Wednesday, October 28, 2009

Betfair & the Breeders Cup - Interview with Betfair's US Head, and UK Horseplayers

We recently contacted Betfair, and a couple of their customers about the concluded deal between the Breeders Cup and the UK betting giant. We wanted some perspective and details about the deal from them as well from their players.

Betfair's betting exchange has changed the horse race betting landscape since its inception in 2001. It is no secret to players (and the business of racing itself is learning this as we speak) that high takeout in horse racing has stifled its growth. In fact, since 1998 pari-mutuel betting in the US alone is off a staggering amount. If we simply held the rate of inflation, handles would be upwards of $20B this year. Instead they will be around $12B. Betfair, by offering low takeout and a unique way to play racing has revolutionized the betting product and players who were simply not interested in racing at large takeouts began to flock back to play the sport.

As most know, betfair players get better odds and can both "back" and "lay" horses. This creates a peer to peer market. Someone in Australia might have liked Curlin in last years BC at 3-1 and wanted to bet, but someone from Glasgow might have thought he was a great bet against at those odds. Presto, you have a market, with two happy punters with locked in bets at a price that they wanted. In the US and Canada we are at mercy of late odds drops and in some cases past posting (as documented by HANA Vice President Mike Maloney at the Arizona Symposium a couple of years ago). This is fixed odds betting. Bet a horse at 3-1, you get 3-1.

Recently in Australia, Betfair began offering their customers a chance at betting into the "tote" (i.e. the pools) for their racing. This gave them the chance to partake in some of the copious exotics pools offered in that country, as well as the exchange. So far this has been successful. The same thing this year will be happening in the Breeders Cup.

What are the betfair players saying about this? When scanning their chat board it seems it is being fairly well received. The big draw seems to be a chance to play into the exotic pools, and to also continue to look for tote bargains on overseas runners. In addition, one poster mentioned bridgejumper pools and now having the ability to bet against them if he so wishes.

Will this be a success; will it be good for players here across the pond? What does it mean for racing? We contacted Mark Davies, Managing Director of Betfair and he was gracious to pass us along to Gerard Cunningham, President of Betfair US. Mr. Cunnigham took some time to answer some questions.

First, we asked about the effect on his customers being able to directly play into the pools. With the pick 6 and other exotics being offered, we wondered if this would juice the pools even more. As players we all of course love bigger pools. Mr Cunnigham was non-committal on exact estimates, however he was confident his players would be partaking in some way.

"We wouldn’t want to make bold predictions, but it is certainly true that every market that we have got involved with [by adding a pari-mutuel option] has seen a boost to its numbers, and experience shows that our exchange product exists very well alongside the tote and contributes to a boost for both." he said.

"We believe that our customers will play directly into the pools because they understand that when they bet into pools they can still find value there and it also gives them the ability to play exotics like Pick 4 and Pick 6."

Some might say that competition on his platform, and offering even more choice might water down things (and hurt both the product and the punter). Often, like on Alex Waldrop's blog about exchanges recently, it was surmised if a betting exchange coexisted alongside pari-mutuel it may hurt the pools: "Or would cannibalization of existing pari-mutuel wagering -- coupled with razor thin commission revenues -- cause us to move backward as an industry by diminishing revenues for the purses, operating expenses, marketing initiatives and capital improvements needed for the industry to stay competitive?", wrote Mr. Waldrop.

Mr. Cunningham answered that competition and choice is a good thing. "It’s worth noting, in fact, that the money that goes to horseracing in Britain is almost twice as much, a decade on, from when Betfair launched, and while we obviously can’t claim the credit for all of that, there is no doubt that competition in wagering product has been a major contributor to it."

We asked Betfair about the promotion of the BC to its customers, and if they have plans to help grow the brand, in some instances to many who have never been able to bet it before.

"We have a three-year sponsorship deal in place with the Breeders’ Cup, so it is very important to us to help the Breeders’ Cup raise their profile around the world. As more international horses participate in the Breeders’ Cup, the overseas interest in the event grows. We’ll be heavily promoting the Breeders’ Cup to our international players to make them aware of the ability to not only play into the pools, but also watch live video streams of the races on the Betfair site."

