My phone has rung a lot in the last 24 hours, from former colleagues, other friends, and various interested parties asking what I think about what happened on Betfair on the Leopardstown Christmas Hurdle.
I’ve fought shy of writing about Betfair since July despite plenty of opportunity, because whatever I wrote, I seemed to be onto a loser: that they have had a torrid time of things has been clear for all to see, so to write otherwise seemed perverse; but I didn’t want to be another voice of doom, and it has been easier just to say nothing. Depressingly (on many levels) I was told by one former colleague that they thought I was behind all their bad press anyway, but there you go.
The reaction to the Leopardstown fiasco/farce/flare up/embarrassment (pick your headline) – a share price fall of 3% yesterday (when the gambling industry as a whole climbed 15-30% because of the favourable news out of the United States) and a further 3% today – has me finally putting down some thoughts – on the incident itself, and what I think it means more broadly.
First, the bright side from Betfair’s perspective. The £600million liability that was offered on Voler La Vedette quite clearly falls under the palpable error rule, and anyone who argues otherwise is talking cobblers. The horse was crossing the line, and being offered at 29. People can argue all they like that they were backing it there and laying it off elsewhere, such that voiding the Betfair side means that they lost out; but they cannot possibly have been backing the horse at that price without realising that a mistake had occurred, and to try to claim to the contrary is disingenuous. Suggestions that there is a legal claim don’t get to the starting gate.
Further, all credit, in my view, to the company for the statement it put up, which was honest, straightforward, and – given the circumstances – fairly prompt in coming. You might argue that they had no option, but let’s be frank: communications like that one have been short in supply of late, and in my view, they got their response absolutely right.
Rather gloomier, you might fairly suggest, is how the mistake occurred in the first place.
As everyone knows, every bet has to be supported with the collateral held in a customer account for its maximum liability, and as liability in question was the GDP of a small country (at £600million), it is not hard to guess that this would not have been the case. A very small number of customers may have credit lines, but again rather obviously not to this level; and so it would seem that something in the software went wrong which allowed the bet to pass. I suspect that it’s upon this, as much as the customer fury, that the share price has fallen: people are worried about the robustness of the software if a mistake of that sort can occur.
But they should take comfort, in my view: I doubt very much it is a signal of broader technology problems. Once in a blue moon, software bugs get hit; and while people might scoff at the level to which I am sanguine, my view is that an unhappy coincidence of circumstances has resulted in a 1 in million occurrence occurring in a particularly high profile way on a particularly high profile race, coinciding, while it was at it, with a holiday period when there’s not a lot more to excite the markets or the business writers. We used to hit software bugs every now and again that would mean that the website did strange things, but the very nature of them is that they come to light only when they happen. That is the nature of software, and I suspect that now that they have seen it happen, they will swiftly put it right. That was the pattern for the decade that I was there; it just never happened quite so obviously as this.
So much for the incident itself. Now to the wider picture.
It was put to me today by someone that this problem goes to the heart of what the person described to me as a ‘confidence crisis’ which the public markets have about the company. It is, I was told, just the highest profile example of a general malaise, and indicates that Betfair is a busted flush.
I’ll be honest: had this happened five months ago – even three, maybe two – I might have been concerned. As I said above, I have studiously avoided writing about Betfair, not because things seemed to be going wrong at the company, but because so many people seemed to feel (both in the outside world and among the grass-roots staff) that key decision-makers were showing no signs of recognising either what or why. Perhaps that was unfair; and if it was, the last person they’d have wanted to hear an opinion from was me. But it was a reason to be worried about where the company was heading: many of Betfair’s biggest advocates had stopped being vocal supporters; negatives loomed large, magnified by nay-sayers; and positives – while still there – were hard to see. Not even the company itself was highlighting them.
But recently – first gradually, and then, in recent weeks, with notable jumps – the gloom has been lifting. Long apparently over-burdened by troubles, everyone you talk to at the company has now re-acquired a spring in their step. And the confidence at the place – although it will have taken a knock in the last 24 hours – has returned sufficiently to be tangible for the first time in ages.
There are lots of reasons for this.
First, to all reports, some recent hires (like Matt Robinson running the international business) have significantly strengthened the areas which fall under their control, and others look set to join that club in the New Year (Nick Hagen delivering a sportsbook, for instance).
Second, they know what this week’s US announcement has demonstrated clearly: that the regulatory position is not as bad as people are making it out to be, and surprises are to the upside not downside. When they can announce their long-awaited Italian licence, which I suspect they will imminently, it will give them further reason for cheer.
Third, perhaps because of all that, the bunker mentality (see above) that afflicted them after some difficult setbacks appears at last to have gone, for evidence of which Google the last month’s press: their communication has become pro-active and positive for the first time in a long while, which is wonderful to see.
And finally, although I am cutting my list short so as not to bore you: in their interim CEO Stephen Morana, they have someone at the top who is more than simply likeable and intelligent: he is an inspiring and charismatic leader who knows the company inside out, understands (indeed, uses) the product as well as anyone out there, and will not be afraid to confront problems head-on.
None of this, of course, excuses what happened at Leopardstown, or removes it from the company’s history. But as an indicator of where Betfair is at generally, my own view is that the moment under discussion is a hugely unfortunate technical coincidence which will cause angst, embarrassment and anger, but ultimately will pass; and the company’s reaction to it is as heartening as anything I’ve seen come out of Hammersmith in months.