You Bet: The Betfair Story and How Two Men Changed the World of Gambling. Colin Cameron
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Gordon Brown, abolished existing duty to take effect on the following 1 January, and replaced the old system with a tax on gross profits.
At Ladbrokes, historically and by any measure Britain’s most significant bookmakers, the change in tax arrangements were as welcome as at William Hill. Domestic betting turnover increases of 70 per cent exceeded government’s expectation, a conservative 33 per cent to 50 per cent. It also exceeded William Hill’s projections, creating 1,000 extra jobs there. At Ladbrokes, John O’Reilly, today managing director of remote betting and gaming, spent little time pondering betting exchanges in principle, or Betfair, as a prospective challenger to his employer’s commanding position as the world’s biggest bookmakers. Why would you when, thanks to the Treasury’s fiscal reform of betting taxation, happy days were confidently predicted to be ahead? What’s more, that view was despite the company being perhaps more aware than William Hill of the Internet’s potential and altogether more prepared for it to become a growing proportion of total business in time. O’Reilly’s sense had been, before 2000, that Ladbrokes certainly had to develop an Internet arm and he had told his fellow board members as much. After procrastinating with the notion – to be fair, O’Reilly had been told to concentrate solely on Ladbrokes’ takeover and subsequent sale of Coral after referral to the Monopolies and Mergers Commission – he, as Ladbrokes’ then managing director of the international arm of the company, was saddled with establishing Ladbrokes.com.
Ladbrokes launched Ladbrokes.com in the same year that Betfair was launched. ‘Betfair was not the first betting exchange,’ O’Reilly recalls. This echoes common observations among those who today seek to explain as much to themselves as anyone else why they didn’t pick Betfair from the pack. O’Reilly continues: ‘There was Flutter, which seemed to be chasing the smaller punter; the one who wanted to bet on how many times a particular word, like “The”, appeared on the front page of the Daily Telegraph. What they overlooked was that someone then had to count them! At the start, a few people also thought they could be online bookmakers, taking bets.’ O’Reilly suggests that they did their money pretty quickly. He further recalls that in 1999, Ladbrokes’ domestic turnover was 85 per cent in betting shops and 15 per cent over the telephone. A decade on, he chuckles at the suggestion that Ladbrokes’ figures might be very different today if the company had set up its own betting exchange like Betfair with retail outlets in the minority compared to the web. ‘Lots since have tried and failed,’ O’Reilly points out. ‘Which doesn’t mean that Ladbrokes could not have tried, or try, and succeed. Of course, we look at everything that affects the market.’
Perhaps a sign that John Brown belatedly grasped that the world he had known for a whole life (he joined William Hill as a teenager at the shop floor in 1950s working as a tea boy) had changed is that he reputedly considered an involvement with Betdaq after leaving William Hill. This was the betting exchange set up in 2000 by the Irish financier and friend of John Magnier and J.P. McManus, Dermot Desmond, which began trading the following year. Brown was rumoured to be in line for the chairmanship, something that he has since denied.
Certainly, what has since the arrival of betting exchanges become known as ‘traditional betting’ – essentially gambling at fixed odds – had been given due warning that those who sought to develop an alternative means of gambling over the web would face few legislative or governmental obstacles. Today, government has an appetite for the positives that gambling can bring. A visit by Richard Caborn in 2006 to Gibraltar to see how The Rock had become the foundation for a thriving Internet gambling outpost and how participants could be encouraged to return home, reflected what had been at the start of the millennium beginnings of a sea change. Not long after the launch of Betfair a leaked government memo to Betfair, reported in newspapers, further underscored that Britain was ‘open for business’.
Back in 2000, Tony Blair set the tone. In a speech on 11 September following the publication a year earlier of the government’s strategy for making the UK the best environment in the world to do e-commerce, the then prime minister launched a ‘UK online’ campaign. The intention behind a raft of initiatives and investment was to get people, business, indeed the government itself, online. ‘There is a revolution going on in our economy,’ Blair maintained. ‘A fundamental change, not a dot.com fad, but a real transformation towards a knowledge economy’
The government’s intention was for Britain to become the best place in the world for e-commerce, with universal access to the Internet and all government services on the net. If you were launching an Internet endeavour that year it was reassuring to know what lay ahead. Namely, the first 600 UK online centres in some of Britain’s poorest communities offering training in how to use the Internet – but without perhaps the intention of introducing the nation’s offline constituency to the thrills of gambling’s web.
Blair, of course, did not specifically mean Betfair when he said: ‘We cannot afford to slow down. Although the UK has surged forward and is leading in some key areas, we still lag in others.’ Indeed, Betfair was underestimated from the very top down, including those running the country, according to those who follow whispers in Westminster. To begin with, Peter Oborne, the respected political commentator and documentary maker, estimates that to the Treasury and other government departments, Betfair will have seemed like ‘just another small start up that wasn’t really going to make any difference’.
Still, inadvertently, the path had been cleared for something more substantial. If Blair’s general encouragement to Internet companies was welcome, specific changes to the government machine were even more so. The pending transfer of responsibility for gambling to DCMS did ensure that past obstacles to rival betting operators taking a stake of the established market would not be so insurmountable. For largely historical reasons, the Home Office had controlled matters, to the dismay of the Treasury. ‘There, gambling faced institutional hostility,’ Oborne argues. The Rothschild Report of 1978, with the brief of assessing the business as a whole, set the tone. ‘Feckless, connections with organised crime, among other negative observations,’ Oborne recalls.
In contrast, the Treasury had long seen gambling as little more than a revenue stream if not by generating tax through betting then via new jobs that a burgeoning industry would create. And a potential transfer of responsibility for gambling to the DCMS, created in 1997, was the Treasury’s chance to assume effective control of the industry. This was finalised within a year of Betfair’s launch. ‘It was very important for the Home Office to be out the way,’ insists Oborne.
The new political framework planned for gambling – and a greater tolerance of the activity – meant Betfair could expect to be nurtured by the state, not over-regulated. With the Treasury’s assumption of effective control – as a new government department, DCMS was no match for perhaps the most formidable of power bases within any administration – gambling in Britain completed its journey to legitimacy that had started in earnest with the creation in 1994 of the National Lottery. What was once frowned upon for the temptation to individuals it represented would be considered foremost as a business.
Oborne adds that bookmakers missed a trick back then. ‘Bookmakers have always had huge political influence,’ he confides. ‘At party political conferences they are always there, wining and dining MPs. You would have expected bookmakers to crush Betfair at the start, but, like everyone else, they underestimated the threat they would pose.’
By 2000, Andrew Black and Ed Wray had spent more than a year developing Betfair. Finally, launch was upon them. Still, perhaps only Black had any real confidence of exactly what heights the pair might hope to reach.
Wray’s most rewarding bet had been in 1998 when an own goal by Scotland in the opening game of the World Cup in France gifted him a ‘few thousand’. Wray’s own assessment of the state of the betting market two years later in 2000 was far from comprehensive and actually largely inward looking. ‘I didn’t do a huge amount of technical analysis,’ he confides. ‘I did it from the perspective of creating a viable business. I tried to work out what I thought people would bet with Betfair, potentially, on average and how many we would need to make the company work. Sure, I did realise that the potential market was big. In the UK alone, there were 8,000 betting shops. And during the football World Cup of 1998 betting online had certainly begun to establish itself. Spread firms also did pretty well.