Betfair Going Public
by Eric Mitchell
Date Posted: 9/21/2010 11:24:32 PM
Last Updated: 9/22/2010 10:09:31 PM

Betfair Group Limited, the world’s largest online sports wagering company, announced Sept. 21 its plans to go public and be listed on the London Stock Exchange.

The company was started by Ed Wray, 42, and Andrew Black, 47, who pooled £60,000 of their savings a decade ago to form an online betting exchange, which launched on Epsom Derby day in 2000. They now own 22.5% of one of the business that has grown by offering person-to-person sports betting.

The issue is yet to be priced, but analysts expect it to value Betfair at about £1.5 billion ($2.3 billion), putting it in the FTSE 250 index.

Here are some key facts about Betfair:

— In the year ended 30 April 2010, Betfair processed on average more than 5 million transactions per day on its Betting Exchange—more than all European stock exchanges combined.

— Betfair separately announced its audited results for the year ended April 30, 2010. Betfair revenue grew by 13% to £340.9 million with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, of £53.5 million. This comprised Core Betfair revenue of £306.0 million and adjusted EBITDA of £62.2 million and Other Investment revenue of £34.9 million and an Adjusted EBITDA loss of £8.7 million.

—Betfair current shareholder base includes a group of 14 major investors holding approximately 75% of the company’s fully diluted share capital. Betfair also has approximately 600 other shareholders, and approximately 25% of the company’s fully diluted share capital is held by shareholders who have holdings of less than 1% each.

The announcement drew a strong response from the British Horseracing Authority that said it hopes for more scrutiny of Betfair’s business model, specifically what the company should be returning to British horseracing.

“What will be of great interest is that it comes a day after the close of a major consultation process by the Horserace Betting Levy Board, that strikes at the heart of Betfair’s model, at a time when the figure of an underpayment to racing of £30 million has been stated by a leading betting industry figure, and during which the future relationship between exchange betting and racing is under close scrutiny by the relevant authorities,” said Paul Roy, chairman of the British Horseracing Authority in a statement.

The Levy Board is required by law to collect a statutory levy from the horseracing business of bookmakers and the Tote which it then distributes for the improvement of horseracing and breeds of horses and for the advancement of veterinary science and education.

Roy said the BHA is ready for serious dialogue with the betting industry, including the exchanges, to address a new structure for contributions being made to the Levy Board. A failure to resolve the issues by agreement, Roy said, would results in a referral of the problem to the central government and the Secretary of State for Culture, Media and Sport at the end of October.

“We would entirely agree that Betfair has been ‘disruptive’ and ‘fundamentally changed the sports betting market’,” Roy said. “Whether intended or not, it has certainly disrupted British Racing’s finances, and has created severe consequences. It has indeed, for its customers, ‘eliminated the need for a traditional bookmaker’, and markets itself as ‘cutting out the middle man’. At the same time Betfair has argued it should be treated as a traditional bookmaker for the purposes of its contribution to our sport. Betfair cannot have it both ways.”

“Our response to the Levy Board consultation states that it seems certain that some customers of Betfair and other exchanges that carry on the business of receiving or negotiating bets, and that should therefore be paying Levy," Roy continued. "This is entirely consistent with Betfair processing more transactions per day last year than all European stock exchanges combined, with some of their clients making many thousands of transactions and data requests on a daily basis.

“Any international racing jurisdiction considering permitting Betfair to operate in their territory has to give very careful consideration to the impact on their sport, and learn from the British experience. In fact, we understand that they are offering far better terms to other racing authorities, and we call on Betfair to now engage with us constructively and end the uncertainty,” Roy said.



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