BETFAIR set to be listed - get ya shares quick >>>>

Actual sharp revenu decline from the sports operation within 24 months of IPO.
Viable competitor and/or shutdown of Betfair's international operations within five years.

definitely not a strong buy. personally i'll be interested to see if they are still denying that they're considering an IPO on the forum chat tomorrow night.

its in service announcements...

Today Betfair announced its intention to list on the London Stock Exchange and to proceed with an initial public offering of shares.  A copy of this announcement is available on our corporate website (http://corporate.betfair.com/).

If you buy a company, say for £1 it's generally worth  a pound, what's the point of that? Surely the only reason anybody buys a comapany is, they believe they can increase that companies revenue.

It seems to me there's only three ways Betfair can improve its profit margin.

1)lay off workers this would have the affect  possibly of increasing the bottom line through being more efficient.

2) Attracting more customers, in order that their turnover increases.

3) Increasing their charges on existing customers.

Laying off staff suggests that Betfair is over manned at the present time, is there any evidence of this, its unlikely to be bought by another exchange in order to benifit from the idea of an economy of scale. In my opinion increasing the profit margin by efficiencies is speculative.

Increasing the customer base by signing up new members isn't going to be easy eather, if it were why isn't it simply being done by the present mob?

Maybe I am stupid but to me the easiest way the new Betfair owners could increase their profit is to charge the present members of the exchange more to use the sites facilities.

4 key things i'd want to see to invest.

A look at the balance sheet.
A thorough breakdown of customers, earnings (and costs) to enable one to predict future growth.  The headline figures are next to useless imo.
A thorough investigation of past, current and predicted regulatory issues throughout the world.
A look at potential threats from competition.

and won't take them long to think of that, either

If there's a pricing scheme that would make Betfair more profit then why haven't they done that already? Virtually every day you read someone moaning on here about how expensive Betfair is and that they're overcharging, and now you're arguing that they're charging less than they could and that they'd make more profit by increasing the cost to customers. They can't both be true.

betfair sitting on 150 million in cash and no debtso betfair , as to WH and Lad which has no cash big debt

On price hikes, Betfair tried to increase basic commission on some markets to 7% sometime back.  It was too big a jump and failed to take off. If I was a shareholder I would be looking for small increases, such as an increase of 0.5% in commission.  I don't think it would have any more affect on business than the introduction of the premium charge. People would moan but get on with it. It would hike profits by 10%.

It would appear that circa 10% of the share capital will be sold, this small amount makes the offering unattractive from an investment perspective.

Why would that make it unattractive Equimine?

the statement says "at least" 10%.  As someone else said , if they were selling a high % of shares then people would run to the hills.

Hazel, where did you see at least 10%, the statement I have seen says about 10%.
The small offering (assuming 10%) means only a small percentage of the business being publicly tradeable, it is virtually impossible to have any influence or say with so few shares in the public domain and the possibility of making gains through matters such  as takover speculation, or trading, are virtually zero.

If as nairda says they have £150m in cash then they don't need investment so it's all about cashing in.  I agree with hazel.  They have to be seen to maintain confidence in the company's future prospects.

it would surprise me if this turned out to be a good thing for customers thats for sure,as they would want to take even more of the pie for themself.

equimine,co.uk i read it on

http://corporate.betfair.com/media/press-releases/2010/2010-09-21.aspx

-- in particular the paragraph "details of the offer"

http://corporate.betfair.com/media/press-releases/2010/2010-09-21.aspx

sorry equimine it wont let me post the link, but its on betfair corporate press release

14 shareholders hold about 75% of shers, they are the only sharesholders ask to sell there shares, it doesn't mean the other 600 sharesholders who own the other 25% will not sell there shares on opening day..i believe there will be number of small shareholders sell there shares as those shareholders have never got any of the profits that befair over the last 10 years

betfair has always use cash to grow or buy, it never use debt...USA TVG , Timefroum and all the othere business that betfair has brought or started has been started with cash and not debt...betfair doesn't need cash, the stock market listen is just a way for the small shareholders to sell out

Its my belief CALCULATOR that in the near monopoly position that Betfair occupies(no other exchange can seriously hope to compete with Betfairs liquidity at the present time and quite likely will never able to do so) charges can and will go up.

