Odds on for a record year at Betfair

The world biggest online bookies has reported bumper earnings in the first half of 2011.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
In a recession, people sit on their pennies and make prudent, considered spending decisions, right? Wrong. As evidenced by the 7% increase in bets placed through online bookmaker Betfair. First-half pre-tax profits are up 182% to £20.9m as credit-crunched Brits gets stuck in to the football season and increase their flutters to distract them from their woes.

It’s not just increased betting that’s feeding the furnace at Betfair. Chairman Ed Wray and departing CEO David Yu have prepared well for a downturn in consumer spending, pruning away at the non-core interests of the business and streamlining operations. This explains why earnings are up by over a third, while turnover has crept up just 1% to £191.3m.

This is no ordinary bookies. Betfair is an intermediary between gamblers wanting to place a bet or offer odds. While its punters like a flutter, Betfair revenues are assured by a clever business model that takes a small commission – 2 to 5% - on every bet based. Punters may win or lose but Betfair always makes money. It’s also been incredibly agile in the smartphone market: mobile betting is up 100% in the first half and is set to scoot up a further 100% in the second.

You’d never guess, looking at the robust figures, that Betfair’s management team is in a bit of a muddle. Chief financial officer Stephen Morana has just been appointed as interim chief executive while CEO Yu prepares for his exit at the end of this month. Bean-counter Morana is the old-fashioned ‘safe pair of hands’ while Breon Corcoran, ex-Paddy Power COO kicks his heels for eight months (he’s contractually-bound to wait that period before joining the rival business). His start date is set for August.

Alas, these over-the-odds results haven’t done enough to soothe investors. Betfair has been buffeted by fears over international gambling laws, although it has escaped relatively unscathed so far. A number of high-profile departures from the board have also done nothing for the firm’s image. But its flat-lining share price is mostly down to the handling of its flotation last year. Sentiment in the City is that the prime reason for the listing of a modest 10% stake was to put some cash in its founders' pockets, rather than delivering value to its new shareholders. As of 11am today, shares are still down by 4.5%.

The market has a long memory. Betfair’s going to get a whole lot more consistent growth under its belt to win over these elephants, not to mention slicker investor relations...


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