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Lucky Sod
13 May 13 04:16
Joined:
Date Joined: 01 Apr 04
| Topic/replies: 1,250 | Blogger: Lucky Sod's blog
http://www.bbc.co.uk/news/business-22499909

The deadline is looming for CVC Capital Partners and other investors to put forward a fresh bid for online betting exchange Betfair.

The UK's Takeover Panel has set Monday as the cut-off point for CVC to either raise their initial bid of 880 pence per share, or withdraw.

In April Betfair rejected that £912m takeover approach, saying it "fundamentally undervalued" the firm.

Last week the company gave an update on its strategy for the business.

"A new management team is in place and a wide ranging restructuring has been completed ahead of schedule, allowing us to increase our cost savings substantially," Betfair chief executive Breon Corcoran said last week.

Cost savings of about £23m have been achieved by reducing the workforce by 500 people, or roughly one-fifth.

Betfair said that estimated revenue for the financial year which ended on 30 April was about £387m.

Its exchange processes more than seven million transactions a day. Its shares were originally floated at £13, and closed up by 2.63% on Friday at 898 pence.

The preliminary proposal from CVC and other investors - including Richard Koch and Antony Ball - offered 880 pence per share in cash or an "unlisted securities alternative made up of shares and loan notes in a new entity".

Mr Koch, a co-founder of LEK Consulting, holds a 6.5% stake in Betfair. Mr Ball is a non-executive director at Luxembourg-listed investment group Brait.
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Report frog2 May 13, 2013 11:06 AM BST
Shares traded as high as 947p this morning. Be interesting to see how this concludes.
Report john23 May 13, 2013 11:21 AM BST
By the sounds of it Richard Koch is our best bet to get Betfair going back to it's core strengths, i.e the exchange; fingers crossed.
Report frog2 May 13, 2013 5:05 PM BST
Any news on this?
Report DOUBLED May 13, 2013 5:09 PM BST
Seems like no bid ? Crazy
Report maas May 13, 2013 5:09 PM BST
CVC asked for more time, and have until tomorrow
Report maas May 13, 2013 5:13 PM BST
http://www.londonstockexchange.com/exchange/news/market-news/market-news-detail.html?announcementId=11580508

At the request of the Company, the Panel has consented to an extension of this deadline until 5.00pm on 14 May 2013.
Report frog2 May 13, 2013 5:19 PM BST
Thanks for the info.
Report CLYDEBANK29 May 13, 2013 6:02 PM BST
According to the bulletin "the company" refers to Betfair whereas the CVC are referred to as "Co-Offerors"  so Betfair have asked for an extension of the deadline, and they want to sell? 

A closing price of £8.95, only slightly over the initial offer price of £8.80, when it hit £9.47 earlier today suggests they are unlikely to get a better offer to me.
Report frog2 May 13, 2013 6:05 PM BST
Do you know how things things tend to work out Clydebank? I am not clueless when it comes to city stuff.
Report maas May 13, 2013 6:26 PM BST
Im sure the "company" itself has to make the application for an extension, with the consent of the Offeree. Its made jointly.
Report CLYDEBANK29 May 13, 2013 6:30 PM BST
Not really frog but you can have hostile takeovers or friendly takeovers.  In a friendly takeover the Board of Directors will liaise with the people making the offer and recommend the bid to shareholders.  in a hostile takeover they won't and the hostile bidder will try and make an offer they feel shareholders can't refuse. 

I think normally you'd expect a share price to rise around 10% upon an accepted takeover bid and the fact that the current price is only 2% higher than the previous bid suggests not, especially since the Board stated it "fundamentally undervalued" the firm.
Report CLYDEBANK29 May 13, 2013 6:33 PM BST
All in all strikes me they want to sell but CVC are unsure about upping the ante.
Report viva el presidente! May 13, 2013 6:51 PM BST
that's how it strikes me too CB.

maybe they've asked for an extension to give them more time to read the forum.
Report maas May 13, 2013 6:56 PM BST
http://www.reuters.com/article/2013/05/13/betfair-idUSL6N0DU3OP20130513

I suspect a new price has been suggested to CVC by the board, and they've gone away to decide if its worth it.

