Profits to be down at Betfair

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Betfair will this week announce its results for the year to 30 April 2007.

The past twelve months have seen a significant increase in the rate of investment by Betfair, as the company has sought to not only consolidate its position as the world&#8217-s leading betting exchange operator, but also, to broaden its product portfolio, so as to create a one-stop-shop solution for online gambling, under the Betfair umbrella.

Betfair&#8217-s Australian based betting exchange went live at the end of August 2006- and in recently filed accounts, Betfair&#8217-s Australian partner PBL (50%) said that the business continues to build critical mass in its first full year of operations, and that its share of after tax losses for the year was $2 million.

In October 2006, Betfair Poker left CryptoLogic Inc. to move to an in-house technology solution- whilst in July 2007 Betfair announced that it had executed a non-binding Letter of Intent with Harrah’s License Company LLC, an affiliate of Harrah’s Entertainment, Inc which designated Betfair.com as the “Presenting Sponsor” of the World Series of Poker (WSOP) Europe through 2011.

In October 2006, Betfair broadened its product portfolio with the launch of an online casino. This followed the previous launch of Baccarat (launched June 2006), Blackjack (launched November 2005), Jacks or Better, Roulette and Omaha Hi (launched April 2007)- all with zero house edge.

At the end of November 2006 Betfair announced that it had acquired Portway Press Limited, the owner of Timeform for somewhere in the region of ?15m.

Looking ahead, Betfair will launch its betting exchange service in Italy and will also enter into the area of financial spread betting.

A decline in revenue growth and profitability is anticipated- with profit before tax likely to be down somewhere in the region of 33%.

There are those that will argue that the company should have stayed focused on its core betting exchange business- and I for one must question whether the company&#8217-s investment in online poker is going to reap the forecast dividends.

[cross-posted from Betting Market]

17 thoughts on “Profits to be down at Betfair

  1. Chris. F. Masse said:

    “the company should have stayed focused on its core betting exchange business”

    I would say that BetFair is a technology company that should always innovate.

  2. Niall O'Connor said:

    Whilst the betting exchange model was indeed innovative; brand extensions into the highly competitive areas of online poker and

    online casino games are not; regardless of the house edge or take.

  3. Chris. F. Masse said:

    You could be right to say that a few of their products are not the bests on the market. That could be. However, if BetFair constantly innovates (like Google) and outputs a stream of new products, then, one day or another, statistically, a few of them will become big hits and pay 10 times for all the money invested in all the brand extensions.

  4. Niall O'Connor said:

    I remain to be convinced that the 33% fall in profits can be attributable to a programme of radical innovation (but perhaps you can enlighten us).

    It would seem to me, that the money was employed to upgrade servers; employ new staff, and to finance an aggressive push into the online poker segment. Then there was the acquisition of Timeform, the logic behind which, can be called into question.

    Looking ahead; we are told that Betfair is sitting on a cash pile of GBP 180 million. By way of comparison; in 2005 Google spent $6.2 billion on research and development.

  5. Chris. F. Masse said:

    “radical innovation”

    The BetFair Exchange Games are a good idea, in my view. Innovative. They should do more.

    “Then there was the acquisition of Timeform, the logic behind which, can be called into question.”

    Should an exchange be also a content provider? That’s the one-million-dollar question. I will talk about that, more, later on. However, I would say this. In my view, BetFair should only go into content creation is it can do something very special that the media can’t or won’t do.

  6. trevor Poker fan said:

    It would appear that you two are to some degree discussing whether betfair’s broader move into other areas, vs it continuing to innovate in its spread betting market place has produced a worst or better betfair.

    Their move away from Cryptologic was probably great for any number of reasons. Poker has a very significant amount of revenue and very little risk if one has a base already and can run a poker room. Betfair not only has a base, but the base was already playing poker, so its hard to see, how this particularly could have been a bad move for them.

    Time and the numbers will ultimately tell.

  7. Margolina said:

    “A decline in revenue growth and profitability is anticipated” Well, I had stocks of this company not long ago and I am really happy that I got rid of them.  I think this company is a big loser.

     

     

  8. Ed Murray said:

    Betfair poker is an excellent product, apart from possibly imo the quite high price to use it (taking part in a $25 game with six players paying $25 each, each player has to pay $2.50 extra to BF, and it does seem quite steep charging an extra 10% on top, in comparison to the sports exchange where the maximum take per market – at least before the skimming robot was introduced – was 5%).

    I think BF’s problem is that they don’t charge the people who would pay the most to use the service, the most to use it.  Every business in history has had to maximise revenue by looking at the elasticity of demand of different categories of customers (peak time travellers/off peak travellers being charged different amounts for essentially the same product, say a train ride). 

    BF have made it clear, and I agree with them, that there is say nothing illegal at all about the courtside hooverers on tennis matches, including the six on mobile phones feeding scores, and one on a PDA, at the Dubai championships a couple of months ago.  However, it is these people who are impacting heavily on BF profits.  If BF could separate different customers (ones betting at home, and the minority betting courtside), they should charge a much higher commission rate to the ones who are courtside.  At the end of the day, the hotel rooms of the hooverers in Dubai, plane tickets etcetera, are being paid for out of Betfair’s annual profits.  The money that would have been raked continually between BF customer accounts, with BF getting say 50% over the long run, and BF winners getting 50%, gets distorted, towards the hooverers being able to beat the clock and continuously win as a result. 

    BF are correct to say there is nothing illegal in the hooverers doing this, but if they had a variable commission rate manager, to make decisions on an account by account basis, this would be the same as traditional bookmakers having account managers who make decisions on account by account bases.  I learnt how invaluable these account managers are to bookmakers during my own time in 2003/2004 working for a bookie, and if BF want to increase profits, perhaps charging more to the people who are hoovering courtside, and less to people at home, would be a hugely beneficial move for BF profits, and then this dip in BF profits would never have taken place.