Those 600 small shareholders will get an average of £625k at £1.5bn.  I wouldn't be gambling that amount of money by hanging onto them.  As an investor I'd want at least a portfolio of 20 shares to spread the risk.  It should be a complete no brainer to sell unless they have substantial personal wealth.

Not forgiving tax issues.  I'd obviously retain some shares to take advantage of capital gains allowances in future years.  The bulk would definitely be sold though if it was me.

Businesses float to give their early investors and founders an exit. I wd guess that Messrs Black and Wray want to crystallise some of their wealth and Softbank also want the option of crystallising their loss (?).

Bf shd dominate the world but 1) regulators and Treasuries everywhere wd have to accept a smaller income from gambling and more gambling in their population, given that the exchange model is high turnover and low margin, and 2) bf wd have to compete with incumbent totes and bookmakers more directly. At the moment it offers a complementary service to them.

Valuation a bit optimistic. Expect the 1.5 bil to reassessed close to float.

askari1 is right..this stock market listing, is just to put a value on betfair, and to let the small shareholders a chance to sell there betfair share if they wish....as it sounds now, it very hard for the small sharesholder to sell there shares...

Also about 2 years ago, betfair did a share buy back of about 10% of betafir shares...so softbank will still make money if there was a value of 1.5 bil

The "regulatory risk" section will make interesting reading in the prospectus, IMO.
Its all about US expansion for me and your view on that determines with whether its a buy or not.

States like Kentucky w/ bloodstock industries will not want lose control of the share of punters' stakes they can cream off in takeout.

In one way, it cd be Australia ten times over for bf.

I read an interesting article yesterday about bf's potential for take over by BWin, it had very solid foundation with the likelyhodd of the bookies wanting to own the technology that bf now posses.

Although I dont know what the bookies would do with the exchange medium, it isnt a pretty thought imo.

Based upon the very limited information currently available for both the IPO and Betfair accounts (without downloading from Companies House) there are three points that would deter me:

1: The lack of liquidity in the shares with only 10% ish being available. I understand the comments concerning confidence etc. but something like 20% to 25% would be ideal.

2: The 1.5 Billion valuation seems high for a company with a "Tangible Net Worth" of approximately £88 million.

3: The valuation again seems high for a company that in 2010 made, it would appear, 28% of their pre tax profit from interest on either their, or customer, funds on deposit. Not their core business activities.

The 10% could actually be nearer 50% (although unlikely) as it only represents the amount that bert and that ed are putting up. It says nothing of the other parties who would be free to put all of theirs up, which I think could potentially mean 60% of the business.
The 10% on reflection is likely to be a 'manipulative' measure to measure demand by limiting supply. (thats as long as the rest dont decide to jump ship ofc)
The valuation is too high imo too. The problem is tho that technology firms often take this kind of shape and are therefore high risk, theres very little to gain in these shores now without revolutionizing the 'unfair' aspects which they profit from which is therefore a double edged sword.
There is bound to be interest in these shares for a number of reasons that I wont go into, I will be having some but drastically fewer than planned.

dbin,

I thought Black & Wray had indicated that they intend to sell approximately 10 per cent. of their holdings in the Company.

Yes they did, but they only hold 50% in total I believe so it gives no indication to what the rest will be doing

Although the way I read it was that directors have limitations on the number of shares offered initially, and the directors must likely be the biggest share of the rest so its very unlikely that the majority would be put up to start with.

The point is though there has to be a reasonable amount of ppl who have simply been waiting for this opportunity to sell.

No shares for us small guys  
http://bit.ly/bHsV0d

Look to see a bookie in charge within 18 months deffo imo

dustybin Joined: 29 Dec 08
Replies: 1569 22 Sep 10 09:08   


I read an interesting article yesterday about bf's potential for take over by BWin, it had very solid foundation with the likelyhodd of the bookies wanting to own the technology that bf now posses.

Although I dont know what the bookies would do with the exchange medium, it isnt a pretty thought imo.


There is already at least one precident for this (Mansion) they decided it was best to shut it down and milk the mugs for themselves.

The £88.5m tangible net worth was a figure I was interested in seeing.  Although their headline figures are well down I think the business looks in better shape than it was 12 months ago.

If a bookie did 'acquire' the exchange Id imagine some kind of hybrid or worse...a more scrupulous activity that used the data they hold to do what winners were doing.

