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£5.20 (€8.30) • ISSUE:73 • OCTOBER 2010 •

Betfair finally unveils ‘brave’ flotation plans

The world’s biggest betting exchange is planning to enhance its global credibility even further with an IPO. Andrew McCarron reports.


etfair, the world’s biggest betting exchange, has finally unveiled plans for flotation after several years of speculation. The company intends to float at least 10 per cent of its shares on the London Stock Exchange in a plan which is expected to value the firm at £1.5bn and place it in the FTSE250.


It has been a long journey for Betfair to reach the stock exchange, despite the fact it is only 11 years old. A potential flotation in 2005 was delayed until after the World Cup in Germany in 2006 and since then the exchange has continu- ally been rumoured to be on the brink of an IPO. Chairman Ed Wray believes that being a listed firm will help with Betfair’s credibility abroad and make it easier to become licensed in new jurisidictions. He commented: “Today is an important landmark in Betfair’s story, which has been characterised by extraordinary innovation, success, growth and profitability since its launch ten years ago. Becoming a publicly listed company will provide Betfair with the height- ened profile and enhanced transparency that will help us cement our long-term relationships


Suitably, the timing of the IPO is seen as something of a gamble with recent flotations revealing a reluctance from investors to flock to new opportunities while the global economic situation is so uncertain. In fact, the Financial Times described the timing as ‘brave’. Betfair’s long term investment in infrastructure caused a dip in profits last year that has also had analysts jittery over the company’s valuation of £1.5bn. Nick Batram, leisure analyst at KBC Peel Hunt, told the press: “That looks a pretty toppy valuation compared to what the group delivered to April 2010. If they’re going for something like that, it would be extremely expensive.”

with customers, regulators and business part- ners around the world.”

Other reasons given for flotation are that it will provide Betfair with the flexibility to react to a developing and consolidating online betting and gaming industry; it will assist in the ‘incentivisa- tion and retention of key management and employ- ees’; and will provide ongoing flexibility and liquidity for existing shareholders.

The company also revealed details of its per- formance for the 12 months to 30 April, although the start of a £25m technology investment pro- gramme over three years saw ‘adjusted EBITDA’ for the entire group drop to £53.5m from £70.3m the previous year on turnover figures of £340.9m

(£301.2m in 2009). The company also continued investment in Betfair US to position the group favourably in the event of any liberalisation of the US online betting and gaming market. Betfair CEO David Yu said: “Betfair has con- tinued to grow despite a weak economy and a tough winter for UK horse racing, a testament to our customers’ appreciation of the unique quali- ties of the betting exchange. This tenth year of success demonstrates the strength of Betfair’s business and its underlying technology and has given us the confidence to invest in new oppor- tunities, which will underpin long-term sustain- able growth. The intention to list is the natural next step in the evolution of Betfair.”

BETFAIR AT A GLANCE Category Revenue

Adjusted EBITDA Active customers

Racing Result Change £306.0m Up 5%

£62.2m Down 17% 823,000 Up 26%

Core exchange figures for 12 months to 30 April 2010 LEVY

n issue for Betfair is that it has decided to float at a time when it is coming under enhanced pressure to defend its Levy contributions. In fact, the Levy Board’s consulta- tion into betting exchange con- tributions has just closed, which means that there is con- siderable uncertainty over whether the current structure will remain as it is or become less lucrative for Betfair and its customers.


It is a touchy subject and the British Horseracing Authority (BHA) hasn’t been slow to pump the pressure up. BHA chairman Paul Roy said: “There remain a number of fundamental ques- tions around the business of exchange betting. We are confi- dent that these will be resolved as part of the wider issue of the relationship between racing and betting. The new govern- ment has signalled its policy commitment to ensuring a value transfer from betting to racing as it sets policy to catch up with changes in technology and the way people bet.” Pushing the matter to near boiling point, he also posed questions over Betfair’s geo- graphic expansion: “Any inter- national racing jurisdiction considering permitting Betfair to operate in their territory has to give very careful considera- tion to the impact on their sport, and learn from the British expe- rience. In fact, we understand that they are offering far better terms to other racing authori- ties, and we call on Betfair to now engage with us construc- tively and end the uncertainty.”

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