Im not naive as to think if they succeed then everything will be fantastic, the premium charge will be ripped up and we'll all go back to having a free lunch, far from it they're here to make money and lots of it, but anything that deviates from a CEO who wants to turn the global betting exchange into PaddyPowr.com-with-lay-option has got to be a positive step.
Report frog2 May 13, 2013 6:58 PM BST
Maybe. A lot of value might be added if the exchange is released from the self-imposed shackles of the Premium Charge and allowed to grow again.
Report viva el presidente! May 13, 2013 7:18 PM BST
in the short term,a lot of value would be lost. the loss of PC revenue would be immediate and definite, and any compensating increased revenue from resulting growth wouldn't show up for a while, assuming it showed up at all.

I'd expect any buyer to focus on finding other ways of growing the exchange before they did anything to change the current charging system in winners' favour.
Report frog2 May 13, 2013 7:24 PM BST
A seven figure sum from the PC each year (on £380m) is peanuts. It was a huge mistake. No one thought through that people would stop market making (not bother) and thus revenue growth would stop.
Report viva el presidente! May 13, 2013 7:32 PM BST
do we know what the actual revenue from the PC is?
Report Contrarian2 May 13, 2013 7:32 PM BST
A seven figure sum from the PC each year (on £380m) is peanuts.

Do you know exactly what they receive from PC/year?
Report Contrarian2 May 13, 2013 7:34 PM BST
If it's only 7 figures, must be very high 7 figures. There are a few individuals/syndicates who each pay 7 figures alone.
Report frog2 May 13, 2013 7:39 PM BST
There are a few individuals/syndicates who each pay 7 figures alone.

This maybe the case. I think there are a few who pay 'alot' and some traders and inrunning folks that are still here paying a little. But the total is very low compared to the overall revenues. PC1 may have resulted in a tiny net increase in revenue (but a huge drop in goodwill). PC2 has killed the exchange.
Report viva el presidente! May 13, 2013 7:48 PM BST
but what are you basing your numbers on frog?
Report john23 May 13, 2013 7:48 PM BST
THEY know they've done a wrong un with the PC.  That's why account managers were mobilised to sound out the PC payers a couple of months back. Mine told me it was being looked into to make it fairer with a possible weekly allowances etc.  This came from the very top.  They would not have bothered unless they realised that markets were starting to be affected.  Too many post were going up all over the shop regarding lack of liquidity.

Unfortanely for them this place is not some betting Utopia were backers and layers meet in perfect harmony.  The markets need people to sit there and price up events as tight as possible and not get done over for up to 60% for providing BF's recreational punters a chance to get in and out at near 100% books. 

We are only taking about 0.001% of users here. If we can't have a win/loss ratio like that the whole concept is flawed.

IMO is was just an ill thought out money grab that has come home to roost.
Report CLYDEBANK29 May 13, 2013 7:55 PM BST
frog, cutting and pasting from another thread these were the daily revenues from the exchange:

Apr 2008    £431,534
Apr 2009    £507,551
Apr 2010    £569,975
Apr 2011    £616,986
Apr 2012    £685,205
Oct 2012    £723,288*

It suggests they get over 100K a week in premium charges because turnover hasn't increased since April 2011, only their share of it
Report nbdbscms May 13, 2013 8:11 PM BST
The share price has risen from £7ish to £9 since the bid.If unsuccessful is the share price likely to freefall back to the initial price within a short period? Not very knowledgeable on shares-is this the likely scenario?
Report john92 May 13, 2013 8:29 PM BST
You would need to factor in the increase in turnover due to PC churning, so 'actual' turnover would be even less.
Report tommycockles May 13, 2013 10:43 PM BST
Racing Post ‏@RacingPost

Betfair rejected a final offer of 950 pence per share they said "undervalues the company and its attractive prospects"
Report frog2 May 13, 2013 10:54 PM BST
CLYDEBANK29,

Do you mean 100k per day.. i.e. £36m a year? This assumes no growth in inplay sports - which are actually the only area still growing. For instance IPL figures are well up. So if £36m is the max figure.

We know that no one entity pays Betfair more than 1% of its revenue. So no one is paying more that £7k a day commission day in day out. This includes basic commission and not just PC. So £2.6m is the most anyone is paying. You have to assume they pay some amount of basic commission as well. There cannot be many people paying that much in PC. There is simply not enough money on the exchange to sustain it.

