[...] In the end, the R&D team came up with a betting engine, called FlyWheel, that could demonstrate a throughput of almost 100,000 transactions per second, while also reducing the cost per transaction by 200 times. Even with a traditional betting engine, Betfair processes five million transactions per day – much more than the London Stock Exchange’s transaction processing system is capable of. The R&D team expects one million trades per second to be possible through FlyWheel, which it estimates is the equivalent of the entire combined annual global equity trading volume being processed in a matter of hours. [...]

They will use FlyWheel Lite, first, and FlyWheel in the coming years.

Work of the BetFair Advanced Technology Group.

London Capital Group Holdings PLC
29 October 2007

29 October 2007

London Capital Group Holdings plc

Betfair White Label Agreement

London Capital Group Holdings plc (the “Company”), the financial services and
online spread betting company, is pleased to announce that it has reached an
agreement with Betfair, the revolutionary egaming operator, to provide it with
the Company’s white label spread betting product.

Betfair is the world’s leading online betting exchange, a concept it has
pioneered. Driven by cutting-edge technology, Betfair enables its customers to
choose their own odds and bet against each other, even after an event has
started. Betfair processes five million transactions a day and more than 300
bets a second.

For further information, please contact: www.londoncapitalgroup.com
—————————–

London Capital Group Holdings plc Tel. 020 7456 7001
Frank Chapman, Chief Executive Officer

Smithfield Consultants Tel. 020 7360 4900
George Hudson / Tom Hardman

Cenkos Securities plc Tel. 020 7397 8924
Ian Soanes

Notes to Editors:

London Capital Group Holdings plc

London Capital Group Holdings plc (“LCG”) is a rapidly growing financial
services company offering online trading services. Its core activity is the
provision of spread betting products on the financial markets to retail clients
under the trading name Capital Spreads. Its other divisions provide online
foreign exchange trading services to institutional and intermediate clients
under the Capital Forex brand and institutional derivatives broking under the
name Capital Derivatives.

London Capital Group Limited, a wholly-owned trading subsidiary of LCG, is
regulated and authorised by the Financial Services Authority. It has a European
passport and is a member of the London Stock Exchange, Liffe, Eurex and
Euronext, giving it direct access to all European markets. London Capital Group
Limited also has access to international markets through its global clearing
relationships.

LCG floated on the London Stock Exchange’s AIM market in December 2005, is
included in the General Financial sector (8770) and Speciality Finance sub
sector (8775) and has a RIC code of LCG.L.

UPDATE: Bookmakers Review explains what it all means.

[...] Stockbroker Cenkos said there is every reason to believe that Betfair intends to use a third party provider to establish its financial betting product to later convert to its own platform, like it did with poker moving from CryptoLogic to an in-house product. London Capital Group has another white label agreemnet with Irish bookmakers Paddy Power tu run Paddy Power Trader. Other operators in the financial spread betting sector include Capital Spreads, City Index and World Spreads.

Corporate and Operational Overview

Corporate Overview

Betfair is a registered bookmaker in the UK, where it operates an online betting exchange. Betfair also operates under licences in Australia, Austria and Malta and is seeking licences elsewhere within the European Union and further afield, notably in South Africa. Betfair welcomes regulation and is committed to paying the appropriate product fees in every market in which it operates.

Betfair’s main source of income is from bets placed on its exchange, from which – in line with other betting operators – it derives its money by paying out less in winnings than it takes in in losses. This core activity will continue to grow as Betfair gains access to new markets and more people turn to the internet as their preferred betting channel. Betfair is developing new revenue streams, such as providing price feeds from the exchange via its API (Application Programming Interface) to third parties, white label exchanges, and through the Betfair Mobile product.

Betfair Games, which operates Betfair Poker and Betfair Casino, as well as other exchange-enabled games, is hosted from Malta under a licence which was granted in May 2005. The Maltese licence enables Betfair to offer these products as well as the innovative P2P games, based on the betting exchange concept, to its customers.

