Betfair flotation may give potential shareholders a sinking feeling


Betfair flotation
Betfair have always been an innovative company but the decision to float the firm may not prove as big a winner as was once envisaged. Photograph: Dan Chung for the Guardian

The men who founded Betfair are gamblers at heart, and reports through the weekend that they intend to press ahead with a float recommend that their appetite for a punt has not came down. An oft-quoted approximate of the exchange's value is £1.5bn. These are undecided times, but if it raises much less than that, it will be seen as a gamble gone astray.

It is entirely probable that Andrew Black and Ed Wray, who own 25% of the business, are so confident about Betfair's long-term prospects that the instant possibility of a double-dip recession is of little concern. Alternatively, it is conceivable that Betfair, in their viewpoint, is now as rewarding as it is probable to get, and so it is time to money in without delay.

A little through two years ago, a personal view would have been that the former explanation was much the more plausible. Now, i am not so sure.

This is not to recommend that Betfair has been whatever but an extraordinary success since it was founded ten years ago, or that there have not been countless punters – this one included – whose love of racing and betting has been reborn due to the liberty and flexibility of punting on an exchange. a sensation of community too was a potent bond, in the early years at least. Betfair inspired intense brand loyalty among its users, who then acted as evangelists to recruit more. For years, the advantages and the fun of punting the Betfair way were so overwhelming that no one thought much about the potential problems. The day when doubts started to creep in was 8 September 2008, when the exchange introduced a "premium charge" for constant winners.

The premium fee was an understandable admission that a tiny percentage of Betfair's users were sucking out a grossly disproportionate amount of the cash. A flat-rate tax, even though, possibly just produced them suck a little harder, albeit with Betfair trousering a couple of of the proceeds. It didn't address the fox-versus-chicken trouble that may – repeat, may – come to be seen as exchange betting's radical flaw.

Betfair, in this exploration, is a chicken house inhabited by several mlln. birds and a handful of foxes. a couple of chickens are better than others at avoiding their inevitable fate – a couple of indeed easily offer themselves up for slaughter – but regardless of how much you run or hide, Mr Fox will get round to you in any case. Then, in the future, there are no more chickens, and the foxes eat each other, or starve.

Some punters easily don't care. Like Foghorn Leghorn after an come across with a lawnmower, they retrieve their tail-feathers, puff out their chest and return to the unequal struggle. And obviously, there will systematically be a couple of new chickens that enjoy the warmth and free food, and believe – unwisely – that the house is so trmendous and the foxes so few that their chances are pretty good.

As a result, Betfair will persevere to be a radical player in the betting market for the foreseeable future, assuming there is no serious competition at any rate. But shareholders demand more than that. Shareholders, specifically in a 10-year-old business, demand year-on-year growth, and it is getting more hard to see where that will come from. Betfair might crack America, but then again, it might not.

Meanwhile, most punters who play Betfair's UK racing markets on a every day basis will agree that liquidity has flattened out – and maybe even started to decline - through the last 12 months. Football business is yet showing powerful growth, but if it goes after the apparent routine of racing, for how much longer?

Betfair prevails the most essential innovation in betting for the last half-century, and its float could well be a roaring success. But it is no more quite the no-brainer investment that it appeared in August 2008.
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