At HANA we have several followers from the UK. One, Scott Ferguson is a die-hard bettor who used to work for betfair at one time, and is now an influential blogger. He filled us in on his take, and gave us a brief education on what overseas punters will see come BC day, now being able to bet directly into the pools.

"For UK and Austrailian users, it's in the standard format we are used to, and very similar to the other betfair tote products."

He believes that now that it is offered, for him at least, it gets him more interested in North American racing.

"I'm looking forward to it, the most important part for me is to be able to see pool sizes as well so I know that it's worth the trouble of doing the form for a superfecta at Woodbine or Pick 6 at Keeneland."

He qualifies the comment with the following, showing that our game needs to be explained better to UK punters.

"I'm not the common player though. UK punters can be very parochial, but there are more people warming to the idea of global racing, or US racing in the evening because the time suits their lifestyle."

Professional horseplayer James Erickson agrees that adding access to the tote for the Breeders Cup should help.

"I often can not get a match on some races at Betfair, so I have opened another account where I can play into the pools, and I use it. I can honestly say that without access to betfair I would bet nothing on horse racing into the pools; I would not play it at all because of the wickedly high takeouts. I think others will follow, now that they have pool access."

HANA believes that offering us more choice as bettors only helps the game. Wager variety, for example, was one of the key metrics on our HANA track ratings that were released this past spring. Scott, as a UK player, echoes our feelings and adds that racing is generational and we need things like this to keep people interested in our game.

"Totes are great - but they are just part of the whole wagering pie. There must be a range of options to appeal to all different types of consumers, not just the person who has racing in his blood - that generation is fast fading away....."

During the announcement of the Betfair/BC deal we followed several articles and the comments that they spawned. Many of them had to do with money - will betfair give back to racing? Will lower takeouts destroy racing? A good deal of those comments said yes. In fact, one pointed comment on Alex Waldrop's blog really let them have it.

"But then Betfair have a storied history of paying nothing to the person putting on the show and when they finally do pay they tell you what they want to pay. .....They will dictate to the industry at large what they will pay for the product and they will do it all under the guise of bringing in “new revenue” to the industry. The truth will be that this is a complete fallacy."

It was similar by some posters at the Paulick Report. One such poster wants racing to be controlled, with tracks and purses getting most of the money, and not letting businesses like Betfair or other ADW's in as resellers to their customers at low takeouts.

"I guess this will be the beginning of the end. Who would have thought that racing would find an even quicker way to the end by entering into agreements with the only organization guaranteed to reduce the amount of money returned to the industry. We get 10% of their profit? As in an effective 1% of the amount wagered?
I will only say it one more time. Until the industry controls the takeout split in a rational, fair manner, as in the tracks and horsemen getting the lions share of the takeout and not the ADWs, horse racing is on the fast track to oblivion."

We purposely asked Mr. Cunningham to respond to many of those criticisms, and we will share them with you in their entirety.

"There are obviously some sections of the racing industry that have yet to be convinced by Betfair, despite the fact that the empirical evidence worldwide shows that we are a boost for the sport. We’ve had some well-documented run-ins over the years, but we have found that all those in the racing industry who have been kind enough to take the time to look at and discuss our model in depth see the benefits that arise from it."

For the people who he believes have not taken the time to look at their past, he thinks that dialogue is important.

"There are some who continue to believe things about us that sound plausible but that closer inspection shows are simply not true. We are always happy to try to explain the facts behind the fiction, and it’s been great that many racing executives around the world have become more receptive to Betfair once they have come to see that we’re operating with the sport’s best interests in mind, so that we can now count many friends around the world. Through race sponsorships, revenue sharing and charitable efforts, Betfair has consistently demonstrated its desire to improve racing by giving back to the sport. In markets like the UK and Ireland we even voluntarily make payments above the levy [what is required they pay by racing] to support racing."

He thinks, as well, that the acquisition of TVG will help them as a business, as well as with education.

