Betfair to play waiting game over flotation

[Bet Angel]

Blog post: -

When a company IPO's to fund expansion this is usually seen as a good sign, raising low cost captial to expand. When a company IPO's to acquire, there is some risk but the rationale can be justified. The final type of IPO is an exit strategy, a chance for shareholders to cash in at the highest price and to sell some of their shares and pass risk on to new investors. Betfair don't need any new funds, so this IPO appears to fall into the last catefory.

Until the offer document is out I can't really comment on valuation but I already suspect this will be at the very top end of expectations given the nature of the IPO and justified on future growth prospects. The trouble will very highly valued shares is that it doesn't take much to send them crashing to earth. But lets wait till the offer document is published and see what comes out of that. One thing that will change is, if you are a shareholder, you will have the right to turn up at the AGM and ask questions. Betfair will also have to publish more detail and be more open about their business. I've met many a director of a public company that dislikes the scrutiny that occurs at that level but it's all part of being a public company.

[Bet Angel]

Details of the Offer

Betfair currently has a diverse shareholder base including a group of 14 major investors holding approximately 75 per cent. of the Company’s fully diluted share capital. Based on indications received to date, Betfair expects the Offer to comprise the sale by over half of the group of major shareholders, board members and management team of Shares representing at least 10 per cent. of Betfair’s fully diluted share capital as at Admission. In addition to the group of major shareholders, Betfair has approximately 600 other shareholders, and approximately 25 per cent. of the Company’s fully diluted share capital is held by shareholders who have holdings of less than 1 per cent. each. These shareholders will also be given the opportunity to sell Shares in the Offer. No indications have yet been received from these shareholders with regard to their intention or otherwise to sell Shares in the Offer. Betfair does not intend to issue new Shares as part of the Offer. The final Offer size will be confirmed prior to Admission.

In addition, it is intended that further over-allotment Shares will be made available by selling shareholders pursuant to an over-allotment option to cover short positions arising from over-allotments made (if any) in connection with the Offer and any sales made during the stabilisation period. All Shares will be purchased at the Offer price.

Edward Wray and Andrew Black have each indicated that they intend to sell approximately 10 per cent. of their holdings in the Company in the Offer including over-allotment Shares.

Each member of the group of major shareholders, and each member of Betfair’s board of directors and senior management team, has been asked to enter lock-up arrangements on any shareholding retained after the Offer which will prevent them from selling further Shares for a minimum of 180 days following Admission (365 days in the case of board members and senior management). Based on the indications received to date and the expected size of Offer, Shares representing more than 60 per cent. of Betfair’s fully diluted share capital as at Admission would be subject to lock-up agreements.

[hgodden]

Do you think they'll grant us a few free shares by way of thanks for helping build up the company?

[andyfuller]

I would say we have a better chance of getting blood out of a stone

Although probably not much of a change in focus given the change in recent years but now it will all be 100% about profit and maximising it for the shareholders - PC increases on their way? The days of the 'community' are long gone now forever

It will be interesting to see more data from BF now that they will be public but I can't personally see there being big growth in the near future. I don't know the figures but I would have thought Australia has been far form a success. The amount of money spent on Court cases must be massive yet the markets still seem in their infancy and have done for some time from my experiences. They don't seem to have grown like the UK markets did. I am referring to horse racing only (not got experience of others such as AFL etc).

I think America is a long way of still (several years) and once it does open I am not convinced the uptake on the US horses will be that much better than Australia. The US people are used to pool betting and exotics, at least in Oz there were the traditional oncourse bookies but you don't even have them in America. I think BF are more likely to lease their technology in the US rather than be able to operate an exchange over there. So I guess they could see revenue from that angle but I am not sure the US will let them just move in like happened in the UK.

I personally would be a seller rather than a buyer.

[LeTiss]

Do you think they'll grant us a few free shares by way of thanks for helping build up the company?

I think there's more chance of a scantily clad Cheryl Cole knocking on hgodden's front door

I'm concerned that Betfair will become even more of a business, resulting in even more charges

[Iron]

Also, I think that Betfair were able to establish a near monopoly in the UK because no-one saw them coming.

In the US, if betting exchanges were legalised, you would immediately get wealthy and successful companies after a piece of the action.

Jeff

So I guess they could see revenue from that angle but I am not sure the US will let them just move in like happened in the UK.

[Iron]

Possibly, but they could use the floatation as an opportunity to reposition themselves, and scrap the premium charge.

Maybe they could use a commercial along the following lines to help get home the message:

'Your bookie doesn't like winners'.

[Picture of a scowling bookie looking at a winning bet slip]

'But at Betfair, your success is our success!'

[Fellgood pictures showing smiling call centre staff and punters punching the air]

'So WE don't penalise winners!'

[Image of the aforementioned bookie directing a punter towards the door]

'Betfair.com - A fairer way to bet.'

