Innovation in any industry requires a few things. First, there needs to be a need for disruption. That is to say that there is an old-fashioned way of doing things that someone believes could be done better.
Next, someone needs to come up with an idea to disrupt that particular space. Finally, the person or people that came up with that idea must have the platform to be able to demonstrate that the disruption they are proposing is worth the effort of change.
In the online gambling world, there has been a significant amount of disruption and change. From delivery methods to new game types, this is one of the industries that has blown through change without any real issue.
In looking at the history of Betfair, we see an aggressive play by the founders to change the way the entire world looks at sports betting. While this was a lofty challenge at the start, it did open up the eyes of the industry that had been operating in the same format for decades.
Betfair was founded by Andrew Black and Edward Wray. The two came to be involved in the gambling industry as players.
Black, in particular, spent a considerable amount of time in the betting shops of England, doing so poorly in university that he was asked to leave the University of Exeter.
After spending a few years bouncing around different jobs, Black started to formulate the idea that would become Betfair.
Wray, on the other hand, completed his degree in engineering, economics, and management from Oxford University before moving on to a vice president role at JP Morgan. Black came to him with the idea of Betfair in the late 1990s, and the two decided to raise the capital to start their venture.
This is an excellent question. The name hints at what the company has to offer, although it has often been misconstrued as being about fairness in gaming.
In essence, Betfair wanted to take the process of setting lines for sporting events out of the hands of the traditional bookmaker and put it into the hands of the punters, or bettors.
The theory was that if people were allowed to set their own odds based on their personal knowledge of a sport or their love of a particular team, then the betting options would increase, making the wagers more appealing to a broader group of players.
To accomplish this, Wray and Black created a betting exchange. The principle behind the exchange is similar to that of a stock exchange. A player would initiate a wager at a certain price and odds, and it would be posted to the exchange.
If someone fancied that particular wager, then they could agree to make the wager. The bet would happen between the two players, with Betfair taking a small fee for providing the service.
Let’s show you what this could look like regarding an NFL football game. For this example, we will use a game between the New England Patriots and the Cleveland Browns. Many bookmakers would consider this an easy game for New England, so they may set a line that looks like this:
This means that New England would have to win the game by 15 points for you the wager. Now, let’s say you are a huge fan who is so sure that you want to give more points away. With Betfair, you can create a wager like this:
In this case, you are betting that they will actually win by 22 points, but if someone wants to take the other side of that wager, then they have to put up $150 to your $100. See how easy it is? Of course, there has to be someone on the other end of the bet, or else it doesn’t take place.
After building the exchange and coming up with the name, Wray and Black were ready to launch their site, and they did so in 2000. At this stage, online sports betting was just becoming a regular fixture in the UK market, and was still in the early adoption phase across the globe.
The guys had spent months coming up with the platform and the funding. However, there was an issue. As it turns out, when you are out trying to raise money for a great idea, the word spreads, and by the time Betfair was ready to launch, there were already several competitors in the market.
Nevertheless, Wray and Black pushed on and planned their launch. They hired a marketing professional who had experience in the stock exchange to come up with a marketing plan for launch.
While this turned out to be more of a struggle than anticipated, the final decision was that the company would spend a significant amount of their budget on a launch party.
While a launch party wasn’t exactly anything new, what was interesting about this one was the theme and the advertising campaign that wrapped it.
The “Death to the Bookmaker” advertising featured Wray and Black dressed as gangsters, and the party itself had its own funeral procession, with a coffin representing the bookmaker paraded through London.
Well, despite the initial pushback from the founders, this campaign was a huge success. The word spread of this new model out to take on the traditional betting shop. Betfair was being written about, not just in the sports section, but in the main newspaper as a result of their stunt.
To say that the bookmakers of England were upset by this campaign would be a massive understatement. In fact, the betting shops and companies in the traditional sports betting space fought back against the messaging that Betfair had positioned.
This outrage, however, was not having the desired effect. The more that the bookmakers complained or tried to poke holes in the Betfair model, the more the word was spreading about the platform. This started to intrigue the betting public, with many starting to create accounts with the site to see what all the fuss was about.
During all of this controversy, the business started to grow, but unfortunately so did the business of their chief exchange competitor, Flutter.
With the market being so new, and the key to success being the critical mass of players needed to both post and accept wagers, the only logical option was for the two sites to become one.
Betfair, being the larger of the two, agreed to use some of their capital to purchase Flutter in January of 2002.
After the purchase, Betfair controlled
over 90% of all the exchange betting in the world.