In either case Id hope if that occurred everyone would just jump to the next exchange

im sure most of you haven't read the statement

Betfair currently has a diverse shareholder base including a group of 14 major investors holding approximately 75 per cent. of the Company’s fully diluted share capital. Based on indications received to date, Betfair expects the Offer to comprise the sale by over half of the group of major shareholders, board members and management team of Shares representing at least 10 per cent. of Betfair’s fully diluted share capital as at Admission. In addition to the group of major shareholders, Betfair has approximately 600 other shareholders, and approximately 25 per cent. of the Company’s fully diluted share capital is held by shareholders who have holdings of less than 1 per cent. each. These shareholders will also be given the opportunity to sell Shares in the Offer. No indications have yet been received from these shareholders with regard to their intention or otherwise to sell Shares in the Offer. Betfair does not intend to issue new Shares as part of the Offer. The final Offer size will be confirmed prior to Admission  (so that means min of 10%, as all shareholder haven't been ask yet)

Edward Wray and Andrew Black have each indicated that they intend to sell approximately 10 per cent. of their holdings in the Company in the Offer including over-allotment Shares.

As at 30 April 2010, Betfair had £150.9 million of cash and no debt  (10% of betfair value is siting there as cash)

as at 30 April 2010, Betfair held £284 million of customer deposits. (so £95 from each 3 million registered customers)

£150.9 mill + £284 mill= £434.9 mill @ 3% = £13 mill in interest a year

current assets less current liabilities is 59k ... they do owe the tax man and suppliers a big wedge of that 150k cash

Mully would the small guys not be able to buy shares once they start trading ?

Interesting that implied commission (which is assumed to be average comm.) is 3%.

It requires annual commission of £11.5k to reach and maintain 3% yet the average comm. per active customer is £314 which would leave your average active customer on 5% commission.  A huge proportion of Betfair's income must come from a few 2% players.  At least half and probably more.  Assuming half if they raised the min. comm. level to 2.5% they'd increase revenues by £30 million alone on like for like business.

That they haven't is probably that they think they are in a more competitive market place than we think and/or that the margins for the sports exchange to function efficiently requires such a low percentage.

Roll  it  backs  lads  to  Nairda  commemt   11.09   thats  spot  on  .

Make  that  11.09  Yesterday

dustybin, you have a bm trying to do that w/ Betchronicle and ****. It's harder to do than it looks i.e to sit on winners' price and reap the benefits of their strategies. The strategies only work at certain volumes.

It may be that exchanges need winning liquidity providers for purposes other than e.g. smoothing the returns they wd make if they were betting the positions themselves.

Clydebank, how many players/entities do you think are on 2%? Suppliers may be in a business where they can determine pricing terms.

askari I actually used 29,000 betfair points as the threshold which is actually the 3.5% rate not the 3% rate of 49,000 so you'd need to be contributing £19.5k a year to reach average commission which is a staggering 62 times the average contribution. 

It's a minimum 60k worth of commission needed to reach 2% which is 191 times the average and the biggest players will pay significantly more than that.  There were 713,000 active customers most of which will pay a lot less in commission than the average of £314.  For every 1 person on 2% I reckon there is around 5000 on 5% comm and then maybe another 200 people on over 2% and under 5% so I'd plump for a figure of around 100-150

Thank you, Clydebank; I can see the reason behind these estimates. It's more than I wd have expected, but I only really play the horses.

The mean and median Betfair points per customer are miles apart.

Does anyone else think it strange to go public when earnings (EBITDA) have dropped by a third in the last year?

On profits of £45m and a valuation of £1.5 billion that means a p/e of 33.3 but against actual profit of £15m a p/e of 100. Seems OTT to me.

Is there a break-down anywhere, of the casino/exchange games revenue/profits ?

Someone told me, the casino was making over £40m this yr .. and they market make the exchange games, so, u would think a decent profit is made from that.

Would love to see abreakdown, for each part of the business.

Sandown

Thats technology firms for you, they are massively inflated due to risk. They tend to do really well short term or land on their 4rse. I think bf's valuation is more based on the technology it owns rather than the profit it actually makes, which for me is quite scary as it signifies that they might be putting that up for sale rather than the way they are doing things at present, meaning bookies buying it to alter it imo.

they are massively inflated due to risk.

