fb

Was it a good bet or not? 10 years and £1.4 billion later and the answer seems to be…

Although people have been gambling for a long time, the profile of the betting industry has changed dramatically over recent years.

The bookmakers that were seen on many a high street seem to be gradually disappearing.

People are still gambling though but the delivery method of the industry is switching to internet based gambling rather than placing bets at a physical bookmakers.

Ten years ago former professional gambler Andrew Black and former JP Morgan trader Edward Wray started up a betting business that addressed matters in a new novel way.

For years the typical approach to gambling had been where a bookmaker set the odds and it was up to the individual gambler whether or not he or she accepted these odds and placed the bet.

Betfair pioneered the concept of person to person betting whereby individuals bet against each other rather than the bookmaker. Betfair provide the platform for the betting and take a commission on each transaction.

A gambler will say that they want to bet on a certain event happening (or not happening) and if another gambler wants to accept the bet then the transaction goes ahead. Betfair provide the mechanism for this to happen.

This is known as a betting exchange and is a great example of where first mover advantage really counts.

In order for the business model to work there has to be a critical mass of gamblers that are willing to offer and accept bets. Without this critical mass the business simply would not work.

Another example of where first mover advantage has been critical to business success is in online auctions. After all, who are the main competitors to eBay?

Back to Betfair though and it certainly is a good business model. Risk for example, is nicely reduced as the company is not standing to lose on the bet but instead takes a nice commission on each transaction.

So how well has it done over the last 10 years?

The answer to this can be found last Friday when 15% of the company was floated on the London stock market and the company was valued at £1.4bn.

Betfair’s advisors were some of the biggest names in the business and included Goldman Sachs, Morgan Stanley and Barclays Capital to name a few.

Amongst other things their job was to identify the price range of the proposed offer. Initial indications were that it would be between £11 to £14. The final initial public offering (IPO) price was set at £13.

With some of the top investment bankers involved and Betfair being in the gambling industry (which is not necessarily renowned for being generous to gamblers) it was something of a surprise to some people to see the share price rise by nearly 20% in the first day of initial trading after the IPO. After all, this could imply that the IPO was undervalued if there was such an initial jump in price.

I wonder what odds you would have got from Betfair that the IPO share price would rise by 20% on the first day of trading?

Share this entry

Recent articles

View All Articles
PwC Australia and the “Rule of Three”
Sep 21, 2023
Title
PwC Australia and the “Rule of Three”
Excerpt

As the future business leaders of tomorrow, it’s crucial for students to stay updated on key developments in […]

CIMA VS ACCA: which is best for you? (and what about CMA?)
Sep 15, 2023
Title
CIMA VS ACCA: which is best for you? (and what about CMA?)
Excerpt

When it comes to a career in accounting or finance, deciding which professional qualification to pursue can be […]

How’s your lipstick?
Sep 12, 2023
Title
How’s your lipstick?
Excerpt

In the world of business, understanding consumer behavior is crucial. The “lipstick effect” offers a fascinating glimpse into […]

How an online Certified Management Accountant (CMA) course can advance your career.
Sep 05, 2023
Title
How an online Certified Management Accountant (CMA) course can advance your career.
Excerpt

In today’s fast-paced and competitive business world, professionals are constantly looking for ways to differentiate themselves and advance […]

Waiting for your ACCA exam results…
Sep 01, 2023
Title
Waiting for your ACCA exam results…
Excerpt

Waiting for the results of your ACCA exams can be an incredibly stressful time. The uncertainty, the anticipation, […]

APM vs AFM ACCA: which path suits your career goals?
Aug 30, 2023
Title
APM vs AFM ACCA: which path suits your career goals?
Excerpt

“Which is easier – Advanced Performance Management (APM) or Advanced Financial Management (AFM)?”

ROI: how enrolling employees on ACCA courses will yield long-term business success
Aug 18, 2023
Title
ROI: how enrolling employees on ACCA courses will yield long-term business success
Excerpt

The Association of Chartered Certified Accountants (ACCA) is one of the most respected global accounting qualifications. Organisations across […]

Would Michael Porter sleep in this bed?
Aug 14, 2023
Title
Would Michael Porter sleep in this bed?
Excerpt

Management theories play a significant role in guiding corporate strategy. And when it comes to strategy and management […]