One decision that the founders had to make early on was their position on taking wagers from American players. The grey market of the United States was incredibly lucrative and therefore very inviting.
However, the company could jeopardize their UK business as a result of entering the space. With that in mind, Wray and Black decided early on that they would not accept US bets until there was some consensus on online gambling legalities.
This proved to be the correct decision; between the arrest of the owners of Bet on Sports and the 2006 UIGEA Act, Betfair would have been in some serious hot water and their founders likely in prison.
2002 and 2003 were great years for the company from a PR perspective; the founders were winning individual entrepreneur awards, and the company was honored with the highest business award given out to UK companies.
However, this did not translate particularly well to the bottom line. As it turns out, despite all the hype and the idea of taking the bookmaker out of the equation, the bets weren’t being accepted at a high enough rate.
The company continued to press forward, and in 2004 they decided they had built enough of a database to add new products to the mix. The first of these was a poker site, Betfair Poker, on the Cryptologic Poker Network.
This gave players another way to spend their money while they waited for their exchange bets to be accepted.
Betfair continued to find sponsorship deals where they could, including sponsoring some soccer teams in the English leagues.
2005 and 2006 saw the company really take their growth plans to a new level. In 2005, Betfair agreed to become the sponsor of the Grand National, which rivals the Kentucky Derby as the most watched horse race in the world.
This would give the site global exposure, but of course, that came with great expense. Also, the company started to really focus their attention on other markets, receiving licenses from both Austria and Malta.
In 2006, Betfair secured more sponsorship deals, which gave them even more exposure.
Also, the company decided it was the perfect time to add an online casino to the mix. Despite not accepting regular sports bets, the Betfair site was becoming an all-inclusive gaming website, which it needed to do to maintain loyalty amongst its player base. By the end of the year, Betfair had left the Cryptologic Poker Network for the network they purchased from PokerChamps.
Finally, in 2006, Betfair released its first mobile betting exchange. Now, if players were at a live sporting event, they could pick up their phones and send a wager to the exchange, or accept someone else’s bet while sitting in the stands.
Mobile penetration was high in the UK and in Europe, so this was an excellent time to add this feature to their platform.
2006 was an important year for Betfair, not just in what happened on the site, but in what happened to the corporation itself. The founders agreed to see 23% of the company to SoftBank in a deal that would value the company at 1.5 billion GBP.
Wray and Black used the newfound money to invest in other companies, including purchasing the publishing company Timeform and the racing television network TVG in 2009. That year, they also announced a deal with the New York Racing Association, giving their players a chance to bet directly with the races at Aqueduct Racetrack.
Finally, in 2010, it was announced that Betfair would float on the London Stock Exchange. This occurred on October 22nd of that year, and the company raised an additional 200 million pounds in the transaction.
Despite all the gains that Betfair had made in their decade of existence, the bottom line was that they were losing a significant portion of revenue from wagers that were posted to the exchange but never accepted.
As many as 30% of these wagers went unmatched, which was not helping the bottom line. So, even though they campaigned to “kill” the traditional bookmaker, the site had no choice but to open a traditional sportsbook in early 2012.
The company still focuses on the exchange part of the business, but they stopped letting that 30% of wagers slip through the cracks.
With an increasing cost of doing business and a highly competitive marketplace, Betfair has needed to make some major decisions in recent years with regards to its operations. Moving to Gibraltar from the UK significantly reduced the amount of taxes it was paying annually, which helped the bottom line.
In September 2015, a press release announced the merger of Betfair with one of the other large publicly-traded companies on the London Stock Exchange, Paddy Power.
The terms of the merger laid out an acquisition by Paddy Power that would leave Betfair with 48% ownership in the new company. The merged entity is the largest gaming company by revenue as of 2016.
Even though they had stayed out of the US for the longest time, there were signs that Betfair was keen to stake a claim to the market.
After buying TVG and creating the agreement with the New York Racing Association, the company acquired a license in the regulated New Jersey market, and currently operate their casino product there.
The site also made their way into the Canadian market in 2014, but have subsequently left with no reason. There is some speculation that this is because of an upcoming deal they are planning with one of the regulated provinces, but nothing has been confirmed at this time.
Black and Wray did a masterful job building a new vertical in the gambling industry.
While they ultimately ended up having to accept traditional wagers, what Betfair did as a betting exchange was far ahead of its time, and we suspect that the exchange model will once again pick up steam in the future, with the history of Betfair as a roadmap.