You Bet: The Betfair Story and How Two Men Changed the World of Gambling. Colin Cameron
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to trade,’ Saumarez-Smith recalls. The minimum bet was £1,000, minimum stake to lay was double that. The market was professional punter versus professional punter, in Saumarez-Smith’s view. ‘There was 3pBob, so called because he took a 3 per cent commission. Quite often you would see an Indian illegal bookmaker wanting to have, say, £100,000 on the draw in a cricket Test match. There were sometimes bets worth having on cricket, also on European football. Basically the operation served as a clearing house and was of particular interest to those betting in Britain. There was domestic tax – 8 per cent at the start of the Nineties, trimmed to 7.75 per cent in 1992, then a further point four years later – at the time. That said, not many had time to read the faxes.’
With the Internet emerging, operations like Blue Square struggled with the World Wide Web’s limitations to present themselves as an alternative to traditional gambling markets. They traded despite the Internet’s shortcomings. In the meantime, fixed odds and pool betting through what had become traditional outlets – betting shops, cafes, pubs, and clubs – dominated. As for markets most favoured by gamblers, in Britain, despite some slippage in market share, horseracing was the punters’ choice. Football’s World Cup of 1998 is often cited as being when betting on sport came of age. But back then the event nevertheless still paled into insignificance alongside the giants of the Cheltenham Festival, Grand National, and Epsom Derby, along with showcase handicaps designed for the very purpose of a wager.
In Britain, there was what at least could have been interpreted as a preface to significant change in gambling. Government discussions over changes to the regulation of the industry were underway. By this stage, the National Lottery, launched in 1994, was six years old. It had already showed how lucrative betting might be – 1,000 millionaires created, tax revenues of around 12p from every pound staked – as well as how relatively harmless a flutter seemingly was to the nation’s spiritual and moral wellbeing.
At the start of the millennium, plans for the transfer of responsibility for gambling regulation to the three-year-old Department of Culture, Media, and Sport (DCMS) were taking shape, which would bring to an end any involvement with the Home Office. This most powerful of government bodies, which took on responsibility for the licensing of betting in 1970, had historically wrestled with the Treasury, the latter acutely aware of the potential revenue streams from a more liberal approach to betting. The Home Office generally prevailed in ensuring the continued treatment of gambling as a potential social evil. But when DCMS took over gambling in 2001, the Treasury had a much less weighty adversary in creating major obstacles to the adoption of a more enlightened, contemporary approach to having a punt. The gambling industry could be groomed for development to maximise the benefits to government.
That said, traditional bookmakers in Britain offering fixed-odds betting on high streets, nationwide, had recent form to hand that suggested grounds against being anxious about any upheaval, legislative or otherwise. During the 1990s they had negotiated comfortably the arrival of spread betting – a way of gambling where you speculate on whether the outcome will be greater or less than the market, itself, predicts. For example, Kevin Pietersen walks into bat for England at cricket. Spread betting bookmakers offer his expected runs at 75 to 78. You can either sell, meaning that you win your stake times a multiple of the number of runs KP falls below the target of 75, or buy if you believe he will score more than 78, again winning the number of runs over this mark multiplied by your stake.
Having initially thought that this form of betting might pose some threat to business and profit, there was now a consensus among traditional bookmakers that it would never be anything more than a niche. Indeed, spread betting, itself, feared rather than welcomed the Internet (rightly so it proved). If the Internet did catch on, the spread betting market leaders’ technological requirements to service the complexities of what they offered clients were a great deal more daunting than for say, Ladbrokes. For Ladbrokes, for decades the biggest private betting operator in the world, and the other giants of betting, they had to contemplate the much simpler task of merely establishing an Internet presence offering the simplest form of betting, namely fixed odds.
Peter Jones, formerly chairman of the Tote, which enjoys a monopoly of pool betting in Britain, sits back in the most comfortable of easy chairs in his London flat off the King’s Road. The area’s local William Hill is well known for servicing an affluent community with a keen eye on horseracing. Nearby is Ziani’s, an Italian restaurant with a deserved reputation for hosting central figures in the sport often celebrating a success down the M4 at Ascot or off the A3 at Sandown Park and Epsom Downs.
‘Spread betting?’ Jones, Tote chairman for ten years before stepping down in 2007, recalls. ‘That probably had little impact on the established betting shop world. Any major impact it had was on telephone betting. Otherwise, up to 2000 there had been some changes to gambling in Britain but nothing of great substance since the legalisation of betting shops in the early Sixties. Live pictures in betting shops, the National Lottery, fruit machines in betting shops; these had all come in but without being the cause of a massive shake up or revolutionary change.’
So what about Betfair? Or, ahead of its launch, other betting exchanges? Jones screws up his face trying to remember when Betfair assumed any sort of relevance to him, both personally and as chairman of the Tote. A lifelong punter, who made a killing supplying data on horseracing to the great and the good before taking up one of racing’s great offices of state, he did not even open a betting account with Betfair until 2003.
A book, For the Good of Racing: the first 75 years of the Tote, published in 2004 to mark the anniversary of the pool betting operation, makes no reference to Betfair anywhere. There is nothing between the covers to infer that the next quarter-century would be an altogether different experience as a result of the idea that Andrew Black and Ed Wray were refining. Indeed, Jones cannot remember when Betfair was first mentioned at a Tote board meeting that he chaired. ‘When it was it would have been in a general discussion, in a dispassionate context rather than as a threat to Tote business or turnover.’ At the time, Tote’s annual turnover was cruising towards £2.8 billion, the figure exceeded in 2008.
‘The arrival of Betfair – and other betting exchanges; there were about two or three – was at a very low level at first,’ Jones recalls. ‘At the time, the Internet was growing. But there was no broadband at this stage. A substitute for traditional forms of betting? Back then, I didn’t think so. How could I? Bookmakers, generally, were certainly not particularly fearful of betting exchanges or Betfair. There was not going to be a takeover. Low liquidity levels at the beginning because of the number of businesses meant they made no real impact on the overall market.’ What’s more, he adds, Betfair’s software was not, to his mind, particularly good.
Jones shrugs: ‘The lack of broadband was very important. The sort of trading that would come to Betfair – churning of turnover, which is so important – was very difficult with dial-up. Not easy at all to trade. At the Tote, consensus was that with the old technology, Internet betting wasn’t going to take off. I think – and we were in no rush – we did a first deal involving broadband in, if memory serves me right, 1999 with Totalbet.’
Sitting comfortably now, having relinquished one of horseracing’s most demanding posts, publicly scrutinised to a depth disproportionate to the importance of its stake in the betting industry, Jones notes how newspapers can sometimes over react to developments. In this case, he notes that press coverage of spread betting reflected that journalists were largely excited about what ultimately never made a substantial dent in the overall betting market. Jones laughs: ‘Newspapers? In general they always like something new.’
Looking back, in 2000 Compton Hellyer had every reason to be at least satisfied at his own efforts to break into the otherwise closed market of betting. In 1992, he established the spread betting firm, Sporting Index. Ahead of the millennium, the operation was a business heading towards profits approaching £10 million, albeit marginal compared to established bookmaking. In other words, a solid foothold for a start-up company less than a decade old. With his experience, Hellyer had more reason than most to doubt that Betfair could ultimately grow to the size to which the company amounts today. Modesty to one side, why would Betfair find it any easier to break into the market than his company had?
Hellyer would cash in his holdings in