly remained. Then in part two of this book, we consider the reach of Betfair beyond its own dedicated world. How the company has been both part of the growth in betting and the revolution that gambling – from basic bookmaking to high-ranking casinos – has undergone, and the reason for changes in what was for decades a business which showed little or no appetite for change. Also considered is how Betfair has changed government thinking on betting, how Betfair has been cause for sport to reassess its ‘at arm’s length’ relationship with betting and how Betfair has proved an inspiration to other start-ups and the potential that exists for growth both domestically and internationally.

How did this all come to pass? Spread betting, the innovation in gambling of the 1990s, never managed to establish a foothold the like of which Betfair can boast today or induce wholesale changes to the betting and gambling industries both in Britain and beyond. How then did the world of sport, historically suspicious of betting, end up working together with a betting company? What compelled the International Olympic Committee to set up a network in Beijing for the 2008 Games with a brief to monitor betting on events over the two weeks of sport? For the answers to that and the rest, first, we have to go back to the start of the new millennium.

Конец ознакомительного фрагмента.

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