The success of the company Betfair: “Place your bets on a startup, gentlemen”
Betfair is a young UK-based company operating in the online betting market. The success of the startup Betfair.com is partly due to the fact that the company has achieved such results without accepting bids from US residents.
Betfair finished the last round of financing in April 2006, the company's valuation slightly exceeded $ 3 billion! The last round of financing can be considered as a partial buyback, since Softbank acquired a 23% stake in the company for ~ $ 600 million dollars.
This money is partially distributed among investors - participants in the early stages of financing, founders, and employees of the company. Such a high valuation of the company, due to the achieved financial performance.
Financial performance over the past 4 years: the company's revenue grew from ~ 10 million dollars in 2002 to ~ 280 million dollars in 2006. Betfair achieved ~ 70 million dollars of operating profit in 2006, with a significant percentage (24%) of operating arrived.
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Key Success Factors
Initially, the product was developed for a niche of experienced players, and not for wide layers. At the dawn of the online betting market, there were two main players: Betfair and Flutter. Flutter can be considered the first player in this market, they attracted ~ $ 44 million, venture financing for two rounds, one before the launch of the product, and one immediately after the launch - in May 2000.
Unlike Flutter, a Betfair startup could not attract venture financing, and instead raised $ 1-2 million from business angels in the “seed” stage. Although both companies were positioned on the same sports betting market, each chose its own market approach, different from the other.
As it turned out later, the Betfair approach turned out to be more accurate for several reasons.
Flutter was originally internally similar to the online community of players, where users could bet against the bets of their friends and other members of the community. The concept is the same as if users were just betting - betting each other by email.
Betfair, in turn, built something similar to a stock exchange. The concept of Betfair is that the bettor does not worry about who will accept it. The concept of the community, in this case, does not add enough value to the player, but the concept of liquidity in the betting market adds value and is paramount. This enabled users to trade positions, for example, on horses participating in races, as well as if it was trading on a stock exchange.
The product created by Betfair has brought a profound innovation to the English sports betting market. And also, created a new category of players - using the dynamics of trading in making decisions that do not have an accurate idea of the outcomes of sporting events.
A few months after launch in May 2000, Flutter’s management realized that Betfair’s market approach was the only correct one and changed its product to fit it.
Although the positioning of the company Betfair was designed for a narrow niche of professional players, but fortunately, this niche grew at an enormous pace. After approximately one year of competition with Betfair, the management of Flutter decided that it was wiser to merge with a competitor. It happened in December 2001, and almost coincided with another round of financing by Flutter, in the amount of more than $ 20 million dollars, which Flutter could already control.
Huge cost advantage over traditional betting methods.
Although at the moment, Betfair operates in many betting markets (sports, and other events), the main betting is made at the races, the market - which Betfair has chosen as the initial one. The betting system at Betfair had an innate advantage over the traditional bookmaker model in England. Bookmakers accept bets from the public, balancing the relationship between outcomes so that any outcome of the races will bring income to the bookmaker. Since the bookmaker assumes a certain risk associated with the outcome of the race, this cost is based on the ratios offered to the public. Since Betfair does not function as a traditional bookmaker, it has no risks associated with the outcome of the races.
Therefore, the ratios of the outcomes that the public sees at BetFair are most similar to the real market situation, and in most cases higher ratios are offered than bookmakers. A player can find a “4-1” bet on a horse at a regular bookmaker, and find a “5-1” for the same horse on BetFair. In addition to reducing risk, Betfair also enjoys the preferential taxation provided in England for the online gaming industry, which does not require you to pay a tax on gross profit, while ordinary bookmakers (offline) pay this tax. Betfair's strong competitive advantage over traditional bookmakers in the area of costs ultimately reflects on higher odds rates - which is a significant factor in attracting players.
Measures taken to create a highly liquid market
Betfair realized in time that the key to creating a successful betting market lies in increasing the likelihood that any stated bid would be accepted. In essence, Betfair needed to provide a platform for balancing supply and demand, as any exchange does. Like any marketplace, Betfair is faced with a chicken and egg problem.