Betfair has invested significantly in technology and employs over 200 engineers to produce one of the fastest and most resilient betting platforms available on the internet today. Betfair processes more than 5 million transactions a day and more than 300 bets a second. Supported by Oracle, Betfair processes 99.9 per cent of bets in less than one second. Betfair has more than 1,000,000 registered users and over 100,000 active monthly users.

Betfair employs over 1000 people in its offices in Hammersmith, west London, Stevenage, Dublin, Australia, Malta and Denmark. Since its launch in 2000, Betfair has won several prestigious awards, including in 2003 the Queen’s Award for Enterprise in the Innovation category from the Department of Trade and Industry and in 2004 Company of the Year at the Confederation of British Industry Growing Business Awards. Betfair became the first ever company to retain its title of ‘Company of the Year’ at the 2005 Growing Business Awards. In 2002 its founders Andrew Black and Edward Wray jointly won the Ernst and Young Emerging Entrepreneur of the Year award.

Operational and Product Overview

Operating Activities:

Betfair Ltd – A company incorporated and registered in England and Wales providing the sports betting exchange product.

Betfair Games Limited – A company incorporated and registered in Malta providing the Betfair Games product.

Betfair Poker Limited – A company incorporated and registered in Malta providing the Betfair Poker product.

Betfair Casino Limited – A company incorporated and registered in Malta providing the Betfair Casino product.

Betfair Australasia PTY Limited – A joint-venture company incorporated and registered in Australia operating under a licence issued by Tasmanian Gaming Commission providing the Australian Exchange.

Betfair Counterparty Services Limited – A company incorporated and registered in Malta providing the Betfair Multiples product.

TSE Development Ltd – A company incorporated and registered in England and Wales which exploits the intellectual property of The Sporting Exchange Limited (parent company of Betfair Limited and its subsidiaries).

Betfair pioneered the betting exchange concept. Based on the New York Stock Exchange, a betting exchange allows punters to bet at odds set by other punters rather than the bookmaker itself. Betfair’s bookmaking model results in odds which, according to one study, are on average more than 20 per cent better than the starting prices offered by conventional bookmakers. Bets are only accepted by the exchange if the full risk of each can be matched with a punter or set of punters with the opposite view. Any unmatched bets are voided, either by the punter or by the exchange at the start of an event. Betfair has no interest in the outcome of any event, as it makes its money from charging a small commission on net winnings.

Betfair has given punters greater control. They can now directly express a view that an event will happen or won’t happen. Betfair also offers genuine ‘in- running’ betting, including all horse races. Since prices tend to fluctuate during the course of an event, ‘in-play’ betting is a truly exciting development for punters, who are now able to “trade” their betting positions. Horse racing is the dominant product, followed by soccer. Golf, cricket and tennis are growth areas because of their international following and because they are well-suited to “in-play” betting.

Strategy

Our aim is simple: we want to be the unassailable choice of the punter by providing the best value, service and protection. We intend to achieve this through continued investment in our technology to ensure that our betting platform is the fastest and most resilient available on the internet; through staff training and through the adoption of best practice in relation to customer protection.

Betfair has a long-standing policy of not accepting US customers, funds or bets and in that regard ensures that it is able to detect and block unwanted usage. Betfair will only operate and market in countries in which it believes that it is legally able to do so.

—

FAQs
Please find below some frequently asked questions about Betfair and betting exchanges.

Background Information

Q. What is Betfair?
A. Betfair is a registered bookmaker in the UK with additional licences in Australia, Austria and Malta. It operates a ‘betting exchange’ model which is a concept it pioneered.

Q. What is a Betting Exchange?
A. A betting exchange is a bookmaker that offsets all its risk through the use of sophisticated technology. This brings together two counterparties with directly opposing views and often results in better odds being available to all customers.

Q. When did it start?
A. Betfair launched in June 2000 and was the brainchild of Andrew Black, a former professional punter and derivatives pricing modeller. He partnered with Edward Wray a former JP Morgan Vice President and the company was formed. Andrew (known as ‘Bert’) still works at Betfair today, whilst Ed is non-executive Chairman.

Q. Who owns Betfair?
A. Betfair is a privately owned company with a range of shareholders.

Q. Have you won any awards?
A. Betfair is very proud to have won a number of awards. These include a Queen’s Award for Enterprise in the Innovations Category, an extremely prestigious business award in the UK. We are also the only company to have won the ‘Company of the Year’ award from the CBI twice, in 2004 and 2005.

