History and Founder of Betfair

Betfair.com is one the internet’s most unique online gambling
sites. We’ll cover the history of their founder and company in
depth. First, we illuminate their founding concept (those
familiar with exchange betting can skip ahead).

The Basics of Betfair Exchange Betting

Betfair is a peer-to-peer betting exchange where, rather than
betting with a bookmaker, players can bet against one another in
a market similar to stock trading. Users can select bets like
will win (called “back”) or will lose (called “lay”). A screen
shot of their menu for a Bayern Munich and Chelsea football
match is shown below.

Keep in mind that this is an exchange, not a bookie. At Betfair,
you can only back how much others (combined) have made in lay
bets, and you may only lay a bet on how much others (combined)
have made in back bets.

Take, for example, making a lay bet on Chelsea at odds 4.9: the odds we’re giving the other side. In other words, we’re
giving someone else 4.9. To bet to win $338, we will need to
risk 3.9 times that ($1318.2), effectively getting 1.2564 odds
ourselves.

Say we want to wager more, such as to “win $1000,” but didn’t
want to give any greater than 4.9 odds. Referencing the image
above, the first “win $338” would be matched, and the remaining
“win $662” would be unmatched, waiting for one or more other
traders to match it at that price. If we change our mind before
it gets matched, we can cancel. If any portion gets matched,
there’s no recourse and it’s now a pending wager for that
portion. If the match starts and some of our wager is unmatched,
this portion is cancelled (unless in-play betting is offered, in
which case it remains unmatched).

The cool thing about exchange betting is vig-free trading. If
we lay bet on Chelsea, and the odds improve, we can later back
them for an instant payout (as long as it’s matched). Or, if we decide
this isn’t looking good and the odds have turned against us, we
can cut our losses by backing Chelsea and locking in just a small
loss. Also, for most matches, trading can be done in-play, so
you can keep betting to the final whistles. At the end of the
match, anyone who has profited pays a small commission only on
net market win.

With the basics of exchange betting covered, let us introduce
you to the founder of Betfair before covering more details of
their history.

Betfair Founder Andrew Black

The founder of Betfair is Andrew Black, born May 13, 1963.
Interesting enough, he’s the grandson of Sir Cyril Black, who as
a Baptist, was the most outspoken Member of Parliament for
Britain’s Conservative Party against the legalization of UK
betting shops. As the history of Ladbrokes tells it, Sir Cyril
lost that anti-betting battle; but it would later turn out to be
a loss in more ways than one. His grandson, the founder of
Betfair, is now a historic gambling figure.

Andrew Black’s success story isn’t one that involved old
money. As a young man, he hopped between entry level jobs, such
as stocking shelves, before gambling for a living and trying
life as a student. He took care of his brother, who had a brain
tumor, for two years. After his brother passed away, he began a
job at the age of 26 working in software. This furthered his
interest in both the stock market and gambling arenas. Using
computers, he developed a system for betting on sports and horse
racing which made up most of his income.

Although doing okay at sports betting, Andrew Black wanted to
make a name for himself. He jumped from a job as a trader into
IT and finally came up with the idea for what would become
Betfair. Unfortunately, during the process of research, Black
had to deal with the sudden passing of his father, motivating
him to want to do something big as an entrepreneur. Perhaps what
his father most wanted was for his son to experience success.

Excited about the idea, Andrew Black began talking to anyone
who would listen. Ladbrokes at least did so, while William Hill
wouldn’t even let him in the door. The first serious
conversation came with the Racing Post. Black explained how in
the future, odds would fluctuate on the Internet and exchange
betting was a much better model than bookmaking. He explained
the concept of “back and lay” as “buy and sell.” When at the end
of his pitch he enthusiastically proclaimed, “Exchange betting!
One day someone is going to do this,” and they only smiled. No
further progress was made by speaking with established
companies.

The tide began to turn when Black attended the party of his
friend, Jeremy Wray, in the summer of 1998. At this party,
Jeremy’s younger brother, Ed, approached him with the words, “I
hear you have an idea.” Working at JP Morgan at the time and
having heard many pitches, Ed Wray started out a skeptic.
However, it took only a couple hours of chatting with Black for
Wray to decide he was legit.

After five months of discussion, Andrew Black and Ed Wray had
their plans intact and began seeking venture capital. This
proved to be a challenge, because a company called Flutter had
already landed funding for the same business model. While Black
and Wray didn’t feel like Flutter was a threat, it was difficult to
find investors since many venture capitalists had already backed
their future competitor. Eventually they were able to raise over
£1 million and start development on a small budget.

Betfair Marketing Fuels Their Success

While Andrew Black once had a unique idea, he was never shy
about sharing it. In fact, he pitched it to everyone under the
sun, which perhaps, initially cost him landing venture capital
and also increased the competition. By March of 2000, Betfair
wasn’t live yet, while other exchanges such as Betmart, Betswap,
and a few others were. At this point they hired JoJo Pimrose who
had formerly worked at Bloomsburg and News International. She
had a 12-week deadline to come up with a marketing plan for
Betfair’s expected June 2000 launch.