The problem is liquidity is dropping like a stone. A year ago you could lay a horse on here to lose £5k with next to no slippage. Now you are looking at about 2%-3% slippage. This means people lower their stakes and thus liquidity drops further. They desperately need to appeal to position takers to stay here and market makers to remain.

It is just matter of time before someone gets the pinny model to work mainstream in the UK. If Betfair havent got their act together by then they will lose all their position players and then there will be no need to for market makers either.
Report pmbets May 14, 2013 2:34 AM BST
I predict Betfair will be in really  bad shape in a couple of years unless they are taken over.
Report john23 May 14, 2013 8:17 AM BST
FOR IMMEDIATE RELEASE

14 May 2013



On 15 April 2013, CVC Capital Partners Limited announced it was in preliminary discussions with Richard Koch, Antony Ball and partners (together the "Consortium") regarding options in respect of Betfair Group plc ("Betfair"). The Consortium confirms it has been unable to agree financial terms with the board of Betfair and as a result has no intention of making an offer for Betfair. Accordingly, the Consortium is bound by the restrictions under Rule 2.8 of the City Code on Takeovers and Mergers.
Report john23 May 14, 2013 8:28 AM BST
950p rejected.  Will shareholders ever see that price again?


Betfair Group plc

13 May 2013



Offer Discussions Terminated



Betfair Group plc ("Betfair" or the "Company") announces that discussions with CVC Capital Partners, Richard Koch, Antony Ball and partners (together, the "Co-offerors") have been terminated



On 22 April 2013, the Board of Betfair (the "Board") announced that it had rejected a preliminary proposal (the "Proposal") from the Co-offerors regarding a possible offer for the Company at an offer price of 880 pence per Betfair share. The Company also announced that following the completion of its financial year ended 30 April 2013, the Company would bring forward its trading and strategy update by 7 weeks to 7 May 2013.



On 7 May 2013, Betfair announced a trading and strategy update following the completion of its financial year ended 30 April 2013. The announcement provided the Company's shareholders and potential investors with a detailed update on recent trading performance and the progress in the implementation of the Company's strategy which was set out in December 2012. In particular, the update set out:



n The estimated results for the financial year ending 30 April 2013 which were above the top end of the Company's previous guidance range with estimated revenue of c.£387 million and estimated underlying EBITDA of c.£73 million;



n The excellent progress made in the delivery of the Company's plan, including an increase in the cost savings estimate to c.£30m (from £20m) and that the full benefit of the cost savings would be realised in the financial year ending 30 April 2014; and



n The strong strategic momentum within the Company, including indications that product and marketing strategies are working, evidence that the exchange and sportsbook are complementary, and that opportunities exist to accelerate growth through building a presence in international markets and utilising the Company's balance sheet strength to achieve greater scale.



Following the announcement of the trading and strategy update, the Board received a revised proposal from the Co-offerors (the "Revised Proposal") on the evening of Friday, 10 May 2013. The Revised Proposal valued each Betfair share at 920 pence per share in cash (an increase of 5% over 880 pence) or an unlisted securities alternative of shares and loan notes subject to an overall limit of £250 million or approximately 26% of Betfair's issued share capital. The Revised Proposal remained conditional on, inter alia, completion of due diligence, arrangement of appropriate financing and receipt of a recommendation from the Board. The Board reviewed the Revised Proposal with its advisers and rejected it. This was communicated to the Co-offerors by the Chairman of Betfair (the "Chairman") on the morning of Saturday, 11 May 2013 and the Chairman sought to understand whether the Co-offerors would be making a further revised proposal.



On the evening of Sunday, 12 May 2013, the Board received a further revised proposal from the Co-offerors, which was described as a "full and final offer" (the "Further Revised Proposal"). The Further Revised Proposal valued each Betfair share at 950 pence per share in cash (an increase of 8% over 880 pence) or an unlisted securities alternative of shares and loan notes valued at 920 pence per share subject to an overall limit of £250 million or approximately 26% of Betfair's issued share capital. The Further Revised Proposal remained conditional on, inter alia, completion of due diligence, arrangement of appropriate financing and receipt of a recommendation from the Board.



