You Bet: The Betfair Story and How Two Men Changed the World of Gambling. Colin Cameron
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Sporting Index in the early days. ‘We won money because punters were optimists,’ Hellyer admits. ‘Our clients always went high. For example, if we worked out statistically that Graham Gooch would make 270 runs in a series against New Zealand, we would make the spread 289-290, to factor in human nature. People want a good game and for players like Gooch – England, generally – to do well so they would take us up and buy at 290. We always wanted to finish short, with the punters long. And even if the punters won, they came back.’
A niche was established. ‘Let’s say, after ten years we had opened 30,000 accounts of which 25 per cent were active,’ ponders Hellyer. ‘When you analysed it about 250 accounts really mattered. Small accounts created liquidity but what mattered was beating our big punters, that they lost tens of thousands a year, rather than just the hundreds that small players might lose.’
Hellyer has a theory about Betfair. The running water of the nearby Thames creates good karma, he jokes. To match Betfair’s running water the thought of nightingales in Berkeley Square ensures a degree of serenity and calm for Stuart Wheeler, who lives nearby on Davies Street, London. Mayfair’s landmark Cipriani restaurant is so close as to be tantamount to Wheeler’s local trattoria. On the side of the block which is home to his two-floor, high-rise, penthouse-style apartment is engraved: ‘Les mots juste et injuste sont entendus par toutes les consciences’ – rights and wrongs are heard by all conscience – and ‘where man obeys without being presumed good there is neither liberty nor a native land’. These are implicit testimony to Wheeler’s reputation for deep thinking that was behind him coming up with IG in 1974.
His personal thinking ultimately yielded £64 million, following IG’s flotation in 2000, a quarter century on from when he founded the company. Even after bankrolling William Hague, he still had enough to buy a castle in Kent.
Since childhood, he had always dreamt of living in such a place and funded refurbishment – as a political animal, an example, you would imagine, of fixing the roof during the good times – by selling in 2003 the last slice of IG he held.
To Wheeler’s mind, bookmakers need not have worried to the extent they did about spread betting. Looking back, he cannot recall a year when IG’s sports spread betting generated more than 15 per cent of the company’s total profits (for the year ending May 2008, £98.5 million, pretax, to give a ball park). In other words, relatively unimportant amounts. Those who were commensurate with financial markets naturally bought and sold around the spreads with ease. They were in the business of trading. But beyond them? Spread betting, Wheeler admits, was a surprising struggle for those with simply a passion for sport. ‘Some very intelligent friends of mine cannot understand spread betting,’ he laments. ‘They have been brought up on fixed-odds betting. If they had been raised on spread betting this might be different. The form of betting would be a natural one for them.’
Spread betting’s other great weakness was the potential for unlimited losses. Wheeler smiles ruefully in telling the tale of a client who learned the hardest of ways that spread betting was not for the faint hearted. This hopeful client bought at £100 a run in a spread bet on the total runs the England cricket team would manage during a tour of the West Indies over Christmas 1997. The first Test was abandoned without a ball being bowled and England’s final total was, as a consequence (coupled with some poor batting), well under the spread set for the tour. With each run below expectations costing the client £100, the tab was finally into tens of thousands, which in all cost him his job and wife. ‘You never know for sure what you are going to lose,’ Wheeler accepts.
Bookmakers, themselves, did their utmost to put limits on spread betting. Wheeler reckons that, definitively, it was tax that placed a lid on spread betting. ‘That was the way they got to us in the end,’ Wheeler shrugs. ‘We ended up paying two or three times as much as we had been paying. Bookmakers argued with the Treasury that betting duty at the time – in 1995, with spread betting thriving this stood at 7.75 per cent – was crippling them and we were getting away with paying less. They were not wrong. Certainly, they did have a case.’
He continues: ‘The main point about tax is that, if you speculate in the normal way on stock indices or shares or commodities, you pay capital gains tax on any profits. My recollection, though I am not quite certain about this, was that for some time it was income tax. Anyway the point is that in Britain there is no tax on betting profits. So if a transaction which enables you to speculate on, say, stock indices or shares or many other financial instruments, can be in the form of a bet, that is very attractive to a client. Curiously enough it is also quite attractive to the Chancellor of the Exchequer! This is because, due to the expenses of dealing, there are in the end likely to be more losers with us than winners. Those losers could, if they had done the transaction in a more normal way instead of with us by way of a bet, have set those losses against capital gains tax but, because they did do the transaction by way of a bet, they cannot do that. Quite apart from that the Chancellor gets normal corporation tax, betting duty, and PAYE from the spread betting company.’
Wheeler gives credit where credit is due. Fixed-odds bookmakers actually moved first on the development of spread betting, he concedes. Before even IG, Joe Coral founded Coral Index, which was the predecessor to Ladbroke Index, renamed when Bass Charrington bought Coral. Struggling with the concept, Bass offloaded the index onto Ladbrokes. He recognises the irony in admitting that it was an experiment by traditional bookmaking that inspired him to create IG. ‘Coral Index registered on my personal radar a very long time ago,’ Wheeler recalls. ‘It offered clients the ability to bet on what was then the FT30 Share Index and on the Dow Jones Index and I certainly remember taking advantage of its facilities, to my own loss, in the Sixties. I thought that what it had to offer was very attractive and so, after I had been sacked from one job and made redundant from another, I approached Cyril Stein, the head of Ladbrokes, suggesting that he should set up a competing company. The implication was, of course, that I would run it. He never said, no, but he never said, yes. So I approached William Hill with much the same result. As you may know, the Coral Group was taken over by Bass Charrington and they did not want to know about this very small subsidiary, Coral Index. So Ladbrokes bought it and renamed it Ladbroke Index.’
Nearly a decade after this, Wheeler recalls asking Ladbrokes – again – to form a partnership in sports spread betting, which was also rejected. He puts traditional bookmakers’ failure to profit from spread betting as down to the simple fact that whenever a bookmaker loses his or her market ascendancy by entering a field where they have limited expertise they are no more successful than your average punter. Bookmakers, who were used to being in the know and dealing with clients who were less connected than them with the goings-on in racing stables around the country, found this advantage eroded or even eliminated on unfamiliar turf. ‘By adopting sports spread betting bookmakers found that, to match the specialists like us who took bets on a much wider range of events, they had over 300 markets to assess,’ says Wheeler. ‘Experienced spread bettors with dedicated spread operations would be very good at spotting the one market in which the new boys had under or overestimated matters.’ That was true of whichever company it was, IG, or otherwise.
From a personal point of view, Wheeler did ultimately have the satisfaction of buying the shells of both companies’ efforts to develop the spread betting market. In Ladbrokes’ case this was twice. The acquisition of Ladbrokes Sporting Spreads in 1998 followed his purchase twelve years previously of Ladbroke Index. In 2001, he concluded business by buying William Hill Index.
The embarrassment that William Hill felt about the company’s failure in the spread betting market and ultimate sale of William Hill Index to IG is encapsulated in the conditions of sale. Wheeler recalls that, under the terms of the agreement reached, he was unable to discuss the price he paid, or indeed any reason for William Hill having sold out. Indeed, that remains the case today (as if that prevents anyone drawing his or her own conclusions).
Recalling his spread betting days, Wheeler now laughs at some of the misconceptions and misunderstandings. He bears a striking resemblance to the former Conservative Party Home and Foreign Secretary, Douglas Hurd, and has a highly analytical mind. In addition to being delighted by three cover-girl daughters, he seems greatly amused by the absurd.
Back in his IG days in the Nineties, an area