"The acquisition of TVG was extremely important to get a foot into the U.S. market and demonstrate our core values with the North American racing industry. The owners, horsemen and tracks have been very receptive and we’ve been able to show our commitment to the North American racing industry through efforts we’ve already made in the market."

Race sponsorships have been a part of their business plan overseas and it looks like that will continue in North America.

"Whether through race sponsorships like the Claiming Crown, Breeders’ Cup or Hollywood Gold Cup; reaching new wagering agreements with a number of North American tracks; or through the latest efforts to offer our international bettors the ability to bet into pari-mutuel pools as well as sharing revenue from the exchange with tracks; it’s clear that Betfair is going above and beyond in its efforts to give back to racing."

What will the Breeders Cup this year bring? Will it be any different? Time will tell, but in terms of offering a new source of revenue and offering world wide bettors more choice for the Breeders Cup it looks like it is a step in the right direction.

As for opinions, everyone has one. We ask players to do their due diligence and let us know what they think. The future might be closer than any of us realize.

If you'd like to join us at HANA please do here. It's free and you can stand up and be counted. Several HANA members including Treasurer Theresia Muller and Advisory Board member Cary Fotias will be at this years Breeders Cup. Want to say hi? Please send us an email to let us know.


Anonymous said...

This is why we need HANA. I have NOT SEEN EVEN ONE article about this talking about horseplayers, what the future brings, and what low takeout means. Every article I read about this deal is just the industry is just wondering if they will have $100 less for a purse ....... and who cares about tomorrow and their customers having choice.

This is good stuff.


Richard_R said...

The mention of Betfair among U.S. racing industry officials incites a new level of paranoia as they relate the prospects of a streamlined, low-overhead operator bringing to the arena a betting mechanism that will give players what they want: A gambling proposition that will not have its payoff amount modified once the wager is agreed to and at a transaction cost that is reasonable and competitive in the marketplace.

I expect the combined efforts of the current industry placeholders will insure that no such betting mechanism will be put in place over the next ten years. By then the behavior of the current industry placeholders will have reduced the level of business in the industry by another 30-40% from today’s levels. By then there will be more four-horse fields on daily race cards than there will be eight-horse fields. The idea that the U. S. racing product, save for a few specialized “big” events, will appeal to people from other countries, where the majority of field sizes exceed twelve horses, will be revealed for what it is: Absurd.

It’s hard to get excited about some new approach to betting on the game that simply isn’t going to happen. Not because the approach doesn’t appeal to the game’s customers, but because the approach doesn’t fit within the framework of the game as decided by the aforementioned placeholders. For the ten-year countdown let’s make 2009 year one. That leaves nine years to go.

PeterB said...

Betfair has offered lower takeouts (prices) and more choice.

If you have a McDonald's on a corner, then add a Burger King, Wendy's and a KFC the overall fast food volume goes up. I think we figured that out about 200 years ago.

In racing this is seen as a threat, or something evil.

Do we want to grow racing with more people and more gross handles, or do we want to take 22% of a smaller number until there is no number left?

~ PB

Anonymous said...

Racing (and this is illstrated in many comments on Waldrop and Paulick) seems to think that lower margins mean less money and higher mean more.

For a company faced with two options.

Option 1 - $200B in sales at a 2% margin

Option 2 - $20B in sales at a 20% margin.

Poker, Betfair and any pro-growth firm would choose 1. Racing should too. If $200B is bet instead of $20b that means there are actually people in the seats and they are watching it on TV rather than ignoring it.

Inevitably, the lower handle option wins out. What makes it even worse is that racing has tried to take more and more of a margin (see Fred Pope), thinking handle will stay even. Newsflash - it has not and will not.

Racing is its own worst enemy. They raise prices, then complain that handle goes down. They make it harder to be a fan and then complain when there are fewer fans at the track.

We need a leadership change and we need it fast.


Anonymous said...

TVG/Betfair has made one curious choice so far this year. I'm stunned that a reputed MLB drug cheat who is being sued by a major breeding operation has been chosen to be a face of many of TVG's major telecasts.