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|How Betfair beat the bookies
| Eddie Fremantle
It was a mundane midweek day's racing at Southwell in January 2002.
Family Business, ridden by champion jockey Tony McCoy, was odds-on favourite
for the Feast of St Raymond Novices' Chase.
When the horse unseated McCoy at the 10th fence,
most punters gave up hope. They then watched, amazed, as one by one the
remaining four runners - all of whom had limited steeplechase experience -
capitulated, unseating their riders or refusing fences. By the fourth-last
fence, no one was left to finish, and the race was about to be declared void.
McCoy, who had caught and remounted Family Business, could hear the news over
the PA. Having guided him back to the 10th, the pair jumped their way to an
unlikely, not to say expensive, victory.
It was a story to bring a
smile to the most weathered of punters. And nobody was smiling as hard as the
two backers on the Betfair betting exchange, who had each put £2 on the
horse after he fell. His "in-running" odds at the time were 999-1. That
£2 bet had just returned £2,000.
Twenty years ago, the betting ring still held on
to some Runyonesque charm. The bookmakers kept their money in leather satchels,
known as hods, hanging from their joints - a metal sheet onto which the odds
were written - and stood on wooden stools. Tic-tac men signalled prices and
bets from one end of the ring to the other. Inheritance of the pitches was
strictly hereditary - would-be bookies had to wait for families to die out to
have the chance to price the odds.
It was old-fashioned, for sure, but
vibrant. The term "a licence to print money" still applied to on-course
bookmaking, certainly on the big days and the bank holidays. And on quiet days,
the big bookmakers were able to manipulate the course markets, in particular by
shortening the odds on the favourites by placing bets just before the race
started. Thus the off-course firms were happy, the on-course firms were happy
and the punters, it seemed, had plenty of ready cash to lose.
there were the racecourse characters, the minor celebrities who rubbed
shoulders with minor villains: the Dodger, Johnny Lights, Jimmy the Wig, Peter
the Builder and Tony the Hat. Tick-Up Stan stood outside selling marked
racecards. Johnny Raf had been in the Royal Air Force and supplemented his
income with a little shoplifting, as did Bob the Dog. Some names were
geographically accurate, such as Windsor Ted, but Bristol John was from
Birmingham, Manchester Mark was from London, and Geordie Alan came from the
north-east but was not a Geordie. There was also a young taxi driver from north
London called Paul, known as Paul the Cabbie.
Today, thanks to
Betfair, Paul, now 45, no longer tours the streets in his taxi.
The betting exchange has changed his life. "I had a passion for gambling from a
young age, even at school," says Paul, who prefers not to use his surname. He
would have winning runs, yet had to go back behind the wheel to build another
betting bank when things went wrong. "But Betfair transformed my life," he
says. "The better prices on offer and the fact that I could lay as well as back
meant I went from a losing punter, or one struggling to make it pay, to a
Betfair launched on Oaks Day in June 2000, with a mere 36 people
striking bets on the fillies' Classic at Epsom. Since then it has grown into
the most influential betting platform in the British market. One of its
innovations was to give punters the chance to bet after a race has started,
right up to the end of the event. Sure, other bookmakers had experimented with
in-running betting, but none could offer, as Betfair could, the chance to bet
immediately at the click of a mouse.
Betfair now provides worldwide markets for almost every sport
imaginable. But it was on British horse racing that it cut its teeth, and in
the process revolutionised the way people go about their business, and
pleasure. Instead of going to betting shops or the on-course bookmaker,
Betfair's customers conduct virtually all their business online, betting with
people they do not know with the exchange acting as intermediary.
beauty of the idea was that people could now also bet against something
happening - and set their own odds. Betfair makes its money by taking a
commission ranging from 2-5% from the winning customers after each event.
Betfair's broad appeal was crucial to its success. Winning punters had
become frustrated with traditional bookmakers, finding it ever harder to have
their bets accepted. Losers - the large majority - found that Betfair, with
lower margins against the punter than traditional bookmakers, made it possible
for them to lose their money more slowly, or even turn a loss into a profit.
Punters could turn bookmaker and set their own odds. And in-running betting was
taken to a far more sophisticated level.
To people discovering
Betfair for the first time, it seemed that the exchange was all
about the punters. The punters set the markets. The exchange's commission meant
that Betfair did not care who won and who lost. It was the near-perfect betting
Betfair was born in 1998, when Andrew "Bert" Black met Ed
Wray at a party and expounded his idea of a person-to-person betting website.