They solved this problem using three strategies: limiting the number of sports events on which rates were taken, to ensure sufficient “liquidity” of the event, building a business model that encourages volume rates, and the third - marketing oriented to large players.
The model used in Betfair is charging a fee from net profit, not gross profit. This led to the emergence of a new type of players - people looking for arbitrage opportunities - that is, these players moved large amounts of bets to get very small profits, not paying attention to the outcomes of the races, thus providing liquidity to the market.
In conclusion, Betfair has provided many incentives and discounts for serious players - encouraging the movement of large amounts of money.
Output analysis
Betfair's valuation of $ 3.2 billion is based on multipliers: 11 times sales (11x) and 47 times (47x) from operating profit. Unlike most gaming companies, the Betfair score resembles the valiant Google, eBay, and Yahoo companies. There is an explanation for this: first, the main revenues of Betfair come from the UK (UK). A big financial boost will happen if Betfair successfully masters new geographic markets: Asia, US, and Australia. Secondly, the high liquidity of this marketplace for players is a serious entry barrier for competitors. Unlike online poker sites or casinos, which have a very small entry threshold, creating a “critical mass” for effective betting is more difficult and expensive. An analogy with the eBay auction comes to mind.
The financing history of Betfair is interesting in itself. As mentioned earlier, Flutter was the first company to attract money, which “hit” the founders of Betfair: Andrew Black and Ed Wray. As soon as Flutter raised $ 44 million in venture capital, the founders of Betfair found that other VCs were unwilling to invest in company No. 2, which is competing with Flutter. Therefore, Betfair raised ~ $ 2 million in financing from business angels, as well as money from friends and families. Despite significantly less capital, the Betfair team created the right product and got users faster than Flutter.
The two companies merged one and a half years after the start of operations, merging user bases and adding ~ $ 20 million of unused capital to Flutter in Betfair. Since Betfair successfully started with limited capital attracted, both founders of Betfair remained owners of significant stakes (10-15% at the moment). This story shows how a non-venture Internet Start-UP can outperform a better-funded VC startup in the same market. Flutter investors and founders also received a good return on investment. In a press release issued by the British office of Benchmark Capital, it is mentioned that Benchmark remains the owner of ~ 7% in BetFair, despite the partial sale of its stake after the deal with Softbank. This means that Benchmark owns a package of $ 200 million dollars, initially investing less than $ 25 million (in Flutter). The press release also indicates that Betfair’s original investors (angels) received a return on investment with a 130x multiplier on their initial investment. Thus, 130 times increasing the initial contribution.
Startup strategy and marketing
In general, the success of Betfair lies in the fact that they were positioned in a narrow niche represented by players at races and sporting events. Access to players through traditional media was relatively simple, as they tend to concentrate in some places. Betfair was launched with offline PR promotion, which brought them greater fame. In Betfair, more than once, there was a "funeral service for bookmakers" through Russel Square on the day of the races of three-year-old mares in Epsom, the main races in the UK.
The press played a huge role in the success of Betfair during the first years of the company's life.
Betfair has done a great job in partnership, sponsorship, promotions aimed at players. First, they became partners of the Racing Post newspaper, which publishes news on horse racing.
Racing Post is the equivalent of the Daily Racing Form. Betfair created a co-branded version of the site (in fact, just an API to the Betfair site), which allowed Racing Post subscribers to bid via the newspaper's website. This partnership brought revenue to both parties. Horse racing and racetracks were also sponsored. Betfair used guerrilla marketing tactics, offering bookmakers to hedge their bets.
To launch a product on the sports betting market, Betfair sponsored one of the English Premier League football teams.
The merger with Flutter also helped advance Betfair by combining user bases.
Interesting fact, Flutter offered new users 10 pounds for free so that they could make a bet, and although it attracted users, the result was different, smart and experienced players earned newcomers, which obviously didn’t provide the best experience for the latter.
