Skip to content

Betfair’s share price

The post below is my latest column for Gaming Intelligence Quarterly, and was therefore written a few weeks ago. Notwithstanding the news about Ladbrokes and Betdaq that has been announced since, I think it still stands. So I am reproducing it here now that the edition has been published.


As we move into the New Year, I thought I’d pick up a subject that I usually do my best to avoid: Betfair.

With more than two years now having passed since the company fell off its once lofty perch with a share price crash from the heady heights of £15.50 to below £8 – a level at which it has remained to this day – it seems a sensible moment to ask: whither the company in 2013?

We used to say at Betfair in the early days that the next six months were always the most crucial in the company’s history. It is funny to think that thirteen years on from its launch, that is probably as true of the next half as it ever was. Unless something happens over the next two quarters to restore confidence in the organisation, it will probably bump along forever at the sort of miserable levels that shareholders have now endured for some time.

I wasn’t expecting it would be like this. The company announced its new Chief Executive, Breon Corcoran, back in August 2011, and was sure enough it had the right man to believe that it was worth waiting a year to get him. It was fair, then, not to expect any share price recovery over that twelve month period. So, too, was it fair to expect little to happen in his early months, as he got his feet under his desk.

What probably wasn’t expected was a 10% price fall once he had announced his new strategy. Just when it felt like sub £7.50 would be a price of the past, the stock crashed back through support and started to plumb long-unseen depths.

But given that (in changing strategy to pull out of territories that are not ‘clearly legal’) Corcoran forfeited 24% of revenues at a stroke, you could say that a 10% fall was not a bad result. The question now is whether he will balance those losses with sufficient gains to recover to a more appropriate market cap.

£20m in cost savings announced in December is a good start, but I would imagine is really only that. The fact about Betfair that shocks people like no other is that it employs around 2,500 people around the world – a state of affairs I can’t imagine remaining for much longer. Years of dealing with structural issues by throwing people at the problem have taken their toll in a number of different ways: people both inside and outside the business have been frustrated for years by the level of bureaucracy, which (in combination with a framework that made it too easy to abdicate responsibility) has continually stifled the delivery of product.

The extent to which that is true is best illustrated by two things. The first is the sportsbook, which was delivered in 2011. I remember clearly when the need for it was first discussed, because the late Bob Horton was present at the management meeting in question. His role as Chairman was briefly executive in the fourth quarter of 2005.

The second is in-play – a product which Betfair was first to bring to market. Its loss of market share in this area, when the exchange model’s risk-management system is so well-suited to it, would be less frustrating had it not been talked about at such length over the years with nothing effective being done to reverse it.

By stripping out inefficiencies and creating accountability, I suspect Corcoran will have done more to put Betfair back on the right footing than analysts realise. I’ve piled back into the shares, down 10% or not.


Posted in Betfair, Betting industry.

Tagged with , , , , .

14 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.

  1. Trigger Happy says

    Thanks for posting that, Mark.

    The next year or so will be fascinating if Betdaq does make a better fist of things under Ladbrokes. Maybe the threat of a serious competitor will make Betfair raise it’s own game and that would be good news all round.

    I don’t think it’s all doom and gloom for Betfair and my dream is for picture delay issues to be solved which would surely be a boost for in-play liquidity across all sports. Maybe that is dreaming but the fact Betdaq/Ladbrokes now want the same thing could have reduced the odds on it happening!

    It’s the same with the various legal battles over the years, there is now two powerful global brands fighting rather than one.

    I also think if Ladbrokes seed the Betdaq markets it might see boosted liquidty on Betfair as well as the dreaded bots step in.

    Finally the premium charge. Whatever the rights and wrongs of it, it didn’t seem to be particularly well handled but the current signs seem more positive. I mean you might not want a customer to enter your nightcliub but you can politely decline them entry rather than throwing them down the stairs!

    Someone seems to have twigged that not all PC payers are ‘bad’ customers and that others may be bad customers at the moment but may one day lose their edge and become better ones.

    Regarding over-staffing I’m staggered by the amount of jobs advertised by Betfair on twitter. Costs must be astronomical.

  2. TracksuitDave says

    The Premium Charge simply reflects that Betfair does not provide a level palying field for all its customers. The firm is now so far removed from the original model that the only way is down. I think Mark is engaging in a very clever form of ramping albeit maybe not deliberately.

  3. jason says

    The Premium charge was the start of the downhill slide for Betfair. The management with it’s PC driven by pure greed and now drive towards a sports book has successfully transformed the company into one of the most disliked companies out there. I personally wouldn’t touch their shares at £6.00 with a barge poll although I wish you luck.