The Board reviewed the Further Revised Proposal with its advisers and rejected it on the basis that it undervalues the Company and its attractive prospects. The Chairman communicated this decision to the Co-offerors on Sunday evening but indicated that, if the Co-Offerors were willing to further improve their proposal, the Board would consider further discussions. The Co-offerors indicated a willingness to reconsider their proposal in conjunction with discussions regarding their business plan for Betfair.



During these discussions it became clear that it would not be possible to agree the terms of any proposal in conjunction with a business plan that was deliverable. In light of this, the parties terminated discussions and the Co-offerors confirmed that they would be issuing a statement under Rule 2.8 of the Takeover Code that they do not intend to make an offer for Betfair.



Gerald Corbett, Chairman of Betfair, said:

"The Board has spent considerable time assessing the various proposals, including detailed discussions with the Co-offerors. The Board concluded that none of the proposals represented adequate value or acceptable execution risk.



Under the new direction of Breon Corcoran and his management team the Board believes that Betfair is making excellent progress in the implementation of its strategy with momentum building from early success. The Board remains confident in the continued delivery of this strategy and the Company's outlook and growth prospects."



Note 3 of Rule 2.5 of the City Code on Takeovers and Mergers (the "Code") requires the Company to point out that this statement is being made by the Company without prior agreement or approval of the Co-offerors.
Report use2begudear May 14, 2013 8:48 AM BST
Anybody recognise the company above ? "excellent progress............momentum building from early success" ?? Shocked
Report frog2 May 14, 2013 9:24 AM BST
The focus is on cost cutting and a second rate sportsbook.

The exchange has been left to slowly downsize with fewer markets and liquidity. A great idea sadly not updated for the modern marketplace.

More focus on cherry picking UK and IRE recreational punters.

They will hope to get in on the continued general growth of online sports betting. World cup next year.

If the 15% point of consumption tax does come in for the UK next year those cost savings will surely be wiped out and then what are they left with?
Report CLYDEBANK29 May 14, 2013 10:35 AM BST
frog yes I meant £100k a day.

I wouldn't be happy myself today if I were a shareholder.  Just lost 10% of my stake
Report Do wah Diddy May 14, 2013 10:44 AM BST
BETFAIR NEED TO GET INTO THE U S A ,THEN THEY WOULD BE WORTH THEIR WEIGHT IN GOLD.

THEY SHOULD SEND MR BETFAIR TO AMERICA AND HE SHOULD HAVE A QUITE WORD WITH THE MAIN SENATORS,

HE SHOULD SAY HELLO BUDDY ,LET BETFAIR INTO AMERICA AND WE WILL GIVE SOME DOLLERS TO SPONSER
THE MISS TEENY GLAMOUR PAGEANT
Report Do wah Diddy May 14, 2013 10:46 AM BST
AND THEM COUNTRIES IN EUROPE YOU WANT TO TAKE THEM TO THE HUMAN RIGHTS TRIBUNERAL AND TELL THEM THEIR RACIST FOR NOT LETTING YOU TRADE WHERE YOU WANT
Report CLYDEBANK29 May 14, 2013 10:51 AM BST
Singapore the latest country looking to tighten the noose on Betfair
Report Do wah Diddy May 14, 2013 10:56 AM BST
HAVE YOU SENT THE RIGHT PEOPLE TO NEGOTIATE FOR YOU ,AS IT SEEMS TO ME ALOT OF THESE COUNTRIES MUST NOT LIKE YOU AS THEVE NOT LET YOU IN
Report Do wah Diddy May 14, 2013 10:59 AM BST
YOU NEED TO SEND SOMEONE WHO WEARS A SHIRT AND TIE AND SUIT WHO SPEAKS POLITELY AND SOMEONE WHO DOESNT LOOK DODGY
Report Innocent Bystander May 14, 2013 11:23 AM BST
On Betfair, I hear price not really an issue, more that management didn't buy into Koch's radical plan to focus on big exchange customers

https://twitter.com/walshdominic/status/334244259769233408
Report andyl May 14, 2013 12:06 PM BST
is betfair an exchange or a bookmaker?? don;t see how it can be both??
Report Tom May 14, 2013 12:17 PM BST
IB,