Business Metrics

Q. How many customers do you have?
A. We have in excess of 1,000,000 registered customers with over 100,000 active in any given week.

Q. Where do your customers come from?
A. They come from over 140 different countries and on any one day over 50% of new registrations come from outside the UK where Betfair originated.

Q. What do your customers bet on?
A. Betfair offers a range of betting products. For sports betting there are over 50 different sports on the exchange covering events from 122 different countries. We regularly have football from 30 different countries and cover over 1000 horse races each week, added to this is a large range of other subjects such as reality TV and financial markets. Sports betting on betfair.com is complimented by an online poker site betfairpoker.com, an online casino with an innovative zero edge, and a set of unique Exchange Games offered by betfairgames.com.

Q. Where are you based?
A. Betfair HQ is situated in Hammersmith, London. We have a large call centre in Stevenage (about 40 miles north of London) and a Southern Hemisphere office currently being developed in Hobart, Tasmania. In addition to this we have a number of satellite offices around Europe including Malta, Denmark and Germany.

Q. How many staff do you have?
A. Currently 1000 around the world but expanding all the time.

Betfair’s Technology

Q. What technology platform do you use?
A. We use Oracle on Sun Solaris for our database servers. Our software is proprietary, custom software developed by us. Betex was launched in September 2003, it is a brand new n-tier J2EE based exchange platform and allows punters to place bets globally in 18 different languages.

Q. How good is your IT?
A. Betfair’s business is founded upon technology which has proven itself to be far ahead of the competition. We match over 5,000,000 bets a day which is 15 times as many as the London Stock Exchange (Betfair has the added burden of 24/7/365 operation and settlement is immediate). Oracle view Betfair as one of their top five most important customers in the world today which puts us alongside the likes of eBay and Google.

Q. What sort of volumes do you deal with?
A. At peak times Betfair matches over 5,000,000 transactions a day, serves over 3 billion page requests per week and 99.99% of our bets are handled sub-second. The technology required to do this is immense and requires significant investment and development time.

Tax Questions

Q. How do you make your money?
A. People betting on the exchange pay commission of between 2-5% from their net winnings on each betting market. Losing customers pay no commission. With our poker product customers pay a set fee (known as rake) in the same way as many other online poker sites.

Q. How much tax do we pay?
A. In the UK we pay tax in exactly the same way as every other bookmaker; that is a gross profits tax at 15%.

Q. Why is gross profit taxation a good system?
A. It provides a level playing field for all types of bookmaking. Historically other systems of taxation have favoured the more traditional bookmakers who do not have the technology to offset their risk as efficiently as Betfair does. In the modern world where internet access is widespread it is easy for customers to move around to many different suppliers and find value for money.

If a system of taxation exists in any jurisdiction which prevents high volume/low margin bookmakers (such as Betfair) from competing then customers will simply choose to bet through the internet with an offshore provider or worse are pushed into the unlicensed, unregulated black market in search of value.

A gross profits tax allows all types of bookmakers to compete for custom on an even footing and ensures a well regulated and safe environment for all punters.

Integrity Issues

Q. What is a Memorandum of Understanding (MoU)?
A. This is the name we give to an information sharing agreement signed by Betfair and a sport governing body. It allows us to share certain information about betting patterns and customer behaviour for that particular sport. We currently have 25 such agreements with many international sporting bodies and aim to cover every betting market we offer in the future. Betfair has taken an industry-leading stance.

Q. How do you monitor betting?
A. We have a large integrity team of specialists who monitor the betting patterns across all the betting markets offered by Betfair. They use a combination of software tools and experience. As the details of every bet are recorded any market can be investigated, current or historic.

Street address of BetFair corporate office (BetFair headquarters):

BetFair
The Waterfront, Hammersmith Embankment
Winslow Road – (Chancellors Road)
London, England
W6 9HP, United Kingdom, European Union

Opened at £16.50 on November 1st, 2006.

£4.62 this afternoon.