Initially, Pimrose had nothing earthshattering to share. Her
ideas were along the lines of “the eBay of betting” and “the
NYSE of betting,” which are rather simplistic pitches. She herself was
frustrated and went to a marketing firm called Circus with only
a £120,000 budget.

Circus agreed to help and came up with a unique idea. The
company would spend £20,000 on a launch party, and then run a
“death to the bookmaker” campaign. Ed Wray didn’t like the idea,
but he went along with it. He and Black appeared in gangster clothing, set
up fake bookmakers picketing outside the launch party, and held
a New Orleans style funeral running a coffin through the city of
London. The media loved it, and there was a huge write up in the
Sunday Times and other newspapers. Also, the Racing Post, which
was very picky about whom they accepted advertisements from,
approached Betfair on their own wanting them to be a sponsor.

Bookmaker Objection Helps as Does Flutter Purchase

During Betfair’s early days, the bookmaker response to
betting exchanges went from dismissal to near pathological.
During the finals of Euro 2000, a bookmaker/PR man said on the
air that Betfair is a nice idea and all, but in the end players
will still prefer the bookmaker. However, as the media started
to discuss exchange betting more and more, a near all-out
assault on Betfair is ensued. Bookmakers claimed for match fixing
concerns, money laundering, and many other reasons, the UK
should outlaw exchange betting.

The more bookmakers protested, the more punters began to take
notice. Share an enemy, make a friend so to speak. With the
media frenzy now in play, takeovers made sense. As a result, in
January of 2002, Betfair would grudgingly takeover their former
competitor Flutter. This immediately led to Betfair controlling
over 90% of the betting exchange market.

In October of 2002, Andrew Black and Edward Wray were awarded
the Ernst and Young Emerging Entrepreneur of the Year award. The
following year, Betfair won the highest award for business in
the UK: the Queens Award for Enterprise in the category of
innovation. By this time, Betfair had secured a roll as one of
the biggest names in sports betting, with a history going
forward near writing itself. Below, we will cover criticism,
USA restrictions, other products, controversies, their IPO,
gambling licenses, and the launch of their sports book.

Critics of Betfair Exchange Model

Betfair’s betting exchange model isn’t without criticism,
especially by horse racing enthusiasts. Critics claim that
Betfair’s model, which allows anonymous punters the ability to
set lines, can cause corruption. This is especially true in
horse racing where a punter can lay a particular horse to lose.
It’s much easier to throw a horse race than it is to throw a
major sporting event. Betfair counters these critics by stating
that they work closely with the horse racing industry. Since
they keep records on who makes what bets, they are more likely
to catch corruption in the industry than a brick and mortar
sports book that takes bets from anyone without any type of
identification.

United States Restricted

Betfair has never accepted United States players. In 2004, a
geo blocker was placed on Betfair’s website to restrict access
to U.S. IP addresses. As a result, the Unlawful Internet
Gambling Enforcement Act (UIGEA), passed in the U.S. in October
of 2006, didn’t affect Betfair’s business model.

Other Products

Today the Betfair website hosts sports and horse race
betting, casino, and online poker from a single website. In
their casino, Betfair offers a Zero Lounge. In the Zero Lounge
there are several online casino games that pay back 100% with
the proper strategy. Games include Roulette without any zeros
and Baccarat, where the commission paid is only 2.75%. Players
that bet less than 4 units will be charged 2.8%, so to get 100%
payback, players should bet units divisible by 4. The Zero
Lounge Blackjack pays 2-1 on suited blackjacks and a 5 card 21,
but it doesn’t allow splitting aces. The Zero Lounge Jacks or
Better game pays 976-1 instead of the usual 250-1 that a normal
Jacks or Better machine pays.

In 2007, Betfair launched mobile software. In November of
2008 it launched Tradefair, which allows players to place bets
on stock movements throughout the day. In January of 2009,
Betfair bought the Television Games (TVG) network for $50
million. (TVG is a U.S. facing horse racing simulcast network.)
Horse racing is an exemption allowed under the UIGEA.

Betfair Poker History

In May of 2004, Betfair added poker to their gaming options.
Betfair joined the Cryptologic Network, which included William
Hill, Interpoker, and Ritz Club London. In November of 2005,
Betfair bought Pokerchamps, a standalone online poker room that
accepted players from the United States. Betfair still kept their players
on Cryptologic until their contract expired. In the meantime,
Pokerchamps continued to operate as a standalone room that
accepted U.S. players. On July 17, 2006, BetOnSports CEO David
Carruthers was arrested while changing planes in the U.S. In
response, PokerChamps banned all U.S. players on July 21, 2006,
which devastated the player pool at PokerChamps. On October 30,
2006, Betfair left the Cryptologic Network and moved all their
players to PokerChamps.

In December of 2007, Betfair closed down PokerChamps,
emailing all players and instructing them to sign up directly
for poker. Betfair then went on to void all affiliate agreements
between PokerChamps and their marketing partners. This
infuriated affiliates who had helped build PokerChamps. While
Betfair made small concessions to bigger affiliates, most were
never compensated for the players they had referred.