That will be the management who do not have a clue about the exchange. All Betfair is left with is Sportsbook people. I have heard another tranche of experienced people have left BF HQ. Noone left. Turn the lights out.
Report viva el presidente! May 14, 2013 12:33 PM BST
what are the rules on how long they're barred from bidding again for?
Report frog2 May 14, 2013 1:04 PM BST
How many shares in Betfair do the board/senior management have?
Report ballabriggs May 14, 2013 1:46 PM BST
"management didn't buy into Koch's radical plan to focus on big exchange customers"

Can someone please explain this comment.  If the firm was taken over, surely the management would be replaced anyway.  Isn't it up to shareholders whether to sell or not, not up to the management?
Report CLYDEBANK29 May 14, 2013 2:43 PM BST
that's how a hostile takeover bid would work.

In essence its down to the management.  Shareholders would only get involved if they had no confidence in the management.
Report CLYDEBANK29 May 14, 2013 2:46 PM BST
Might pan out that way in due course
Report ballabriggs May 14, 2013 2:56 PM BST
If Betfair is worth £900m now, in two years time it is much more likely to be either worth a lot more or a lot less, than it is to stay constant at around the £900m mark.  There is a lot of slack which can be picked up.  Would be interesting to know what areas CVC thought they had spotted where they could add value. 

If Koch has made a plan to focus on big exchange customers, that is flawed.  The plan should be how can you make the exchange as entertaining and good value place as possible for as many punters as possible, to grind away their hard-earned dollar into company coffers.
Report CLYDEBANK29 May 14, 2013 3:15 PM BST
And to do that you need liquidity and variety.  That is the biggest problem facing the exchange imo.  For a while now there's been a core of markets that have got bigger, while layer upon layer of other markets dissolve away.  The layer gets nearer and nearer to the core every year.  It might be a cycle that can't be broken.
Report viva el presidente! May 14, 2013 3:30 PM BST
the question here really is how applicable koch's pareto principle stuff would actually be to exchange betting. applied wrongly, focussing purely on the 20% of customers that bring in 80% of the revenue could damage the "ecosystem" in a way that created a revenue spiral.

BF isn't like a lot of businesses in that the customers and transactions aren't discreet.

if you're selling apples (it's always apples on here for some reason, so let's go with them), you can decide to just sell to the processed food industry that's providing 80% of your business, and cut costs by not bothering with little old ladies coming in buying retail. the little old ladies not coming in has no discernable impact on the activity of mr kipling.

but BF's not like that. all the customers, big and small, are part of a far more interrelated system.
Report use2begudear May 15, 2013 9:53 AM BST
At 5pm on Monday evening, all seemed still to play for in the great Betfair takeover stakes.

Those private equity raiders from CVC had already raised their proposed offer for the betting exchange operator three times, up from 880p a share to 920p and then, on Sunday night, to 950p.

CVC had declared the last one, valuing Betfair at £990m, “full and final”. But, despite that, Betfair chairman Gerald Corbett had given CVC one more chance to “further improve” its proposal. The hint was that the board might play ball at something close to £10, even 975p.

To help CVC get there, Betfair put up new chief executive Breon Corcoran and chief financial officer Alexander Gersh. On Monday they met CVC’s UK boss Rob Lucas and a London partner, Pev Hooper, at the offices of Betfair adviser Goldman Sachs. It was the first talks between the two sides’ management.

When, at just after 5pm, Betfair said it had agreed to a 24-hour extension of CVC’s put-up-or-shut-up deadline, some might have wagered a deal was on the cards. They would have lost their money. Five hours later all bets were off.
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Why the talks broke down is now hotly disputed. CVC, which was working with 6pc investor Richard Koch and another shareholder Antony Ball, simply said it had “been unable to agree financial terms with the board of Betfair”.

But Betfair bridles at that, claiming the real reason is far more complex, as its statement to the Stock Exchange implied. It said that, during Monday’s discussions, “it became clear that it would not be possible to agree the terms of any proposal in conjunction with a business plan that was deliverable”.

CVC’s proposal, claim Betfair sources, was wholly reliant on poaching Corcoran and his team, as it had failed to line up any management of its own. Not only that. It wanted Corcoran to back a business plan that was so far removed from the one that the new Betfair boss had presented only a few days earlier as part of the group’s defence that he would have been unable to have done it with a straight face.