  4. colston says

    Betfair has been overstaffed for years now, I couldn’t believe how the least productive department HR grew since the middle of the 2000’s!
    On a plus note the dividends paid on the shares have been a bonus (no pun intended) over the last 6 months.

  5. bigdipper says

    Betfair’s root problem is that it is unloved. The people that evangelised for it in the first five years of its existence, because they were getting better odds, have now been alienated. Every group, from recreational players who only vaguely understand the premium charge but who thought the dream has died, to liquidity-providing pc players, feel less warmly towards Betfair than before and are more inclined to make the effort to bet (at whatever level of sophistication) elsewhere.

    Mr Corcoran’s strategy seems to be to offer a 1) fairly standard, and certainly not topline or outstanding, sportsbook to price-insensitive customers and 2) exchange prices to more serious bettors. The problem with the strategy is that the sportsbook will be priced off the exchange, and when the exchange is iliquid, its prices will not competitive (or customers will be stringently limited, which uniquely damages Betfair’s USP and bettors’ belief in its identity).

    One irony is that they have little problem with liquidity (excluding IR) on many events where they cannot hope to be best price with an exchange / commission model–e.g .on Asian hcaps and two or three runners events like football and tennis. But other than by winning market share (with no reputational or price catalyst for this), having liquid markets here and not (for instance) on early price horses, derivative markets on the football or minority sports.

    IR liquidity is a whole different matter. Here one can’t help thinking they are hamstrung by their supplier relationship to Bet365, who vigorously advertise what are always worse IR prices than Betfair and in all probability are offloaded into the exchange. Bet365 also have reasonable relations with Ladbrokes, so is there any likelihood of their switching their hedging to Betdaq? Should Betfair suggest it and advertise IR prices with a guarantee? Their IR revenue has also taken a hit as a result of the pc leading to payers adopting offsetting strategies that cannibalised the winnings of Betfair’s incumbent market-makers, notably Betting Promotions. This is something that a management who understood the mentality of successful bettors could have foreseen, but which escaped the more actuarial types people in charge of Betfair.

    What I would advise the company to do is to shelve, completely and utterly, its current list of priorities and buy back the punter’s love. Find ways of rebating the pc and targeting it at those who win excessively amounts from recreational players through technical advantages. If data charges don’t stick, try freeze-outs after bets. Offer high denomination promotions, perfectly susceptible to being arbed off, to arbers and other losing liquidity providers. Make some kind of promise about efficient pricing that every bettor can understand.

    The mentality of the company should be ‘to give back almost everything and be left with the commission’.

    The whole idea of the exchange was that it didn’t matter who won as long as Betfair took a rake. Then someone said, ‘what if there are no losers left? Bet 365 get 100% of losers’ losses and we get e.g. 60%’ This was when the rot started. Betfair’s impulse should have been to make the markets more competitive, to have more shrewdies, more winners, more sharks, not to try to make life harder for them and get rid of them. An exchange is a middleman that wins because its clients are betting amongst themselves and can’t all make money.

    That was the heart of Betfair and they need to understand it again.

  6. bigdipper says

    * having liquid prices on saturated or competitive markets will not itself drive new custom.

  7. MD says

    @bigdipper – you have a point, but what it doesn’t take into account is the economics of the system.

    If you take the numbers that are in Deloitte’s 2011 report on online gambling (rather than me giving you Betfair numbers), you will see that although the attrition rate for the casual player is not as bad for sports betting as it is for casino products (where it takes only 4-5 months for 80% of those who have come to a gambling site have churned away), the fact remains that they leave after about 18 months. Clearly, the operator needs to make more out of the acquired customer in that period than it spent in acquiring him/her.

    So, while I take your point, and while I understand that made by others who interpreted the move to a premium charge as ‘greed’ (and without wanting to get into a big debate on the rights and wrongs of where the level sits now, and what is the right pricing formula), I think that people are (as we were) rather idealistic in believing that any exchange can survive without taking more from the net winners than is generated from commission alone. In a marketplace where customer acquisition is very competitive, the economics don’t work in such pure terms. Any competitor to Betfair setting up an exchange with that idealistic notion will, I fear, find that reality bites: every exchange would have to introduce a premium charge of some kind, at some level, in order to survive.