  9. BarryO said:

    Ed said “If BF could separate different customers (ones betting at home, and the minority betting courtside), they should charge a much higher commission rate to the ones who are courtside.”Maybe Bf already have in some way..These General Terms & Conditions apply to UK registered customers..6.3 An offer for a bet is open for acceptance by our other customers..These Counterparty Terms and Conditions only apply to people registered with Betfair from outside the United Kingdom..6.3 You bet with Betfair, not with other customers who use our service. ..I`m not even going to speculate what could be done with that kind of setup.

  10. Ed Murray said:

    BarryO – I mean that at the moment the people betting courtside pay the same amount of commission (as a %age rate) on the markets they win on, as someone at home who wins/loses an identical amount of money.  Making it more expensive to bet courtside would decrease the number of Dubai hotel rooms & expensive flights that are being paid for out of the expected supernormal profits from being courtside for courtside bettors.  That money would then go to BF coffers, and would stop their annual profits falling by 33%.

    I don’t think the idea of charging people who would pay the most for a service, the most money to actually use it, is a particularly revolutionary idea economically.  It actually seems really transparent to do so.  In the long run, betting exchanges will move towards this. I have absolutely no doubt whatsoever this will be the way that betting exchanges work in ten years time, how long it takes them to get to the stage where they choose to maximise profits, I don’t know.

  11. Medemi said:

    BF have made it clear, and I agree with them, that there is say nothing illegal at all about the courtside hooverers on tennis matches, including the six on mobile phones feeding scores, and one on a PDA, at the Dubai championships a couple of months ago.  However, it is these people who are impacting heavily on BF profits.

    Ed. I don’t know where you get the idea that certain people with a time advantage should be charged more by betfair. Betfair should persue a level playing field and charge their customers equally. That is to say, good customers should get a discount. We’ve already had too much of this nonsense. Gaining people’s trust and assure them that betting is based on skill/knowledge/experience is what will translate into long-term profit growth.Never ever underestimate the perception of the public and it’s impact – in a very broad sense.

  12. Ed Murray said:

    Medemi – BF have the very, very, very clear view that no law is being broken by the people who are courtside.  I would love to see a level playing field, and ideally, I would personally like to see the people who whack through ?10,000 each point trying to pick off out of date prices, have an extra time delay put on their account.  BF can identify the hooverers near immediately, it is obvious which accounts are smacking through money at the instant the point is won or lost.  -However, assuming a real world pragmatic situation, the least that can be done is a calculation put on to everyone’s account, where the people who make ultra supernormal profits through a non-skill advantage, have to pay a lot more to use the service.  -I don’t see the point in making millionaires out of people who travel around the world to sit courtside, and try to bet ahead of domestic viewers.  If no law is being broken (Betfair’s view), then the next best thing is to charge them a very high rate of commission, and reduce the commission paid by 99% of normal users.  If someone makes ?1million from betting courtside at events outside the US & Australia (where there are legal problems from doing it in those two territories), then they shouldn’t be paying say the ?50,000 commission they are paying currently, why not charge them ?500,000, and reduce the marginal cost of using BF for people at home?  Its the recreational punters who keep the wheels turning for exchanges, and I don’t see why Betfair shouldn’t be making a lot more profits, whilst simultaneously giving better value to people who are betting fairly.  It is achievable, and would have stopped BF profits falling by 33%. 

  13. Ed Murray said:

    Gaining people’s trust and assure them that betting is based on skill/knowledge/experience is what will translate into long-term profit growth.-

    Betfair have repeatedly assured the public to trust them.  Mark Davies and Tony Calvin have repeatedly assured the public across print, radio and tv media, and cannot be faulted for the effort they have gone to to try to assure everyone. 

    Personally I would disagree with you slightly though, I think reassuring people is one thing, but actually fighting hard to ensure that people betting fairly, through skill/knowledge/experience, are to some degree protected, would be great.  I’m not saying they’re not currently, as that would be slanderous/libellous etcetera, and I’m not saying they are, I’m making no comment on the current real level of protection of exchange markets.

  14. Medemi said:

    Personally I would disagree with you slightly though, I think reassuring people is one thing, but actually fighting hard to ensure that people betting fairly, through skill/knowledge/experience, are to some degree protected, would be great.

    Well, cheap talk is not what I had in mind.

  15. Ed Murray said:

    Medemi – to be fair, BF could not have a harder working PR team than Mark Davies & Tony Calvin.  They have constantly sought to reassure both the public and the authorities of a level playing field, and how Betfair are fighting hard against cheats and corruption.

    This is Tony Calvin’s quote from the News of the World-

     

    “Betfair do not accept bets once the outcome of an event is already known. If it is established that bets have been matched after an event has concluded or a result finalised, it is Betfair policy that these bets are voided”.

    I make no comment on it whatsoever.  However, if people would like to read the reaction to it, the reaction is available on the following thread.  The thread imo shows a mixture of surprise at the content of the Calvin quotes, and a hope that Betfair will implement the very things that Calvin advocated, but people can make up their own minds :-)

     http://site.forum.betfair.com/…..dID=848248

  16. Medemi said:

    That’s a pretty old thread Ed, 18 months I would say.Adonis had already been banned, but no-one knew for sure.The good guys were already winning, and the call that went out for the Gambling Commission was just a glimmer of hope at that time, nothing more.

  17. I do not find it strange for them to enter the poker market. Most of their customers are non US players and the US based poker player arena has completely dried up. I think if they allow US players they will get a lot of new players on the site and thus also get more people into their betting exchange. That’s just my 2c though .. I could be wrong.

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