Betfair loses legal case in Australia

19.11.2010.

Betfair loses legal case in Australia
Under the ruling, Betfair must pay fees imposed by the two Australian horse racing bodie. Photograph: Anna Gowthorpe/PA

Betfair, the currently floated online betting exchange, suffered its first setback as a public firm today, when it lost the newest stage of an Australian legal case which could have increased revenues in the country by 10%.

The long-running legal dispute has seen the British firm challenge two Australian racing bodies through their choice to execute a 1.5 %fee on bets taken on all New South Wales thoroughbred and harness races – a levy that charges Betfair Australia about £2m a year.

Today, a Sydney court again ruled for Racing New South Wales and Harness Racing New South Wales contrary the betting exchange, which now mentions it will "review its options this includes a potential appeal to the high court of Australia".

Betting industry experts told the news undermines the assumption that Betfair's business model is simply replicated in new markets. One told: "Betfair only works when the firm is taxed on gross profits in preference to revenues and where there is a notably sophisticated sports betting market. for the time being, that only applies to the UK and Ireland."

The risks of the legal challenge were well flagged in Betfair's flotation prospectus, which highlighted: "The annual turnover charge claimed by New South Wales racing bodies would be the equivalent of more than half of gross revenue produced from races held in New South Wales, which accounted for more or less one-fifth of Betfair Australia's gross income (2009-2010: £19.6m; 2008-2009: £16.9m)."

Betfair Australia – which is a 50-50 joint venture with James Packer's Crown empire – stays loss-making, but investors had been hoping the business could become remunerative sooner than expected with a successful legal final result.

A note issued last week by brokers Panmure Gordon explored the growth potential of the overall group in which analyst Simon French wrote: "At this stage, it is complicated to accurately predict the growth trajectory of either Betfair US or LMAX [the financial exchange]. anyhow, we believe both have high growth potential and could potentially deliver significant value to Betfair shareholders through the medium phrase. likewise, we believe Betfair Australia could move into profitability in 2011 depending on the success of its legal challenge in New South Wales."

A spokeswoman told Betfair was earlier paying the New South Wales costs and denied the choice demonstrated the drawbacks it might face in increasing overseas. She added: "This is a singular case in Australia. It is a long road in terms of a regulatory opinion for new markets and there will be bumps along that road."

Last year, Betfair revenues grew by 13% to £340.9m, even though stripping out foreign attainments and interest earned on purchaser money, the growth figure drops to 5%, while pre-tax profits slumped by 63% to £17.8m. The group is projected to come to a pre-tax profit of about £33m this year.

Shares in the business, which floated at £13 last month, lost 11p to close by at £14.48 today.
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