“CVC had a cloud cuckoo plan and no management,” claimed one insider.

The private equity firm, which typically tries to work with existing management, would disagree with that. But there were strategic differences.

The CVC plan was partly penned by Koch, a long-term advocate of keeping the exchange – built on peer-to-peer betting – the absolute centre of the business. Koch has been dubbed an “exchange evangelist”, like ex-Betfair managing director Mark Davies, who in a recent blog cautioned against the group becoming a conventional “me-too” gambling company.

Alongside that, the CVC plan called for a focus on cash margins and a cut in customer numbers, concentrating on the big fish not the minnows. That allowed the marketing budget to be slashed from a historic £90m-£100m a year to £20m as Betfair stopped chasing tiddlers only interested in £10 free bets.

By contrast Corcoran, who joined from Paddy Power last August, has put Betfair’s new sportsbook – offering similar fixed-odds wagers to other bookies – at the centre of his strategy.

He sees Betfair’s unique proposition as the interplay of the exchange and the sportsbook, highlighting how it helped drive an 18pc rise in customers in the past six months, with 24pc of football punters now betting on both.

“I’m paid to drive shareholder value not to pay homage to the exchange,” Corcoran declared tellingly last week.

He’s also earmarking an extra £10m of cost savings he’s found for marketing.

Even so, sources close to CVC claim the strategic differences are not as big as Betfair suggests. “All they are trying to do is deflect attention from the fact that they turned down 950p,” said one.

Indeed, even with the shares dropping just 30 to 865p yesterday, some big shareholders are livid. Half the shares are owned by investors from before 2010’s disastrous £13-a-share float. Many, thought to include Japan’s Softbank and co-founder Andrew Black, with around 7pc, were happy to back CVC at £9.50 or less because it planned to allow them to roll over their investment and benefit from any upside.

Protecting Corcoran from the bid fall-out is also a key motivation of the Betfair board. Last week he admitted that, thanks to the bid, “we are showing a bit more leg than we might have like to”.

Now he has 950p to shoot for, you hope he’s not already shown too much.
Report Rueben May 15, 2013 10:49 AM BST
So CVC wanted to run it as an exchange and grow it that way and Betfair want to become Pa d d y Power mkII ? If there are some unhappy shareholders right now then what do you think the share price will be in 12 months time ? Any takers on above £9.50 Laugh
Report viva el presidente! May 15, 2013 10:51 AM BST
interesting.

the thing that keeps striking me about all this is that they make so much of the six month customer acquisition numbers, yet seemingly these are largely the product of buying a load of customers as a job lot just before the end of the financial year.

you could put those two things together and see a hint of desperation; in which case rejecting the 950 share price would have been a gambit to squeeze a bit more out of CVC which has badly backfired.
Report Mr.Anderson May 15, 2013 11:12 AM BST
I don't think that 24% of football punters now betting on both the exchange and the sportsbook tells the whole story either. How many of them have just taken advantage of a special offer one or two times?

I have not yet placed any bet on the sportsbook, but one time I came very close. You could place a £5 bet one day on a certain correct score market, and get a free £5 bet on a correct score market the following day. I figured that could have given me a guaranteed profit of £1 or so, despite the horrible odds they offered:) I forgot about it though, and never placed any bet. If I had followed through with my plan, would they have counted me as using both the exchange and the sportsbook?
Report viva el presidente! May 15, 2013 11:24 AM BST
well, yes - if I was part of the bid, I'd want to know the details of how that 24% was calculated.

if it includes anyone who's ever had one bet on the sportsbook, it's pretty meaningless, as it will include people who've taken advantage of offers, people who've arbed the sportsbook against the exchange and even people who unwittingly used the sportsbook thinking it was the exchange.
Report CLYDEBANK29 May 15, 2013 11:57 AM BST
...... information coming through on Betfair news ticker ....... 24% of football customers take advantage of £5 free bet offered on Sportsbook ...... 76% couldn't be bothered.  ....... Blue Square acquisition sorted .... Blue Square customers are now Betfair customers... Betfair customers now up 18%....GET IN!!!!..... Blue Square customers given £5 free Sportsbook bet as a welcome bonus.....oh that means even less than 24% of exchange customers actually took advantage of the free £5 bet....xxxx!!...xxxx!!....I didn't mean that....many Blue Square customers are already Betfair customers....have we counted them as new customers too?....crackle crackle....
Report Total Bosman May 15, 2013 12:41 PM BST
I'm not an expert in any of this at all, but it's fascinating reading.  If, as it sounds, a key issue is the fact that CVC's business plan could not or would not be delivered by current management then I guess we can see why the current management is desperately trying to justify it's own existence and strategy.  Do the investors who bought in to a unique, innovative, technology-focussed gambling company and are now being given a second-rate bookie really agree?

