Tuesday, September 26, 2017

Andrew Black and the road to Exchange Betting

One of Britain’s most profitable entrepreneurs, operating in a field that’s remained largely unchanged for several years, Andrew Black’s launch of Betfair in 2000 is a classic example of that inventive spirit that helps a small business take on the big boys and hit one for six!

Black did not come from a gambling background; his grandfather was in fact an MP who made efforts to suppress and outlaw gambling altogether. But such an attitude did not pass down to his grandson who dropped out of his second year at Exeter university due to missing so many classes. According to Andrew himself, he was at the bookies.

After a stretch as a full-time gambler, during which he remained largely solvent, Black had a brilliant idea for a site that would revolutionise how gamblers could place bets
. The only problem was that his plan involved a lot of online gambling and it was coming fresh off the Dotcom crash. It wasn’t easy to secure funding for his business in such a climate, venture capitalists wanted nothing to do with it and it was up to Black and his business partner Edward Wray to find the funds themselves from friends and family. Eventually they got the £1 million they needed together, and the two were off!

Betfair’s focus wasn’t on the traditional method bookmakers used and was instead on
exchange betting. Essentially, you took a sport like Football or Cricket, and instead of betting on a result against a bookmaker, the exchange meant you were betting against your fellow gamblers, so one would back and the other lay, which allowed the site to offer better odds. For example, if you’re betting on the ashes you could either back Australia to win or lay them to lose with the money you’d get from the result reflected in the odds. Other sites had a similar idea and launched around the same time but, crucially, Black and Wray included an element that dramatically enhanced their site. Rather than one gambler placing a wager and another accepting it, Betfair worked more like a financial exchange which increased the scope significantly but, most crucially, meant rather than one large bet being laid by one person, it could be met by multiple other gamblers and produced an exchange which was more like the Tote of horse-racing. After the acquisition of Flutter in 2001, Betfair now holds an impressive 90% market share due to its more flexible model.

As you’d expect, this approach did not sit well with some established bookmakers who were less than appreciative of their new rival. It didn’t take long for them to start making comments about how their business model was “a parasite on racing”. In a 2003 interview, Black responded simply by saying: “The bookmakers have to understand they don't own racing. They have got used to the fact that it has almost become their product because they have been the only people exploiting it. It so happens we now exploit it more efficiently”. There were also claims that the model could encourage corruption due to the anonymity of the bets but this is widely rebuked, not least because, if anything, the online model makes it harder to bet anonymously. It wasn’t long until bookmakers themselves branched into the sporting exchange market with Ladbrokes now owning Betdaq.

Nowadays, Andrew Black is worth approximately £200 million and has become something of an angel investor in UK based technology businesses. 

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