Players complained openly about the Pokerchamps software. It
was difficult to multi table as the software was slow and
often crashed. Betfair’s goal was to become a large stand-alone
online poker room. Since high volume players refused to play on
the former PokerChamps software, this hampered Betfair’s poker
growth. Rumors started about Betfair wanting to dump their poker
software. In July of 2010, Betfair announced that they
would migrate once again, this time joining the Ongame Network.

When Betfair was Cryptologic and went independent, rakeback
was allowed. Ongame doesn’t allow rakeback however. Once
Betfair announced that they would move to Ongame, a rush of
players signed up at Betfair. Later in July, Betfair migrated
their player base to Ongame and stopped allowing new players
rakeback.

Betfair still struggled even after moving to Ongame since
their software had the same issues as the old PokerChamps (which
has since been improved). On top of this, in January of 2011, an
issue arose when the poker software stopped communicating with
players’ banks. Players would enter poker games and their money
would just disappear. For two weeks, player money was missing.
During much of this time, Betfair removed poker from being
offered while they worked on the problem.

More Befair Controversy

Online poker hasn’t been the only product to bring
controversy to the Betfair brand, but it still remains one of
the best sports gambling sites for punters looking for great
odds. In all fairness, however, we will cover the other issues.

Happy Hour Promotion

On November 13, 2010, Betfair offered their casino players
one of the best bonuses in recent memory. The bonus was
bottomless and thus allowed players to deposit multiple times to
stack up on bonuses. Instead of stopping the promotion, they
allowed it to continue for the entire promotional period of
three hours. The next morning, Betfair decided to reverse all
the bonuses and stick players with their casino losses. They
reversed all withdrawals, voided any pending cashout requests,
and refused to enter into any communications with players. They
considered the decision to not pay players the advertised bonus
as final.

ASA Rulings Against Betfair

Betfair has been brought before the Advertising Standards
Authority (ASA) several times. In August of 2009, the company
was found to breach ASA codes by adverting that their base
starting prices on wagers was 40% better than the industry
standard.

A month later, Betfair was brought before the ASA for what
some complained was advertising aimed at minors. An ad featuring
Annette Obrestad called for potential customers: “Online
experience is measured in games, not years. Join the new breed.”
She was 20 years old and used the handle “Annette_15.” The ASA
ruled that the ad targeted minors for multiple reasons and
included the proviso that nobody under the age of 25 is to star
in a gambling advertisement. The handle “Annette_15” was thought
to imply that the star was underage.

In February of 2011, Betfair lost additional ASA rulings. One
involved the claim in an advertisement that Betfair cuts out the
middleman when making sports bets. The ASA ruled that since
Betfair takes commissions on winning bets, they are, in fact, a
middleman. Later in February, the ASA ruled that Betfair’s Happy
Hour promotion was misleading, but they refused to disclose why
they had refused to pay players their bonuses. In March of 2011,
they once again ran into trouble by advertising that their
starting prices were 40% better than the industry standard. The
ASA again ruled that this type of advertising is misleading.

The ASA rulings only hurt Betfair’s ability to make certain
claims within the UK. They don’t handle any type of gambling
complaints, having no authority to force reimbursement of
players that fall victim to false advertising, such as the Happy
Hour promotion.

Betfair IPO

While it’s difficult to find information on a private
company’s financials, it’s known that in 2002, Betfair profited
$1.5 million. In just a year, this number grew tenfold. When
Betfair went public in October of 2010 on the London Stock
Exchange, the annual net revenue was still in this range. The
stock soared 20% from its initial offering price. They netted
over £210,000,000 from the IPO, but shares began to slide after
the Happy Hour promotion debacle. Subsequently, there was
repeated bad news, including flat growth and departures from the
management team. The company, however, recovered quickly. On
June 29, 2011, Betfair announced that their annual profit was
£24 million, up £15 million from the previous year. In an
attempt to increase their stock price, they announced a £50
million stock buyback.

German License

In May 2012, Betfair became one of the first ever German
licensed gambling sites. This increased the list of licensed
countries to seven. Others include UK, Malta, Australia,
Gibraltar, Austria, and Italy. They are currently working on
obtaining a Spanish license should the tax authorities in Spain
agree to a settlement.

Betfair Becomes a Bookmaker

It’s quite odd for a company that gained its initial success
with a “death to the bookmaker” campaign to launch a sportsbook
on their .com website in May of 2012. The claimed reason was to
capture wagers from 30% of their customer base: those who bet
elsewhere due to the inability to offer liquidity in certain
markets. Examples include live betting propositions, such as the
result of the next pitch, or small leagues where not enough
backs and lays get posted for the main markets. An additional
reason relates to the fact that exchange betting isn’t legal in
all markets. For example, it’s banned in Spain, a market
Betfair hopes to enter with licensing. As of a change in May
2012, players can now access the Betfair sportsbook and Betfair
exchange using the same website and player account balance.