    Interestingly, as an aside, the big debate with the racing industry was always predicated upon the fact that people took money out of the system which previously had always gone to the operator, and from the operator on to the racing industry. So the introduction of the PC should have been hailed by the racing industry as the leveller that they needed to redress the balance which they were unhappy had been tipped heavily against them. I mention it because it just goes to show that you can never keep everyone happy: each person will have a different concept of what is fair dependent on their personal situation, and ironically, the measure of knowing that you are treading the best middle path that you can tends to be, as in politics, that you get brickbats thrown at you by everyone, on all sides.

  8. colston says

    Mark, do you think that Betfair are in an favourable position to take advantage of the news that online poker and casino are being legalised in the state of New Jersey?
    Considering they’ve been a presence in the USA for a number of years now, it would be a massive disappointment if they don’t become a major player now that it looks like this door has finally been opened.

  9. colston says

    Mark, I do wonder what’s going on at Betfair these days, I can understand them going no commission yesterday at Cheltenham, after ANOTHER Saturday when the site was down between 3pm and 5pm, but surely giving another concession like stakes returned if your horse comes second up to as much as £100 was foolhardy. I’d love to know who came up with that gem?
    Even in the good old days of bookmaking you’d be happy with a net profit of 2%, you would have been crucified or worse if you even thought about a stakes back if your selection came 2nd concession especially for as much as £100!
    On a day when high profit should have been a gimmee via the exchange, Betfair must have lost a fortune.
    As a shareholder I’m probably losing a lot of confidence in decisions like these and i’m now seeing why the share price is lanquishing in the low £7’s.

  10. bigdipper says

    I understand BF’s concern that the lifetime value of the customer must for them exceed the cost of acquisition, and that this will not happen if recreational losers lose heavily to a handful of winners. But there are many other considerations that I doubt BF modelled well or sufficiently:

    1) the degree to which churn is reduced by an exchange having market-efficient prices. When someone stops betting on a site, they either give up or go elsewhere. A major motivation to go elsewhere is to get better prices. A FO bookmaker with a fixed margin will invariably have more price-competitive rivals, while an exchange won’t.

    Another reason a loser could have for leaving BF specifically is that they lose, or repeatedly lose, to some form of trickery–they back fallers or take prices that are better 3 secs later or are trap-bet when drunk etc. BF should have acted in the first case to close their loopholes, which would not have been more complicated than implementing a blanket PC. In this way they would have developed clear forms of ‘palpable error’ and have held onto some disgruntled custom;

    2) the degree to which incumbent winners (who became the pc payers) were winning through manipulating technical advantages, rather than through greater pricing ability. Again BF should have simply closed the loopholes e.g. they should have had a freeze-out on other-way bets until e.g. 8 secs after bet submission. Or they should have ratcheted up data charges on winning clients. With the loopholes closed, prices would have been market-efficient; winners would have won less or nothing after comm. and recreational players and losers would have lost more slowly;

    3) the implied monetary value to BF of on-offer liquidity (money available to be matched), especially in illiquid markets. Surely a recreational customer is more likely to stick around if he can get his 20 quid on a threeball market;

    4) the implied monetary value to BF of the advocacy of regular winners, including arbers that lost with you.

    MD: So the introduction of the PC should have been hailed by the racing industry as the leveller that they needed to redress the balance which they were unhappy [with]….

    This is just too disingenuous. The pc is analogous to a tax, and many governments would be justified in seeing it as such. Its existence proves that there are winners, some of whom may be professional gamblers, that the state can tax. This is not good for racing or the levy at all, since they wouldn’t be the beneficiaries of tax (rather than schools, hospitals etc.) and also because any tax e.g. a sales tax discourages marginal activity.

Continuing the Discussion

  1. Thoughts on the Betfair bid | Mark Davies linked to this post on April 20, 2013

    […] stock price was (prior to the bid speculation) down about 10% since Mr. Corcoan’s arrival. As I have written before, there are good reasons to be optimistic about the direction the share price is headed. Picking the […]

  2. Fantasy Betfair | Mark Davies linked to this post on April 20, 2013

    […] costs accelerated as money and people were thrown at problems is, I think, widely recognised: that’s why there have been the mass redundancies that have […]

  3. Why Betfair shares are still a buy linked to this post on November 5, 2014

    […] more knowledgeable about today’s business than I am. I’ve written before about why I think the shares are a buy, since when they are up 50%. But for those who have asked for my view, I have one thought to offer […]

  4. Why Paddy Power Betfair’s share price drop is good news for believers linked to this post on April 24, 2016

    […] to either my Twitter feed or my blog post have conveniently deleted what they wrote. Apparently my suggestion last time they fell 10% that it represented a good buying opportunity wasn’t quite so daft after […]

You must be logged in to post a comment.