Risk? Or greed or "Emperor's new clothes" syndrome or "lemingitis syndrome"

the listing is just a way for small sharesholders to get out, it not because big owners want to sell out or to raise cash

what i believe buyer (or not) need to belive in as Dustybin said is Betfair a Tech company or a bookmaker/gambling company...Betfair spends alot of it money on (what betfair says) is new technology each year (Im sure betfair new LMAX company is costing alot in start up cost) if you believe betfair is a great britsh technology company, then 1.50 bi value is very samll for a Tech company that had 10 year of profit and has no debt with 150m sitting there in cash..

the listing is just a way for small sharesholders to get out, it not because big owners want to sell out or to raise cash

I actually beg to differ on this point. The lifecycle of the exchange could be far shorter than many believe and the continued storm that never goes away even after being 'defeated' (on tax/business users etc) will only need to strike once and its dead.

Time will tell.

IMO

The 25% of the shares that are owned by the individuals would be mad not to sell. They are very unlikely to make the same gains within the next 10 yrs by holding them. Softbank arguably believe 1.5bn is overvalued now and may/maynot chose to sell some/all, whatever they decide this will be in addition to to 10% minimum made available by Wray/Black. All this is then offered to who first? The business sector which in all likelyhood will be bookies buying up to get the majority share.

This could on my understanding of affairs mean that there could potentially be a new controlling owner within a very short time span.

Sandown, it also appears that they made a significant portion of their profits by standing client bets.

I'm sure that the markets will strip out one-off investments and look at year-on-year profit growth, but what does this admission say about the sustainability of the exchange model?

During the first quarter of the year, Betfair ran a trial service with a small number of ‘‘High Roller’’ customers. The size and scale of the betting patterns of these customers is too large to be fully hedged through the Betting Exchange and so Betfair has necessarily accepted proprietary risk on these bets.

The trial with High Roller customers proved to be profitable. Revenue from the High Roller segment during the first quarter was approximately £25 million and EBITDA was approximately £7 million.

Maybe it is not that profitable to run a betting exchange. The value of the firm may lie in intangibles like employee skills and in technology.

Does anyone else think it strange to go public when earnings (EBITDA) have dropped by a third in the last year?

On profits of £45m and a valuation of £1.5 billion that means a p/e of 33.3 but against actual profit of £15m a p/e of 100. Seems OTT to me. .........

If you had fully read the report and financial statements you wouldnt have written that.

clydebank

Fair enough. What have I missed?

They made an investment in football, which, taken out, wd have allowed them to show continuing profit growth.

Imv they have tweaked their figs. before flotation (not actually misstated them, of course, but done a lot to make them look good). It cd even be argued that standing high-roller bets was designed to pimp their numbers.

sports revenue (ie the exchange element) grew by 12 per cent. to £223.7 million (FY09: £199.2 million)

During a year in which many other businesses have focused on cost cutting, Betfair chose to make
significant investments in FY10 in order to secure future growth, including:
– the start of £25 million technology investment programme over three years (‘‘the re-architecture
programme’’) to deliver a more cost-efficient, robust and flexible exchange platform to support
future international growth and maintain Betfair’s leadership in exchange-based betting;
– a marketing campaign to enhance Betfair’s positioning in football ahead of the 2010 FIFA World
Cup;
– further investment in LMAX ahead of the launch of its new exchange platform in the final calendar
quarter of 2010; and
– investment in Betfair US to position Betfair Group favourably in the event of any liberalisation of
the US online betting and gaming market.

1st qtr this year..
Current trading and outlook
In the first three months of the year ending 30 April 2011, Core Betfair revenue has grown strongly,
including a beneficial impact from the 2010 FIFA World Cup.

Sports revenue increased by 24 per cent. to £63.5 million compared with the first three months of FY10,
underpinned by the 2010 FIFA World Cup which helped drive a 47 per cent. rise in the number of sports
active customers(3)
Revenue from the High Roller segment during the first quarter was approximately £25 million and
EBITDA(2) was approximately £7 million. The results will be reported as a separate segment in FY11 and
have been excluded from the Core Betfair revenue for the quarter stated above.

Thanks askar1. Still say that its odd because normally one would want to inflate the earnings as much as possible suggesting that the timing isa awry somewhat. And, personally, I like to take the profits as they stand - the investment made in football or techonolgy whatever is built into the high PE in the first place.

