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First the bad news: customers who love the Betfair website and want a stake in the company's future success will not be allowed to buy shares in the float.
Chief executive David Yu says they thought about allowing retail punters a slice of the pie but decided the “logistics” of such an operation made it not worth the hassle. So while large institutions will get to buy into the company, the rest of us will have to wait until the shares start trading before we can place our bets.
For a consumer-facing business, one that can reasonably claim to have shaken-up a tired industry in the public interest, this is a disappointing call.
Doubtless it would be expensive and fiddly to set aside shares specifically for small investors but not impossible. Google, another internet company with which Betfair would doubtless like to be compared, managed it with seeming ease, earning kudos along the way as an outfit willing to defy Wall Street in favour of the little man.
Betfair's decision suggests a slight lack of care for the customers that have made it the undoubted triumph it is.
In turn, this is how the company could be weakened. Asked what was to stop a rival — Ladbrokes, say — from hiring a bunch of computer whizzkids, devising copy-cat technology and launching a service called, let's say, GambleSmart, the Betfair bosses more or less replied: nothing at all.
They reckon that over the course of the past 10 years many such rival ventures have tried and failed to eat Betfair's lunch.
Yu told me: “We've seen about 50 exchanges come and go. Every single one of them copied the format. The brutal reality is that it is incredibly difficult to do.”
Perhaps. But one side effect of the float is that Betfair now has to make available a huge amount of information about itself that it could previously keep under wraps.
That information — including numbers about sales and profits — is likely to prove mouth-watering to wannabe competitors.
Somewhere in the mind of a net entrepreneur exists the company that will do to Betfair what Betfair did to traditional bookies.
The company is perfectly aware of this. Indeed, one purpose of the float, albeit of just 10% of the shares, is to give Betfair a currency to retain and attract talent. In an industry moving as quickly as this one, it may well need it.
In the meantime, where is the growth coming from?
The company was today flagging a move into online financial trading via an exchange platform called LMAX.
Punters will be able to take positions on financial markets via contracts for difference.
It might work, but this is already a well-populated field for the present size of the market.
A whole new customer base needs to appear for it to thrive.
Such gripes aside, Betfair has clearly been a huge success story. The future is harder to predict.
These tight-fisted bankers get us spluttering again
Here's a recent headline from The Daily Mash: Bank Anger Profit Bonus in Fatcat Fury Shame.
The story on the satirical website opens: Furious fatcat taxpayer money bonus and angry meltdown shame greed, it emerged today.
This is a good spoof of the public and press's often incoherent rage at the banking sector. Figures out yesterday show just why we are so often reduced to spluttering.
The Bank of England's September Trends in Lending survey shows that bank lending is muted at best — a serious obstacle to economic recovery.
As Howard Archer at IHS Global Insight puts it: “Lack of access to credit for smaller businesses is still a particularly worrying problem... pressure is mounting on the Bank of England to revive Quantitative Easing.”
At some point, the Bank might have to concede that QE hasn't had the effect hoped for and the banks aren't keeping their side of the bargain.
Archer says: “The concern is still that a lot of fundamentally sound small businesses could potentially go under or at least miss out on developing due to problems in accessing finance. The data can only reinforce the views of those who consider that the banks really still don't get it.”
Caring shairing: the franchise that may pay off
In theory, franchising is a great way to make money for nearly nothing.
You rent out your company name to another outfit, which in turn takes on nearly all of the risks associated with opening a business somewhere new. If it flops, it's a minor hit to the brand value; if it succeeds: kerching and thank you.
The funny thing is that City restaurant analysts have become so sceptical about the value of such franchise deals that some have taken to assigning them zero value.
The promised profits, they say, so often turn out to be illusory that it is better to mark them down now to avoid disappointment later.
The lump sums received upfront — £200,000, for example — never turn out to outweigh the original head-office investment and legal costs.
The exception to this could well be Richard Caring's Caprice group, which is reinventing the franchise concept. As we reported yesterday, the upscale restaurateur behind The Ivy, Rivington and Scott's has signed a joint venture with Jumeirah, the giant Dubai-based hotel and leisure business.
The deal allows Jumeirah to open restaurants under the Caring brands in the Middle East. So bankers who favour Scott's need not feel so far from home while cutting deals in Dubai.
Caring's bet is that at the high end the franchise model will work much better than it does at the low. We don't know the terms of the deal he struck, but it's fair to assume that The Ivy is among the most expensive names in the industry. Critical mass, and profit, might therefore be achievable much more quickly.
Rivals will be watching with interest…
Help for the homeless in the bag thanks to boss of Blacks
A couple of months ago, a friend returned from Zimbabwe with tales of woe.
She'd met and befriended a bunch of homeless children and, in her usual way, promised a charity she would at least find a way to provide them with sleeping bags to protect against the next winter.
She had no plan for how to keep this promise, and asked me for ideas. I had none.
Out of cheek rather than expectation, I asked the chief executive of Blacks Leisure, the outdoor camping retailer, if he had any thoughts on this conundrum. Really, what were we to do?
Neil Gillis seemed to be listening, but there is no reason at all why he should have done anything other than ignore me. Blacks makes a point of being socially responsible, but it is not a charity, and Gillis has got other things on his plate.
Last week 36 sleeping bags turned up. They are on a plane to Harare about now.
Reader views (2)
Betfair have always treated customers with contempt and act like they are the scum of the earth
Just ask anyone who has had the premium charge (a tax on winners) or contacted "customer support"
Their motto is "This matter is now closed"
- John Smith, London, 22/09/2010 11:05
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There's a massive reason why Ladbrokes won't hire a bunch of computer programmers and start their own exchange - Betfair charges 2-5% vs. the 15% Ladbrokes makes on average. Betfair has a lower margin, and the exchange is just a means to do that, not an end in itself. A look at whois.org shows that Ladbrokes registered www.ladbrokesexchange.com back in October 2002, and I'd suggest the reason they've never launched even eight years on is because they'd need to quadruple their customer base overnight just to stand still if they slashed their margins by 75%, which is what they'd have to do to even compete with Betfair.
I also think it's a little naive to assume that the information Betfair will have to reveal as a public company will miraculously help competitors. Betfair has published data openly at its excellent corporate website for years in far more detail than it ever had to as a private company. If there's someone who fancies running a betting exchange but can't now, I doubt a copy of Betfair's 2011 accounts is going to change the situation.
I don't get your point regarding their financial exchange. Of course the CFD market is saturated, just like the bookie market was saturated when Betfair launched. Who knows whether they'll succeed, but the situation's ripe for a more efficient middle man to take share from the present incumbents.
I do agree your point that it's a shame that they haven't found a way for customers to take part though. Guess we'll have to wait...
- Terry May, London, UK, 21/09/2010 19:58
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