You Bet: The Betfair Story and How Two Men Changed the World of Gambling. Colin Cameron
Читать онлайн книгу.
so that the market could accommodate those who wanted to bet or lay big – they needed. That was the situation for betting exchanges, collectively, but also Betfair specifically, ahead of what became its own path of sustained growth. Betfair did at least seem likely to stick around. Others gave the impression that they might have come to the market but they would as soon go. The volume of betting needed to sustain them didn’t seem to be there.’
At least Hellyer can claim to have had some sense of what Betfair would encounter. From his own experiences, he could confidently predict if the company took any sort of hold in the market, there would be a full assault from traditional bookmakers once initial complacency about fresh competition had been replaced by paranoia that the new blood was a threat to future livelihood. He concedes that Betfair did seem to be able to drain the liquidity from others. Yet even with the credit due for correctly identifying the eventual market leader, he acknowledges that he, along with everyone, missed a trick. ‘We underestimated them and the threat to us,’ he shrugs. ‘The way it turned out – with Betfair dominant – made it worse. In truth, six or seven betting exchanges would have been less of a threat to our business. But one horse, namely Betfair, left the rest for dead.’
Relative outsiders to the business sector in which Betfair trades, do have the advantage of distance that usually affords some enhanced perspective. Still, betting exchanges like Betfair – years from such high ground as flotation – were also not exactly resonating with the wider world of commerce and venture capital, either. Andrew P. Lee is Dresdner Kleinwort’s (DK) senior analyst of trends in the world of betting. His time spent analysing this sector of the economy coincides almost exactly with the launch of Betfair in 2000. Yet, it was not until 2002, when Lee was advising potential investors on the William Hill flotation, that he recalls making any reference to Betfair and betting exchanges. By then, exchanges – or Betfair – must have had some significance as Lee was responding via the DK quarterly assessment of the leisure market to the suggestion that Betfair would cannibalise William Hill customers. He recalls predicting ‘steady growth from steady products’, overall, in betting. ‘Some were negative about the William Hill flotation on the basis that all punters are price-discriminatory and would be drawn to betting exchanges’ odds which were better because of lower overheads,’ Lee remembers. His own view then, and now; ‘Absolute nonsense.’
In 2000, no one knew how big online betting would one day be. Lee’s London offices are in Gresham Street, near St Paul’s, named after Sir Thomas Gresham who rescued the royal household’s finances in 1551. Even he might have struggled to predict the exponential growth in gaming since the millennium and Betfair’s part in this. On the pavement, Lee joins colleagues in the only space available for some calming tobacco amid jittery markets. ‘The first online casino?’ Lee, drawing on his cigarette, struggles for the date. ‘I think that was 1995. The first significant sports betting on the web followed two years later along with Paradise Poker. But without broadband none of them were making any money and poker sites had not got their heads around the jackpot tournaments on which they have built their markets. It wasn’t until 2003 that Party Poker launched the first of them that was worth seven figures.’
By virtue of his starting point in overseeing the gambling sector for clients in 2000, Lee is in synch with the timeline of Betfair’s extraordinary growth. The inevitably conservative corporate culture of the City meant possibilities for the new venture were downplayed. Unlike newspapers, as Peter Jones noted, the Square Mile is much more taken by the established order than innovation. Much more significant than a new company to Lee, in the year that Betfair was launched, was the increasingly powerful lobby for abolishing betting duty – at the time, 6.75 per cent of either stake or winnings – in Britain. ‘Bookmakers in Britain had gone through limited periods of growth. There had not been much regulatory changes to ease the market. Real hopes lay in the potential change from betting duty based on turnover to tax based on gross profits,’ Lee recalls.
When fiscal reform came, this was, Lee recalls, ultimately considered a ‘pretty exciting change to the industry’ following a relatively low stimulus – regulatory and fiscal – to betting in Britain. ‘Gambling will always under perform in growth against GDP (Gross Domestic Product) and PDI (Personal Disposable Income) if there are no regulatory changes,’ he explains. For all the excitement that a newly-born should bring, prospects of a tax review generated a much greater sense of anticipation. (Indeed, whatever Betfair’s impact, that has remained the same.)
At the forefront of the advocates for a change in the way that betting operations were taxed, with profits not turnover in the frame, was John Brown. Now a resident of Florida during Britain’s harshest months, Brown is today usually far from such concerns save for anxieties that any stocks and shares he retains in the gambling world are adversely affected by fiscal reforms. Back in 2000, he was chairman and chief executive of William Hill so very central to proceedings pressing the Treasury and Customs for a fiscal reassessment. Though charming company, his style of operating in this role was abrasive. Maybe, with the uncompromising nature of the Treasury in mind, this was Brown’s true calling. Certainly, he ensured that his case was heard.
The possibility in 2000 that the Treasury would agree to ditching tax on betting turnover – leaving more money in customers’ pockets to bet with again – and replace it with a duty on gross profits was a delight to bookmakers. Compared to the significance of betting tax reform, Brown recalls no meaningful concern about betting exchanges generally and Betfair, specifically. The relevance of the Internet to Brown, who has had his success as a racehorse owner and a gambler, in parallel with his corporate achievements, was in the impact that it could ultimately have on the domestic market through operations like Victor Chandler. Victor Chandler, whose company carries his own name, is known as something of a gentleman’s bookmaker and was once famously described as the industry’s ‘Indiana Jones’. Well ahead of the millennium, Chandler, whose grandfather established the family firm, had led a move offshore to territories beyond the reach of the domestic exchequer. In 2000, betting in Britain with bookmakers was estimated at £7 billion. What the Internet – in conjunction with the telephone – meant was a growing proportion of that trade would be offshore and therefore tax-free, with operators consequently able to undercut domestic betting with odds unencumbered with tax. ‘Victor had spotted the potential,’ Brown recalls. ‘The law then meant that he couldn’t advertise without a British arm so he kept a presence in the UK – a Mayfair betting shop – to ensure that he could maintain his profile through marketing. Then [he] shipped out to Gibraltar where he paid no tax on bets that could be taken over the telephone and the Internet.’
Ahead of the change in taxation, Ladbrokes had already followed Chandler to Gibraltar, notes Brown, testily. William Hill then followed in turn, to Ireland. ‘We at William Hill had the biggest telephone operation of them all. Never mind the Internet, we required 200-plus staff on-site just to handle calls. I had a look at Gibraltar. We also considered Madeira. Instead we set up in Southern Ireland. I had the idea one day after ringing British Airways. The person I was talking to was speaking from Kilkenny. I thought, why not us there, too? Our lawyers believed that we would not be liable for tax there – on the basis that call centres simply relayed information and there was no actual transaction. In the end, we ended up with our computers in Antigua, our administration in the Isle of Man, and our call centre manned by girls flying out from London, which cost £15 a head. In three months, we transformed what was pretty much just a cow shed.’
The decision-making was based exclusively on fiscal considerations. Brown confirms: ‘We were not concerned about betting exchanges. We were concerned with losing potentially all our telephone betting – historically about 10 per cent of the business – to competitors offering tax-free betting. It wasn’t going to affect our betting shops. Those customers, they go in their lunch hour, or between shifts. But odds-on betting by big punters – where a substantial stake is risked for a relatively small reward at a marginal rate of return that is, because it is marginal, significantly worsened by any tax take – would have to go with tax-free bookmakers. The rate of return ensured that.’
Efforts in 2000 concentrated on correcting this market anomaly yielded a result in 2001. In meetings between bookmakers and Barbara Roche (Financial Secretary to the Treasury, then a Home Office Minister of State), Brown explained the business significance – a threat to jobs