[Editor's Note] Milos Bezanov is a second year student currently studying International Politics at King's College London.
Betfair, a brilliantly simple idea. An online betting platform that uses trading technology, matching odds set by individual users to prospective bettors, cutting out the bookmaker. To learn more about the business, we need to first look at the man behind the idea. Who is Andrew Black? It seems like a simple question; The grandson of a former Tory MP, a gambler, entrepreneur, software developer...oh and a secret agent of GCHQ. Yet none of these quite answer the question, If he's a gambler, why is he running a business? If he's a businessman? Why in gambling? If a secret agent...well, you get the idea. The answer to this question lies in, as Steve Jobs put it, connecting the dots; “It was impossible to connect the dots looking forward..[in my life]. But it was very very clear looking backwards 10 years later”.
In much the same way, connecting the dots of Black's life experiences will tell us about what inspired the idea, how he met Edward Wray, and how they together moved Betfair from simply a conceptual idea into the business that revolutionised the gambling industry.
As the grandson of Tory MP Sir Cyril Black, you may think Andrew had it all, but the beginning of his adulthood was not without it's challenges. His brother suffered a sudden brain infection and fell into a coma, after which Andrew put everything else aside for two years to care for him. However, upon overcoming this difficult period, he set out on his career and never looked back. He started work at 26 in software, exposing him to the trading environment and triggering an interest in gambling; “When you’re at the sharp end of trading you’re trading very much in the short term and it is very, very similar to gambling”.
He pursued gambling further, and despite initial success, began to lose money and interest, returning to trading only to be sacked over disagreement on business ethics. From this string of failures, he was able to discover his talent for computer science and love for gambling, all the while learning the technical aspects of trading. If you told Andrew Black at the time that getting fired and gambling money away was the best thing that could happen to him...well, the conversation will not last very long. However, we see how all those experiences afforded him the motivation and knowledge to come up with Betfair, as well as the time to explore it. Black himself was able to connect these dots looking back; “In my career I've worked directly with the stock exchange, been a professional gambler and built websites. I've been there on all three”.
However, the step from idea to business was too big to take alone “I understood the exchange, gambling, the internet and could deliver the product. But with the business side of things I needed help”. Despite some difficulty, he would get it in the form of his best friend's brother, Edward Wray, a J.P Morgan employee familiar with the business end; “I remember..(talking to him about the idea)..and it appealed”. A few months later, their partnership was born. What followed from here would make a pretty good film! A journey which took them from a small office in Wimbledon to the front cover of the Times business section; overcoming obstacles and rivals along the way to creating a business which in 2010 valued at £1.5 billion.
The difficulty of raising finance became apparent, as they quickly learned that Flutter, a company offering a similar service, had beaten them to the punch, making it difficult for another company in the same market to raise venture capital. They resorted to other means to raise money; (Ed Wray) “I got a hold of the banking bonus calendar...I worked out when the bonuses were announced... when they were paid, and then we tried to see people in between those two dates”. Through this, and investments from friends family, the duo managed to raise £1 million, which Ed marks as his turning point “That was really when it became serious, certainly for me...you suddenly felt a real sense of urgency to make it work for them”. However, this was not necessarily bad; “Looking back now, one of the best things that happened to us was that we didn't raise lots of money”, as it forced Betfair to be more innovative with the funds they did have.
Using the slightly unconventional theme of a funeral procession as their marketing strategy, the duo carried around coffins which had “Death to the bookmaker” written on them. Whatever the controversy, it was clearly effective. Their antics hit the front page of the Times business section, which Black recalls “was spotted by a lot of people, and got us off to just a little head start”. In the first week, Betfair traded £30,000, and how much of that money came from people who happened to be reading about funerals in the Times business section three days before is anybody's guess.
The competition from flutter did not go away, but neither did the success of Betfair. Black and Wray went from £100,000 in the first year to £35 million in the third. Despite a short battle between Flutter and Betfair; in 2002 the latter had 97% of the market share, and merged with Flutter. The rest is history; Ernst & Young awarded them “Emerging Entrepeneurs of the year” in 2002, and the business has only continued to grow and expand into different countries, incorporating smaller businesses. Today, Betfair boasts 3 million users, and over 1,200 employees. In short, they got very big very quickly, but Ed Wray still find's this hard to comprehend “We weren't planning on getting 1,200, we were planning on going from 22-30, to 35 or whatever” (Ed Wray).
That said, the vision and belief in the business came from the man who forged the idea. Whilst £30,000 of trades in the first week was not bad, it did not meet the expectations of investors, but Black maintained belief; “I always thought it would be one of those sites that would creep..(people) come to us, have a look, go away, come back, have another look, go away again, but come back and bet.” Judging by the numbers after, he wasn't wrong.
While connecting the dots of Black's life shows how the idea arose, Betfair as it is today moved beyond this. Where Black needed Wray to guide him on the business end; it was Black's initial idea and vision which carried the business forward. Nevertheless, success does not come without a price, and several critics have questioned the integrity and legality of Betfair, arguing that the risk of anyone gambling for any, potentially criminal reason is too high. Like any new industry area, what is legal and what is not is a grey area, and in exploring ideas there is always the risk of prosecution/legal challenges. Black and Wray took the risk of setting out to corner a new market, weighed the odds, and succeeded.
The gamble paid off, but would they take such risk again? Andrew Black says yes; “It would be a difficult choice. I've got everything I need, but I would do it all over”. If you're wondering why, it's that entrepreneurial spirit, and I'm sure if you asked Edward Wray, he'd say the same thing.
[Editor's Note] Milos Bezanov is a second year student currently studying International Politics at King's College London.