What I find interesting from the high roller quote is this

The size and scale of the betting patterns of these customers is too large to be fully hedged through the Betting Exchange and so Betfair has necessarily accepted proprietary risk on these bets.

This tells me that the high roller players from the Far East that the BM's like VC have cultivated will not migrate to BF. Their market is confined to smaller players.

I agree with you askari1. Betfair should have forced FIFA to bring the World Cup forward to April so that the marketing spend occurred in the same financial year as the increased revenues. Anything else just smacks of cynical financial manipulation.

expenses for last year....


Commercial and marketing: commercial and marketing expenses increased by 23.5 per cent. to
£87.3 million, representing 28.5 per cent. of Core Betfair revenue (FY09: 24.3 per cent.). The increased
expenditure grew in line with revenue plus an additional planned increase in brand spend to enhance
Betfair’s positioning in football ahead of the 2010 FIFA World Cup during the latter part of FY10. The
Directors do not expect this level of brand spend to continue in FY11 and anticipate that marketing and
commercial spend as a percentage of Core Betfair revenue will revert to levels going forward similar to
FY09.

Technology and product: technology and product expenses increased by 22.8 per cent. to £55.2 million,
representing 18.0 per cent. of Core Betfair revenue (FY09: 15.4 per cent.). This reflected the start of
Betfair’s re-architecture project during FY10, which is expected to be completed during FY12 and which
is expected to result in Core Betfair spend on technology and product as a percentage of Core Betfair
revenue peaking in FY11.

Operations: operations expenses remained unchanged at £17.4 million, representing 5.7 per cent. of
Core Betfair revenue (FY09: 6.0 per cent.), continuing a longer term downward trend as Betfair benefits
from economies of scale in this area.

Corporate: corporate expenses increased by 1.9 per cent. to £36.5 million, representing 11.9 per cent. of
Core Betfair revenue (FY09: 12.3 per cent.). The Directors expect that there will be an increase in
corporate costs going forward as a result of the incremental expenses associated with being a listed
company.

Sandown, the question arises why they didn't feed through these high-roller bets to the exchange. Either:

1) the high-rollers wanted a market-leading price, wh/ the exchange and its commission model couldn't support on Asian hcaps and maybe other markets for the sizes the gamblers were playing in. Bf took a gamble in taking on some proprietary risk. This wdn't bode well for its long-term growth;

2) Bf made a calculated decision to stand the bets thinking they were getting value. This wd mightily displease bf's regular winners. The company is letting them fight it out, shrewdie to shrewdie, on the exchange while it stands the bets of the biggest losers. This maximizes profits for bf.

If it's the second, it exposes bf to a lot more risk and volatility of returns, and also threatens the marketing strategy e.g. in the US and Asia of introducing person-to-person betting.

The Calculator, business prior to flotation like to show a smooth upward trajectory of profit growth.

First, we had bf's recalibration of commission, then the cross-matching skimmer, then the pc, and now standing high-rollers (though it turns out that this took place in the first quarter of a new year).

It does look to me as if they're introducing successive new measures to show rising profitability, when in at least the core market of horse racing their profits are not obviously rising at an earlier pace.

It will be interesting to see what valuation the company puts on Goodwill.

The prospectus details, say Betfair has a loyal and stable customer base.

Maybe only a minoroty feel, some of Bf's customer relations, are awry.

I think, its a far bigger problem, and one which will drag on the company, now, and in the future  -   as future profits, are gonna hurt the user base (if they come from increased comm/PC)

excuse my igonarance here, but this standing high roller's bets issue, are you then just a bookie rather than an exchange or am I missing the point?

clydebank

All that telsl me is that spending on marketing went up by £17m and technolgy costs by £10m hence the profits hit. But, there would have been an increase year on year in both areas anyway. And its not unusual to spend in advance of some future event. Any evidence that the return will exceed the extra costs? Still left with a very high P/E ratio.

BF has zilch experience in being a bookmaker - they got away with it but it probably scared the living daylight out of them.

Yes, I wonder why they did it at all. Did they need to show revenue and profit growth before the float?

Were they allowing some customer offers up on the exchange to go unmatched and giving these high-rollers a worse price? They shd come clean on this b/c some very unfavourable constructions could be put on their own standing of client bets.