= -72% since flotation, if I can compute.

Our Deep Throat was probably right to be skeptical of their business model —we upset them at the time, of course.

Steve Roman (who works in NYC’s financial industry) attracted my attention to this line from The Los Angeles Times about the world’s #1 betting exchange (real-money prediction exchange), BetFair:

[...] the Internet gambling colossus Betfair, which handles more daily trades than the New York Stock Exchange. [...]

I contacted BetFair about this statement, and Robin Marks (Head of Media at BetFair) sent me the data on their transactions since February 2005. I forwarded the BetFair data to Steve Roman for analysis. He has researched the transaction data for the main financial exchanges, and has compiled them along with the BetFair data, for comparison. You can download his spreadsheet file here —XLS file (BetFair data + Financial Markets data). If Steve Roman and BetFair are interested, we may update this spreadsheet on a monthly basis and see how things evolve in the future.

Here’s Steve Roman‘s analysis:

- BetFair’s trade volume is twice as volatile as the NYSE, LSE, and ICE. The CME’s volume volatility is in-between BetFair and the NYSE.

- As one might expect, there is a higher correlation in volume between financial exchanges than with BetFair and the financial exchanges.

- From June 2005 to December 2005, BetFair’s volume by number of trades was higher than the NYSE. It hasn’t been higher since that time.While the NYSE has shown steadily increasing volume, BetFair’s volume is more erratic, having a less discernible trend.

- BetFair’s August 2005 volume wasn’t bested until May 2007. LSE, ICE and the CME more than doubled in that time and the NYSE number of trades more than tripled.

Jason Ruspini remarks:

The ‘# of trades’ metric might be meaningless because it doesn’t reflect the dollar amount of the trades.

Robin Marks (the Head of Media at BetFair, which is located in London, United Kingdom) explains the high volumes experienced in the summer of 2005:

The 2005 large monthly figures were during the cricket ashes series between England & Australia which takes place every two years and England won for the first time in ages and the nation went wild !!!!

Jed Christiansen comments:

What’s interesting to me is that the Betfair data consists largely of trades by individuals, whereas the same cannot be said for the large stock exchanges. They must have a wealth of data on users and markets.

—

ADDENDUM:

Previous: 2005: TradeSports-InTrade’s Heyday

Price Discovery Among the Punters: Using New Financial Betting Markets to Predict Intraday Volatility – (PDF) – by Eric Zitzewitz – 2006-07-XX

—

External Links:

- BetFair – Wikipedia

- TradeSports-InTrade – Wikipedia

- Chicago Mercantile Exchange – Wikipedia

- New York Stock Exchange – Wikipedia

- InterContinental Exchange – Wikipedia

- New York Board of Trade – Wikipedia

- London Stock Exchange – Wikipedia

- Steve Roman‘s new site, Civil Rights Action Corporation

—

Thanks:

- Robin Marks of BetFair.

- Koleman Strumpf for a little piece of advice.

- Eric Zitzewitz for taking a quick look at our draft.

—

Related Page:

- Betfair results eagerly awaited

- Founded in London in 1851
- Around 330,000 professional users
- Approximately 15,300 staff in 89 countries
- World’s largest international multimedia news agency – 2,300 editorial staff, journalists, photographers and camera operators in 196 bureaux serving approximately 130 countries
- In 2004 Reuters filed over two and a half million news items, including 440,000 alerts, from 209 countries around the world published in 18 languages.
- Real-time data provided on 5.5 million financial records
- More than 200 million data records maintained and updated containing over 3,000 billion discrete data points (or record fields)
- Information on 35,000 companies worldwide
- Financial information from over 300 exchanges and OTC markets
- Financial data updated over 8,000 times per second, and at peak time more than 23,000 times per second
- More than 4,000 clients contribute prices, opinions and analysis
- Reuters Group 2005 revenue £2.4 billion
- Constituent of FTSE100 index
- Listed on the London Stock Exchange and NASDAQ exchanges: RTR and RTRSY (respectively)
- Reuters is among the most read news sources on the Internet reaching millions in their offices, homes or on PDAs

Previous: INTRADE IS PARTNERING WITH REUTERS.