[Picture of people from different walks of life shaking hands, to reinforce the 'community' message]

Jeff

I'm concerned that Betfair will become even more of a business, resulting in even more charges

[andyfuller]

Also, I think that Betfair were able to establish a near monopoly in the UK because no-one saw them coming.

Betfair were not the first. The key to their success was buying out Flutter which as I understand had the customers with the money but you could only match £100 against £100 and £32 against someone willing to take £32 hence you knew who you were against. Betfair came along with their technology that could break down those bets and match against multiple people. That was the key, not that no one saw them coming.

Also to be picky BF don't have a monopoly, I got into a 'discussion' on Mark Davies blog about this and it is true they do not given the definition of a monopoly.

Also I wish I had your hope about the PC but I think it is here to stay and probably go up if anything.

[Iron]

Hi Andy

When I said no-one saw them coming, what I meant was that nobody (at least, nobody with the initiative and the money to compete with Betfair) anticipated that Betfair's model would be so successful, until it was too late.

As regards whether they are a monopoly, I did say 'near monopoly' rather than 'monopoly'. Technically, they have competitors, so they aren't a monopoly. But I don't think Bert looses too much sleep about Betdaq!

Jeff

Also, I think that Betfair were able to establish a near monopoly in the UK because no-one saw them coming.

Betfair were not the first. The key to their success was buying out Flutter which as I understand had the customers with the money but you could only match £100 against £100 and £32 against someone willing to take £32 hence you knew who you were against. Betfair came along with their technology that could break down those bets and match against multiple people. That was the key, not that no one saw them coming.

Also to be picky BF don't have a monopoly, I got into a 'discussion' on Mark Davies blog about this and it is true they do not given the definition of a monopoly.

Also I wish I had your hope about the PC but I think it is here to stay and probably go up if anything.

[andyfuller]

what I meant was that nobody (at least, nobody with the initiative and the money to compete with Betfair) anticipated that Betfair's model would be so successful, until it was too late.

Betfair had very little money, Flutter on the other hand had money coming out of their ears I believe as they were backed by a big US venture capitalist. The key was the technology and foresight to break orders down to be matched by multiple people.

[Iron]

I agree - but that's what I meant by Betfair's model (although I could possibly have been clearer).

Jeff

what I meant was that nobody (at least, nobody with the initiative and the money to compete with Betfair) anticipated that Betfair's model would be so successful, until it was too late.

Betfair had very little money, Flutter on the other hand had money coming out of their ears I believe as they were backed by a big US venture capitalist. The key was the technology and foresight to break orders down to be matched by multiple people.

[Iron]

Re: Betfair setting up shop in the US -

In light of this news story, I don't think that it will be happening anytime soon:

http://www.bbc.co.uk/news/business-11379777

Jeff

[LeTiss]

Re: Betfair setting up shop in the US -

In light of this news story, I don't think that it will be happening anytime soon:

http://www.bbc.co.uk/news/business-11379777

Jeff

Sportingbet aren't one of the bookmaking powerhouses, yet they hoover up £21M from USA alone

I'd be interested in seeing a breakdown of a major Bookies P & L

I'd love to know what sort of liability they have on various markets, just how near to a green book they get, how much they lay off elsewhere, whether people doing multiple bets contribute mainly to profits etc

[hgodden]

Also, I think that Betfair were able to establish a near monopoly in the UK because no-one saw them coming.

Betfair were not the first. The key to their success was buying out Flutter which as I understand had the customers with the money but you could only match £100 against £100 and £32 against someone willing to take £32 hence you knew who you were against. Betfair came along with their technology that could break down those bets and match against multiple people. That was the key, not that no one saw them coming.

Also to be picky BF don't have a monopoly, I got into a 'discussion' on Mark Davies blog about this and it is true they do not given the definition of a monopoly.

Also I wish I had your hope about the PC but I think it is here to stay and probably go up if anything.

I don't think its wise in any way to resign ourselves to the possibility that the PC may go up, this is exactly what betfair want. There are plenty of other markets to trade away from sports markets and there is only so far that betfair can push before people walk. I personally know people who were making a living from betfair who have moved on due to the PC. The more fuss we kick up anytime the PC is mentioned then frankly the better. All our complaining may not have changed their minds about implementing it, but it may make them think twice about imposing further charges. Just like all those people that protested against the Irak war, it may not have stopped that one, but it makes it a lot harder for them to turn there attentions to Iran or wherever next they've got their sights on. No complacency!

I think it's a sensible idea that we all buy a few shares ourselves and give ourselves a voice, albeit a small one within betfair. Although it's hard to predict long term trends, I don't think this will result in wholesale changes, given that in reality only a small amount of the company will become available as the current biggest shareholders seem to be sticking around

[Iron]

An opinion piece from The Telegraph:

http://www.telegraph.co.uk/finance/comm ... tfair.html

One of the things it says is that:

'While revenues have almost trebled since 2005 – when Betfair first mulled a float – to over £300m in the year to April 2010, pre-tax profits have actually fallen from £27m to £15.1m.'

Anyone know why this is?

Jeff