Both men had backgrounds in the City - Black had managed a hedge fund and Wray
had been on the trading floor for JP Morgan. It was a time of boom and bonuses,
so when they decided to try the idea, raising the capital wasn't a problem.
The key to Betfair's success was to be the first in the business. As
punters flocked to lay their own odds, some bookmaking firms, including the
biggest of them all, Ladbrokes, toyed with their own exchanges, but Betfair was
already too big to take on. In a market where liquidity - the amount of money
in the market - is the biggest attraction to potential backers and layers,
Betfair had it and the others did not. Soon its prices were
forcing the old-fashioned bookmakers to cut margins (and, by extension,
Black, now 45, has always been a punter. If someone else had
begun Betfair, he would be betting with them. As it is, he is
co-founder of a company that last year had a revenue of nearly £240m and
a profit of £30m. Betfair has 1,350 employees and what chief executive
officer David Yu describes as "more transactions than all the European stock
markets put together". It has branches worldwide (but not in the United States,
where internet gambling is illegal). Black himself owns a string of racehorses.
Betfair has changed the racecourse for ever, even though it has,
as yet, no pitches or presence at racecourses beyond advertising, sponsorship
and hospitality, and no presence on the high streets, where Ladbrokes, William
Hill and Coral continue to dominate.
When I first started going racing
regularly, in the mid-80s, bookmakers obtained their initial prices - known as
the "tissue" - from odds compilers. The big firms had their own tissue men but
the racecourse bookies tended to rely on private individuals. Now, Betfair
supplies the "tissue", with players offering backs and lays on the site the
And it has created a new kind of gambling careerist. "Now
my skill is being able to predict the fluctuation of the markets," says Paul,
"and that is down to my history as a punter. I can work out what the punters
are going to back, what horses are going to shorten, and what are going to
lengthen in price; which jockeys and trainers they follow and which ones they
reject. Most of my bets lately have been on market moves."
is called "arbing", after the stock-market term "arbitrage". Many punters began
operating in similar ways to those in the stock market, "buying" a horse at a
high price (backing) and "selling" it back at a lower price (laying). Yet,
gradually, the difference between the Betfair prices and the betting-ring
prices, allowing people to "arb", has been eroded, with just about every
on-course bookmaker taking notice of what happens on what they call "the
Much of Paul's business is done in-running and, as with
Family Business, there can be huge fluctuations in price. Paul the Cabbie
started out in the era of chalk and wooden stools, but the Tick-up Stans and
Johnny Rafs have been replaced by a new generation of traders, most of whom
have arrived since Betfair began.
With in-running has come the growth
of exchange shops, a more sophisticated form of betting shop, where serious
punters pay from £25 to £40 per day for a seat to play the markets,
making use of fast pictures direct from the track. People congregate to bet and
trade, generally not for recreation, but as a living.
prefers to go to the track, where he can enjoy the biggest in-running edge of
all, watching the races live with a telephone link to a colleague on
Betfair. But the value is harder to find, he claims. "You are
swimming with the sharks now," he says. "Since the advent of exchange shops,
much of the value has gone out of the market. But I still believe in-running
has not peaked, whereas the pre-race markets have."
This is where the
growth of other sports markets comes in. Some long-term professional punters
have switched from racing. One of them, Dave Gilbert, now plays on golf and
football because "I found that horse racing had become too big to cope with,
too many horses, too many races."
Paul agrees: "I think the sports
market will continue to grow, whereas the horse market will drop. There were
telephone numbers traded on football's European Championship, Wimbledon and the
Open golf [in 2008]. People have more opinions on sports than racing. I have
been having more sports bets this year than in the previous six. People can bet
in pubs, on the mobile, live at the event. It is so convenient, so people are
playing on the sports market and not the horses."
For 50 years after
the war, the on-course market stood still, until new rules meant that pitches
could be bought and sold and computer technology meant that bookies' clerks
pressed buttons rather than recorded bets in ledgers by pencil. In Betfair's
world, things move faster than ever. It is now possible to attach computer
programs to Betfair, run by internet robots, or "bots". People can programme
their bot to play a market or to predict the momentum of a market.
the bookies, punters who want to stay ahead of the game are constantly having
to change their tactics. "When
Betfair first started," says Paul the Cabbie, "there were about
20 arbing teams at the track; now there are only two of us left." Gradually,
the market for arbing became saturated, so many of the arbers turned to
in-running. There is the two-furlong man on his ladder, the furlong man and the
man on the line. All different teams, all using different tactics. Not all
backing horses to win, but some laying. These are the new racecourse
characters: Jimmy the Wig has been replaced by the Betfair Commando, who wears
army fatigues; the Dodger by the Undertaker (looks miserable but makes money).