The fact that CVC has a radically different business plan but allegedly no replacement management lined up seems interesting- but there seems to be a very obvious solution to this that must surely be Mark Davies, who has been commenting regularly on the process, and who, despite protestations to the contrary, would surely be amenable to return as CEO of a company he loves, under someone he respects, and going in a direction he favours. 

Indeed, his latest blog hints that the sticking point is the change of management, without of course discussing any potential part he might have in that.  If his analysis is correct then Corcoran has at least one major shareholder firmly on his side blocking the deal, but the guy had better deliver quickly to keep his position.  And any attempt to do so in the short-term is unlikely to be to the benefit of the business longer-term.
Report Do wah Diddy May 15, 2013 12:56 PM BST
I THINK THAT WHEN THE ROMANIANS FLOOD THIS COUNTRY AT THE BEGINNING OF NEXT YEAR ,WHEN THE IMMIGRATION LAWS ALLOWS THEM TO FLOOD IN ,I THINK THIS WILL HELP THIS COUNTRY IMMENSLY,AS THEY LOOK THE SHADY TYPE THAT LIKE TO GAMBLE
Report Do wah Diddy May 15, 2013 12:56 PM BST
I MEANT THIS COMPANY NOT COUNTRY ^^^^^^
Report askari1 May 15, 2013 6:38 PM BST
They have not really disagreed over price. They have disagreed over whether to move forward as an exchange.

CVC will have needed to keep Messrs Black and Wray sweet by offering them shares in a new unlisted vehicle. One of these people will have insisted they keep Breon Corcoran, the most successful gambling exec of the last 5 years, onboard.

Koch/CVC will have seen Mr Corcoran primarily as a brilliant marketeer. They wd have been delighted for him to run Betfair blue (or yellow/black or whatever) underpants up a flagpole outside Cheltenham rather than Paddy green underpants, so long as he was publicising the exchange.

But Mr Corcoran's management team will have jibbed at this understanding, thinking that they had a strategy to drive bf forward as a Power-like bookie diverting mug money away from the exchange layers and shrewdies as much as poss. to bf's own coffers.

This puts the founders in the unusual position of backing their man against backing their original concept. With no fundamental disagreement on price or on the participation in any price rises of the founders, this position can only be temporary. It is highly likely that the founders will either prevail on Corcoran to come round to their initial vision or abandon him.

If you look at Mr Corbett's statement the key expression is that the proposal the shareholders were offered posed an 'execution risk' that failed adequately to compensate them. This is code for abandoning the sportsbook and going hell for leather trying to grow the exchange.

We have the former executive of Railtrack rejecting the initial vision w/out much understanding of the exchange ecology probably on the principle of 'once bitten, twice shy'. How long before Koch settles his differences over strategy w/ any major shareholder who wants to buy in to the pure exchange model?
Report viva el presidente! May 15, 2013 6:54 PM BST
well, if the guy's that brilliant a marketer and exchange betting is such an inherently better product than traditional bookies, how hard would it really have been to get BF more than 12% of the market?
Report askari1 May 15, 2013 7:08 PM BST
Gerald Corbett: The Board concluded that none of the proposals represented adequate value or acceptable execution risk.

This phrase is the smoking gun.

Why shd it matter whether a buyer's strategy is risky if the seller is selling? Either a shareholder likes the strategy and gets shares in an unlisted vehicle or he doesn't and he's bought out.

The Board are protecting the interests of managers/shareholders who have a different view of the company's future to Mr Koch. They are standing up for the American head of games who wd be happy for Reactors to pop up over the prices in the final two furlongs. This is unsustainable when these managers' share is negligible alongside that of major historic backers of the company like Softbank.