Betfair finished the last round of financing in April 2006, the company's valuation slightly exceeded $ 3 billion! The last round of financing can be considered as a partial buyback, since Softbank acquired a 23% stake in the company for ~ $ 600 million dollars.
This money is partially distributed among investors - participants in the early stages of financing, founders, and employees of the company. Such a high valuation of the company, due to the achieved financial performance.
Financial performance over the past 4 years: the company's revenue grew from ~ 10 million dollars in 2002 to ~ 280 million dollars in 2006. Betfair achieved ~ 70 million dollars of operating profit in 2006, with a significant percentage (24%) of operating arrived.
My comment: the story of Softbank itself is interesting, its head is a unique personality and I was interested to learn about its new investments. Let me remind you, he previously invested in Yahoo and dozens of other Internet startups.
')
Key Success Factors
Initially, the product was developed for a niche of experienced players, and not for wide layers. At the dawn of the online betting market, there were two main players: Betfair and Flutter. Flutter can be considered the first player in this market, they attracted ~ $ 44 million, venture financing for two rounds, one before the launch of the product, and one immediately after the launch - in May 2000.
Unlike Flutter, a Betfair startup could not attract venture financing, and instead raised $ 1-2 million from business angels in the “seed” stage. Although both companies were positioned on the same sports betting market, each chose its own market approach, different from the other.
As it turned out later, the Betfair approach turned out to be more accurate for several reasons.
Flutter was originally internally similar to the online community of players, where users could bet against the bets of their friends and other members of the community. The concept is the same as if users were just betting - betting each other by email.
Betfair, in turn, built something similar to a stock exchange. The concept of Betfair is that the bettor does not worry about who will accept it. The concept of the community, in this case, does not add enough value to the player, but the concept of liquidity in the betting market adds value and is paramount. This enabled users to trade positions, for example, on horses participating in races, as well as if it was trading on a stock exchange.
The product created by Betfair has brought a profound innovation to the English sports betting market. And also, created a new category of players - using the dynamics of trading in making decisions that do not have an accurate idea of the outcomes of sporting events.
A few months after launch in May 2000, Flutter’s management realized that Betfair’s market approach was the only correct one and changed its product to fit it.
Although the positioning of the company Betfair was designed for a narrow niche of professional players, but fortunately, this niche grew at an enormous pace. After approximately one year of competition with Betfair, the management of Flutter decided that it was wiser to merge with a competitor. It happened in December 2001, and almost coincided with another round of financing by Flutter, in the amount of more than $ 20 million dollars, which Flutter could already control.
Huge cost advantage over traditional betting methods.
Although at the moment, Betfair operates in many betting markets (sports, and other events), the main betting is made at the races, the market - which Betfair has chosen as the initial one. The betting system at Betfair had an innate advantage over the traditional bookmaker model in England. Bookmakers accept bets from the public, balancing the relationship between outcomes so that any outcome of the races will bring income to the bookmaker. Since the bookmaker assumes a certain risk associated with the outcome of the race, this cost is based on the ratios offered to the public. Since Betfair does not function as a traditional bookmaker, it has no risks associated with the outcome of the races.
Therefore, the ratios of the outcomes that the public sees at BetFair are most similar to the real market situation, and in most cases higher ratios are offered than bookmakers. A player can find a “4-1” bet on a horse at a regular bookmaker, and find a “5-1” for the same horse on BetFair. In addition to reducing risk, Betfair also enjoys the preferential taxation provided in England for the online gaming industry, which does not require you to pay a tax on gross profit, while ordinary bookmakers (offline) pay this tax. Betfair's strong competitive advantage over traditional bookmakers in the area of costs ultimately reflects on higher odds rates - which is a significant factor in attracting players.
Measures taken to create a highly liquid market
Betfair realized in time that the key to creating a successful betting market lies in increasing the likelihood that any stated bid would be accepted. In essence, Betfair needed to provide a platform for balancing supply and demand, as any exchange does. Like any marketplace, Betfair is faced with a chicken and egg problem.
