Saturday 3 December 2011

Tenderloin Tech Hub

Some good news from the Golden State in the San Francisco Chronicle even if they get Betfair's name wrong. Slow progress, but Rome wasn't built in a day:
With last spring's crackdown on Internet poker sites taking bets from U.S. gamblers, you might think online wagering is illegal in the United States.

It's not.

A company called TVG is one of several companies offering traditional pari-mutuel betting on horse racing in states where it's legal. TVG was acquired in 2009 by BetFair, a London online gambling firm.

BetFair, which recently opened a tech hub employing about 75 people in San Francisco, is planning to release a product in May that could not only transform betting on ponies but could also save the declining fortunes of U.S. tracks.

Here's the deal: BetFair (annual global revenue of just over $500 million) has developed the exchange concept of betting, in which online gamblers place bets against one another. This is easier to explain when two teams are involved rather than 10 horses, so let's start with a football example: Say you want to bet on the 49ers against the Steelers and want to get 3 points. If there's a bettor who wants to take the Steelers and give 3 or more points, BetFair brokers the bet and takes a small commission from the winner.

The principle is the same with horse racing: If I want to bet on Italian Stallion to win and another bettor thinks Italian Stallion won't finish first, BetFair will broker the bet and take a commission.

Exchange betting isn't yet authorized in California, but a law passed last year will make it legal starting in May, which, not coincidentally, is when BetFair plans to open its online exchange.

Not only does BetFair let racing fans bet against one another, it allows them to bet in ways they can't with traditional wagering.

"You can keep betting in the middle of a race," says Stephen Burn, head of BetFair's San Francisco office. Betting can continue until the results are posted, so "if there's a photo finish, you can keep betting until a result is announced."

BetFair is working with the California Horse Racing Board as well as with race tracks to strike deals that will enable BetFair to earn a profit while offering the tracks a substantial cut. This is how BetFair, if volume is strong on the site, could help save the state's declining horse racing industry.

BetFair is proposing a 10 percent commission on racing wagers, with two-thirds of that going to the track. So if you bet $30 and win, the commission would be $3. BetFair would get $1, and the track where the race is held would get $2. The loser of the bet pays nothing.

That seems like a generous take for the tracks, but BetFair's Burn believes that the proposed split will benefit everyone.

"From our perspective, unless there's a healthy horse racing industry ... no matter how great our betting product is, people won't want to bet on it," Burn said. "You have to have viable, sustainable horse racing industry."
Bloomberg picks up the same story with a few more details here although the number of employees in San Francisco in this article is just 20.

10% is a "small commission"? It's all relative I suppose, but for some, that's a lot. US horse racing is all tote pools, so that 10% would still be competitive there, but would any non-US customers in these markets also be expected to pay the same 10% or would they only be open to US customers? I guess that's what the 20 to 75 employees in the 'tech hub' are all working on!

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