A new beginning for Betfair

18

Feb

13

As we move into the New Year, I thought I’d pick up a subject that I usually do my best to avoid: my old company Betfair.

With more than two years now having passed since the company fell off its lofty perch with a share price crash from the heady heights of £15.50 to below £8 – a level at which it has remained to this day – it seems a sensible moment to ask: whither the company in 2013?

In the early days we used to say that the next six months were always the most crucial in Betfair’s history. It is funny to think that 13 years on from its launch, that is probably as true of the next half as it ever was. Unless something happens over the next two quarters to restore confidence in the organisation, it will bump along forever at the sort of miserable levels shareholders have now endured for some time.

I didn’t think it would be like this. The company announced its new chief executive, Breon Corcoran, back in August 2011, and was so sure it had the right man that it waited a year to get him. It was fair, then, not to expect any share price recovery over that 12-month period. It was also fair to expect little to happen for a few months as he got his feet under his desk.

But what probably wasn’t expected was a 10 per cent price fall once he had announced his new strategy. Just when it felt like sub-£7.50 would be a thing of the past, the stock crashed back down and started to plumb long-unseen depths.

Given the fact that Corcoran forfeited 24 per cent of revenues by pulling out of territories that are not ‘clearly legal’, you could say a 10 per cent fall was not a bad result. The question now is whether he will balance those losses with sufficient gains to recover to a more appropriate market cap.

The £20m in cost savings announced in December is a good start but I would imagine it is really only that. The thing about Betfair that shocks people like no other is that it employs approx 2,500 people around the world – a state of affairs I can’t imagine continuing for much longer.

Years of dealing with structural issues by throwing people at the problem have taken their toll in a number of different ways. People inside and outside the business have been frustrated for years by the level of bureaucracy, which (in combination with a framework that made it too easy to abdicate responsibility) has continually stifled delivery of the product.

The extent to which that is true is best illustrated by two things. The first is the sportsbook, which was delivered in 2011. I remember clearly when the need for it was first discussed, because the late Bob Horton was present at the management meeting in question. His role as executive chairman was very brief, happening in the fourth quarter of 2005.

The second is in-play – a product which Betfair was first to bring to market. Its loss of market share in this area, when the exchange model’s risk management system is so wellsuited to it, would be less frustrating had it not been talked about at such length over the years with nothing effective being done to reverse it.

By stripping out inefficiencies and creating accountability, I suspect Corcoran will have done more to put Betfair back on the right footing than analysts realise. I’ve piled back into the shares, down 10 per cent or not.

Mark Davies is a former managing director of Betfair and founder of consultancy Camberton Strategic Communications

This article first appeared in the Jan-Mar 2013 issue of GIQ magazine.