They solved this problem using three strategies: limiting the number of sports events on which rates were taken, to ensure sufficient “liquidity” of the event, building a business model that encourages volume rates, and the third - marketing oriented to large players.
The model used in Betfair is charging a fee from net profit, not gross profit. This led to the emergence of a new type of players - people looking for arbitrage opportunities - that is, these players moved large amounts of bets to get very small profits, not paying attention to the outcomes of the races, thus providing liquidity to the market.
In conclusion, Betfair has provided many incentives and discounts for serious players - encouraging the movement of large amounts of money.
Output analysis
Betfair's valuation of $ 3.2 billion is based on multipliers: 11 times sales (11x) and 47 times (47x) from operating profit. Unlike most gaming companies, the Betfair score resembles the valiant Google, eBay, and Yahoo companies. There is an explanation for this: first, the main revenues of Betfair come from the UK (UK). A big financial boost will happen if Betfair successfully masters new geographic markets: Asia, US, and Australia. Secondly, the high liquidity of this marketplace for players is a serious entry barrier for competitors. Unlike online poker sites or casinos, which have a very small entry threshold, creating a “critical mass” for effective betting is more difficult and expensive. An analogy with the eBay auction comes to mind.
The financing history of Betfair is interesting in itself. As mentioned earlier, Flutter was the first company to attract money, which “hit” the founders of Betfair: Andrew Black and Ed Wray. As soon as Flutter raised $ 44 million in venture capital, the founders of Betfair found that other VCs were unwilling to invest in company No. 2, which is competing with Flutter. Therefore, Betfair raised ~ $ 2 million in financing from business angels, as well as money from friends and families. Despite significantly less capital, the Betfair team created the right product and got users faster than Flutter.
The two companies merged one and a half years after the start of operations, merging user bases and adding ~ $ 20 million of unused capital to Flutter in Betfair. Since Betfair successfully started with limited capital attracted, both founders of Betfair remained owners of significant stakes (10-15% at the moment). This story shows how a non-venture Internet Start-UP can outperform a better-funded VC startup in the same market. Flutter investors and founders also received a good return on investment. In a press release issued by the British office of Benchmark Capital, it is mentioned that Benchmark remains the owner of ~ 7% in BetFair, despite the partial sale of its stake after the deal with Softbank. This means that Benchmark owns a package of $ 200 million dollars, initially investing less than $ 25 million (in Flutter). The press release also indicates that Betfair’s original investors (angels) received a return on investment with a 130x multiplier on their initial investment. Thus, 130 times increasing the initial contribution.
Startup strategy and marketing
In general, the success of Betfair lies in the fact that they were positioned in a narrow niche represented by players at races and sporting events. Access to players through traditional media was relatively simple, as they tend to concentrate in some places. Betfair was launched with offline PR promotion, which brought them greater fame. In Betfair, more than once, there was a "funeral service for bookmakers" through Russel Square on the day of the races of three-year-old mares in Epsom, the main races in the UK.
The press played a huge role in the success of Betfair during the first years of the company's life.
Betfair has done a great job in partnership, sponsorship, promotions aimed at players. First, they became partners of the Racing Post newspaper, which publishes news on horse racing.
Racing Post is the equivalent of the Daily Racing Form. Betfair created a co-branded version of the site (in fact, just an API to the Betfair site), which allowed Racing Post subscribers to bid via the newspaper's website. This partnership brought revenue to both parties. Horse racing and racetracks were also sponsored. Betfair used guerrilla marketing tactics, offering bookmakers to hedge their bets.
To launch a product on the sports betting market, Betfair sponsored one of the English Premier League football teams.
The merger with Flutter also helped advance Betfair by combining user bases.
Interesting fact, Flutter offered new users 10 pounds for free so that they could make a bet, and although it attracted users, the result was different, smart and experienced players earned newcomers, which obviously didn’t provide the best experience for the latter.
Source: https://habr.com/ru/post/30917/
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