Borrowed time, where did you get a prospectus from ?

Sorry, wasnt the prospectus .. was the intention to list details, on the corporate site.

Talking to someone about the flot..he said in the past, if a small shareholder in betfair wanted to sell there shares,the shareholder had to contact all 600+ other shareholders first and give first rights offer to the other 600 holders..the cost with lawyers need to sell a small shareholding in betfair would be very high...

I really think, this has less to do with what owners think betfair will or will not do over the next 5 years, and more to the fact betfair already has so many owners, the best way for those owners who do need to sell (we all hit in a down turn market)is to be on LSE

I believe that is exactly it.

What happens tho by opening the door and offering 10% of their combined 50% of the holdings, bert and ed find that all the rest want to sell?

That would be 60% wouldnt it?
Is there some safeguard that would stop 1 company taking the lot? (obv. that would give them outright control)

The above is extremely unlikely granted but Im just wondering how things generally work in these scenarios.

Everyone on here can argue about  all the carp that surrounds this sort of process and delve into the minutiae of it as much as they want. That is just a distraction.

The facts are that Betfair was promoted as  being  a Jewel, hence it‘s name. It was supposed to have a relative perfection or purity about it, which raised it up in relation to  the companies that had preceded it e.g. the bookmaking companies.

The IPO has been , quite obviously,  inevitable for a long time now. Sadly, it is yet another chance missed. Missed by people who have either convinced themselves or have been convinced by other people, that the money they believe that they have acquired, affords them some sort of a real superiority. That really is a shame. This really could have been so much better.

The real facts of the matter are , despite all the promotion and investment that has gone into it,  that without the sort of customer’s who made it desirable in the first place, Betfair is absolutely worthless.

Betfair are not selling their business they are selling their customers. Considering that they are only were they think they are today because of their customer’s, that really is a shameful.

Sandown I thought the figures were impressive and an improvement on the year before.  Customers well up, turnover up, investment in LMAX and Betfair US, investment in technology and according to them temporary and increased marketing spend. 

The point being that if (this year is better than the year before and I admit that is subjective based on what we know) pricing something purely on the P/E ratio is not a good guide.  Plenty of firms made a loss last year, it doesn't make them worthless.  Indeed if Betfair had spent another £15m on LMAX to wind it up it's bottom line profit would've been only £2m.  Meaning in that situation a valuation of £200m would equate to a P/E ratio of 100.

However, I thought the most impressive stat was this:

Sports revenue increased by 24 per cent. to £63.5 million compared with the first three months of FY10, underpinned by the 2010 FIFA World Cup which helped drive a 47 per cent. rise in the number of sports active customers

meaning the equivalent qtr last year May09 to July 09 was £51.2m...but if last years sports revenue was £223.5 the other qtr average was £57.5m.  Based on that the World Cup quarter doesn't seem so impressive.

I cant quite get my head round why the May to July quarter (specifically the 09 qtr) would be so bad (it would be the busiest time of the year in a bookies)

You have the FA Cup Final, CL Final, The Derby, Royal Ascot, The French Open and Wimbledon.  The only thing lacking is a busy football league programme, but if a constant full football league is so important to Bf revenue then how important was the World Cup?

not to mention a full programme of evening racing in that quarter

Clydebank29

My original post was really more to do with timing in as much as in theory I wouldn't want to have to be in a position (were I so lucky) of having to qualify the profits with "oh it really would be different if.." and that for the sort of PE they are looking for (given its been going 10 years ) it would be so much cleaner to to be able to show year on year profits growth. I suspect that they would have preferred to have gone to the market last year or the year before but the financial crisis did it for them.

Judging the future for BF depends on how you see geographic spread. I feel that the evidance from the UK horseracing business (which is a sort of canary in a cage) indicates the presence of some gas in that BF seems to have peaked  with its share of market and all the customers who might be UK users indeed are, and they might be more prone to losing UK racing customers rather than gaining them. Of course, they have added other markets and other products and in total I would guess that there is plenty more scope for growth through expansion. It all depends on how competitors and Govts respond in other markets to BF's presence.

CLYDEBANK29

june and july without major footy tourneys are always industry quiet times.
the interest in the world cup is mega, however there are a max of 4 massive games a day, during the regular football season there can be 100's of footy fixtures.