Company Vitae: Betfair

Founded a little over a decade ago, Betfair is now the largest online gambling exchange in the world. What are the odds against that happening?

by MT Staff
Last Updated: 09 Oct 2013

Formative years

In 1998, software developer and sometime professional gambler Andrew Black had an idea: why not create an online gambling exchange, an electronic platform to bring punters together to bet against one another, in much the same way as stock exchanges bring investors together to buy and sell stocks. Pooling resources with a friend, JP Morgan trader Ed Wray, the pair came up with £60,000 and launched Betfair in June 2000.

Recent history

A proposed float in 2005 never materialised, but by 2006 Betfair was romping away, making a £23m profit on revenues of £107m. The winning combination of a peerless technology platform and brand-new business model put Betfair streets ahead of the competition. It also cannily avoided getting caught out by the US clampdown on online gambling.

But in the past few years the firm has hit a rough patch, with its much anticipated financial trading arm LMAX struggling to take off and growing concerns over a regulatory backlash in key markets. It's also recently emerged that hackers have stolen the details of 2.3 million credit cards from Betfair. This year's Q2 revenues fell 7% to around £80m, and in March it moved some of its operations offshore to Gibraltar, saving an estimated £20m.

Who's the boss?

Bit of a sore point at present. Betfair veteran David Yu, CTO from 2001 and CEO since 2006, has put the cat among jittery City pigeons by announcing that he will leave the firm next year. The search is also on for someone to replace co-founder Wray as chairman, who plans to step down too. Add in a number of other less senior but significant departures this year and Betfair's executive box is emptying rapidly.

The secret formula?

Risk management. Betfair's customers may like a flutter but the firm's management prefers a sure thing. Unlike a conventional bookie, Betfair doesn't rely on laying the odds to beat the punter. Instead, it takes a commission on every bet placed on its platform - typically between 2% and 5%. So win or lose, Betfair gets its fee. And with around 5 million bets placed per day (more than all the transactions on Europe's stock exchanges combined), fees soon add up.

Don't mention ...

The share price. Betfair went (partially) public in September 2010, raising £1.3bn for a 10% stake - a share price of over £16 at the time. Less than a year later, shares were trading at under £6, although they've recovered a little since.

VITAL STATISTICS

Customers 949,000
Revenues
£393.3m
Pre-tax profit
£26.6m

All figures for 2011 financial year

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