Like Paul, Julian Gouder, a large-staking punter from the north-east and one of
Britain's biggest players on Betfair's race-day markets, thinks that horse
racing markets are close to stagnation. "Where will it all end?" he asks. "I
think that the very few opinion-based punters out there will struggle on,
trying to make it pay, while the throngs of traders will continue to skim a
wage every week and racing will gradually lose its market share to other
For racing in the UK, that is an unpalatable future, for,
unlike in other countries, it depends upon the levy contributions of bookmakers
and exchanges - originally punters' money - to keep afloat. But the immediate
future for Betfair seems buoyant. The company announced in December that it is
to sponsor the King George VI and Queen Elizabeth Stakes, one of the most
prestigious races in the calendar, at Ascot in July. Not only is it backing the
race but, as part of the five-year deal, Ascot will be opening Betfair lounges
on the course, "where new and existing customers can experience the thrill of
The on-course bookmakers, who have paid considerable
sums for their pitches, will not be happy, but there is not much they can do to
stop the Betfair behemoth. To visit Kempton Park on a Monday afternoon,
or Folkestone on a Tuesday, is to watch the British betting ring in what may be
its last throes. Six or seven bookmakers try to drum up business from sparse
crowds. I counted fewer than 100 on the viewing steps at a recent Kempton
meeting. There were more people there but they were either keeping warm in the
Coral betting shop under the stand, in the owners' and trainers' bar, or the
glass-fronted restaurant. There were a handful of in-running players, with
phone earpieces connecting to their colleagues on "the machine".
Meanwhile, the proper punters were at home, watching on Racing UK with
their computer browsers switched to
Betfair. To be an on-course bookmaker these days is not in any
sense to have a licence to print money. Even on the biggest days at the biggest
tracks, it can be hard to make it pay. The expenses amount to around £400
per day. One course bookmaker of my acquaintance, Racing Raymond of Leicester,
told me after working in the cheapest enclosure at Newbury's recent Hennessy
Gold Cup meeting - a very busy Saturday - that "it was useless. I went home
after three races because I was taking about £70 a race." That is taking,
The golden goose for the on-course layer is all but dead.
For Betfair, it continues to lay. And when Ascot's Betfair lounges open this
year, you get the feeling they will be the first of many.
Betfair help cheats prosper?
Betfair isn't universally loved. There have been criticisms that
it is now easier for jockeys, owners and stable staff - who are not allowed to
lay their own horses - to pass information and fix races. But unlike
traditional bookmakers, Betfair will divulge information about clients'
transactions to the horse racing authorities. More than a dozen jockeys in
Britain have been banned for passing information, and their bans directly
related to Betfair's audit trail.
One of those jockeys was Gary Carter
who rode Dodona at Lingfield Park in August 2003. Dodona had plenty of ability,
although she had won only two of her 33 races, and was entitled to be favourite
for the race.
I was at the track and backed Dodona, via telephone, on
Betfair. The price went bigger, so I backed her again. When a
price goes out, even on a favourite, it is not always a cause for concern.
I figured that some people were looking at Dodona's poor win record,
and that was the reason for the drift.
During the race, I formed a
different opinion. When Dodona moved into contention, it seemed Carter was not
animated enough. She was beaten by a short-head, and would have won had she not
received the winning jockey's whip in her face. A stewards' enquiry was called.
When that upheld the placings, I put the race in the "unfortunate bet" file.
The authorities took another view. On the day of the enquiry, Carter
stressed that Dodona had suffered no interference that affected her chance of
winning. But at an appeal, he was adamant that the smack with the whip stopped
Dodona winning. He would have known then that even if the result was
overturned, it was too late to affect bets struck on the race.
was one of eight losing horses ridden by Carter that Christopher Coleman, a
London tailor, had laid heavily on
Betfair. On Dodona alone, he "won" £13,174, having
"risked" £95,079. Examination of phone records showed close links between
Carter and Coleman, and after a two-year investigation Carter was banned from
racing - "warned off" - for passing information. Coleman's existing ban was
Pre-Betfair, an incident like this was less
likely to happen - but more likely to go undetected. The suspicion remains that
"insiders" are benefiting.