Betfair Has Hopes for U.S. Exchange Betting

Betfair wants to establish a worldwide betting exchange that includes the U.S.

Betfair wants to establish a worldwide betting exchange that includes the United States, but will focus its U.S. efforts for now on strengthening its newest acquisition, the TVG horse racing network, an official with the London-based wagering conglomerate said recently.

Greg Nichols, managing director sporting affairs for Betfair, confirmed the company’s goal of including the U.S. in a worldwide betting exchange, a platform viewed by some as controversial in that it allows bettors to directly wager with each other on a variety of outcomes – both winning and losing -- in sports, politics, and entertainment events such as the Oscars and reality television shows.

Exchange betting is also allowed after some events have started, including on horse racing, as was demonstrated by Betfair officials at the March meeting of the California Horse Racing Board.

Nichols also made the company’s plans known at the February meeting of the Oregon Racing Commission, which regulates several large domestic advance deposit wagering entities, including TVG, which Betfair acquired for $50 million in January.

“Ultimately, it is our ultimate objective that we would like to see the betting exchange as an opportunity worldwide,” Nichols told The Blood-Horse in a recent telephone interview from his United Kingdom office. “Not just in the U.S., where our initial foray into the U.S. is limited to pari-mutuel…we have been aggressive in trying to strike up relationships with various racing jurisdictions to bet pari-mutuel and betting exchange.”

Nichols said Betfair has no timetable for including the U.S. in its current betting exchange umbrella, which the company claims includes more than two million customers in multiple countries making an estimated six million transactions per day. U.S. residents are currently barred by the company from wagering with Betfair, which also offers a wide array of online casino gaming.

“It’s something that will evolve...obviously, it is predicated on an alignment of the stars for that to happen,” said Nichols, who includes on his industry resume stints as chief executive officer of the British Horseracing Board and general manager of Australia’s Racing Victoria.

Instead, Nichols said Betfair’s immediate U.S. focus is on TVG, and not seeking various regulatory approvals for a betting exchange.

“(An exchange is) not an immediate priority as is ensuring that TVG is running the way we would like it to, and generate interest in horse racing and returns to the industry in common with what we aspired to when we bought it,” he said. “That is going to take precedence.”

So what about TVG?

Nichols said he preferred specific questions about TVG be answered by Gerard Cunningham, a Betfair executive who has replaced David Nathanson as president of the network on an interim basis. But with Cunningham busy traveling, Nichols offered this brief overview of the company’s outlook for TVG:

“The immediate goal is to deliver on the investment into TVG – looking after the customer, providing a good service, hopefully expanding it so that it is a one-stop portal or television station for devotees of horse racing,” he said.

“People have been talking about a 24-hour international racing channel for about 20 years that I have been attending racing conferences,” Nichols said, “and we probably see ourselves on the forefront of delivering on that promise rather than showing up at the next conference and talking about it, which seems to be the predilection of many people in horse racing.”

Cunningham, whose working career has included executive positions with clothiers Lands' End and Gap, told the CHRB in March that Betfair purchased TVG to enter the U.S. market. “We’re excited about TVG; it’s a great cultural fit,” he said, according to CHRB transcripts. “The staff there at TVG loves horse racing…they are a technology innovator.”

Cunningham said Betfair is “very focused on getting a plan in place that helps TVG get more consumer-oriented, get more focused on industry relations, and get on a plan to growth.”

Nichols said TVG must build a better a relationship with TrackNet Media Group, the content consortium of Churchill Downs Inc. and Magna Entertainment Corp. Since the launch of TrackNet in March 2007, the two entities have regularly prevented the sharing of affiliated signals, such as TVG’s shutout for this year’s Churchill Downs spring meet and the Kentucky Derby Presented by Yum! Brands (gr. I) card.

The future of MEC’s part in TrackNet Media is clouded by the company’s bankruptcy reorganization, but Nichols said Betfair has had discussions with CDI officials about future relationships.

“We both know what is required to consummate a deal, and all I can say is that we are very keen for that to happen,” Nichols said. “Churchill Downs is an extremely well-regarded racing administrative company, and they have good, quality racing – it’s incumbent on us to try and strike a deal with them to enable us to televise and offer betting on the quality of product that Churchill Downs produces.

“I’d like to think we will have further conversations with Churchill Downs in the immediate future that will result in a far-more agreeable relationship between the two parties.”

TVG for years operated on a business model built on exclusive wagering and broadcast contracts with racetracks, but appears to be shifting toward exclusivity only in television broadcast rights, such as for the recently-completed Keeneland spring meet.

“What were circumstances that prevailed 10 years ago may not necessarily prevail now,” Nichols said. “And you have got to recognize the commercial reality, and adapt to that commercial reality. I think that (Keeneland) deal is indicative of our ability to surmise how things have changed, and to put into place a deal that enables us to offer exclusive television, and be rewarded for that, but also to compete with other ADWs and broaden the appeal of not only Keeneland, but premium U.S. horse racing.”

Answers to exchange critics

Nichols acknowledges there are those in the U.S. that are wary of exchange betting. But he said Betfair has put into place high levels of integrity technology and other stopgaps to ensure fair play.

“We’ve built a business where people now have the utmost faith in our product, and more importantly, confidence in the betting product,” he said. “You can certainly ask the question: ‘Does this impinge on the integrity of the sport?’ And then you should research it. What a lot of people do is ask the question and then immediately come to a conclusion.

"There are a lot of ignorant people that take a very quick appraisal of betting exchanges and come to a hasty conclusion.”

Nichols said the concept of a betting exchange also once had its share of vocal critics in the United Kingdom and Australia, among others, but many of those have become supporters.

“There were a number of naysayers amongst those people, but now they have sampled what we’ve got to offer, and our forensic ability to trace down events that might cause concern,” he said. “Some of our most strident antagonists are now some of our most strident advocates.”

And Nichols said, not jokingly, that “if some of the forensic ability we demonstrate in our business was applied to some of the unregulated financial markets in the last two years, then maybe we wouldn’t have gotten into the mess that the Western world is in.”

Nichols also pointed to the bottom line of Betfair’s annual financial reports, which show steady revenue growth since the company launched in 2000 -- approaching 240 million British pounds at the end of its last fiscal year April 30, 2008, or about $477 million at the time in U.S. dollars. Nichols told the Oregon Racing Commission Betfair never has posted an annual loss, and revenue could approach 300 million British pounds this year, according to ORC February meeting minutes.

“I can tell you this much: Our company was worth only Euros nine years ago, and now arguably, it could be worth three billion (Euros) nine years later,” Nichols said. “We didn’t build a business that is built on quicksand with dishonesty and deceit.”

Betfair, which is privately-owned, holds licenses in the United Kingdom, Australia, Austria, Germany, Italy, and Malta, and operates five global centers worldwide, according to its Web site. Nichols said Betfair views exchange betting as a viable supplement to pari-mutuel wagering.

“Because we don’t take a position, because it is people effectively betting into small pools of varying amounts, we see ourselves as a more contemporary form of pari-mutuel, a more modern form of pari-mutuel,” he said of Betfair, which makes commissions of 2% to 5% on exchange bets.

“This is a comment damning of me as well as anyone else involved in horse racing, and that is, innovation is not something that has been featured prominently in Thoroughbred horse racing,” Nichols said. “People like me who have a passion for horse racing are in dwindling numbers. Racing needs to take a more contemporary approach to the way it has promoted itself, to the way it presents itself as a betting option.”