Run yr underpants down the flagpole, Mr Corcoran. After having more or less having said yes to £10, you will either have to get the share price considerably higher in the very short term or you will be bought out and replaced w/ an exchange evangelist like Mark Davies.
Report askari1 May 15, 2013 7:18 PM BST
He doesn't want to market the exchange b/c of fears 1) that the home market is saturated, and 2) that expanding in grey and unlicensed territories is too risky.

It's harder to market an online only bookie b/c the bond that casual players have w/ premises is absent and b/c some of these punters are more price-sensitive than he realised.

We can all think of the most hard-hitting advert with, say, a bookie laughing jovially and spreading the craic until a punter wants to put his cash on a warm one / a Pricewise selection, then the bookie stops laughing and shuts up shop or the prison-type grille they have in bookies comes down and the customer is turned away. The reason that bf have not run any ad like this (instead having a penny-punting mug blinking in an empty pub) is that they want to be part of the industry they spent their first eight years or so taking on.
Report viva el presidente! May 15, 2013 7:48 PM BST
This phrase is the smoking gun.

------------

yeah, I don't get what this has to do with the current value of the company?
Report askari1 May 15, 2013 8:07 PM BST
viv, The prob. is that there are some shareholders in bf i.e. the management whom the bid envisaged wd remain in place but who disagree w/ the pure exchange-model bf strategy.

Koch likes the company, can accept the current management (esp. if other major shareholders believe in them) but thinks with the sportbook the company is going down the wrong path. His shareholder value has withered too long for him. His bid seems to be a bit of a flier--i.e. he doesn't have his own team, his own projections etc. and doesn't anticipate doing anything other than bf were doing 2000-7.

But the idea that the exchange runs itself and only needs a very good PR dept. and legal counsel was roughly how bf kept afloat in its massive growth phase.
Report viva el presidente! May 15, 2013 8:16 PM BST
so the "execution risk" is unacceptable to whom?
Report gus May 15, 2013 8:19 PM BST
this Corcoran person may (or may not ... i know nothing of him) be a good salesman, but why on earth is a sales rep allowed on the management 'team' ?

managers manage, salesmen sell.

buy him a bike and some cycle clips and pay him to knock on doors. If sales increase give him some commission and invite him for a drink at the next board meeting.
Report frog2 May 15, 2013 8:24 PM BST
To be fair he made paddy power into a 3bn euro company. According to an article on another thread Ed Wray supports him.
Report askari1 May 15, 2013 9:01 PM BST
Viv, presumably to those shareholders who cannot be bought out, viz. the management team who will be locked in to incentive programs for options / performance-related pay.

This can only be a transitory problem.
Report viva el presidente! May 15, 2013 9:19 PM BST
if it was that, surely they'd be in no position to advise other shareholders as their interests would not coincide.
Report askari1 May 15, 2013 9:19 PM BST
frog, Breon Corcoran wd not have wanted to run BF had he not believed in the exchange model. Perhaps he just believed in exchanges as a price-finding mechanism and wanted to take advantage of exchange players' activity in some other way i.e. through a sportsbook.

Bf under his management has had too many really wretched execution probs. i.e. Beta to convince me that he has a fully worked-out long-term strategy that everyone in the company understands and can line up behind.
Report askari1 May 15, 2013 9:20 PM BST
viv, the CEO and board have the ear of the Chairman. It is for the board, whose interests should but don't always align with those of other owners, to recommend or reject an offer.
Report frog2 May 16, 2013 7:26 AM BST
His target is to get revenues and EPS to a set amount by April 2015. Thats two years. I think the revenue figure is set at £498.3m which is quite a jump from the current £385m.

When you look at it from that point of view you can see why the incentive is there for a short term dilution of the Betfair brand in order to boost revenue and EPS by driving the sportsbook forward. I think hills revenue increased by £100m last year this way.

The problem for long term shareholders is that the dilution of the Betfair brand and the further moving away from the exchange as priority means Betfair loses its USP.

It could be argued that it the distraction of other products (Lmax, poker, games, casino etc) is what has caused the problems in the first place. Instead of staying 100% focused on building a brilliant unique business they have thrown time and resources at copycat offshoots.
Report frog2 May 16, 2013 7:31 AM BST
What they are doing now would be like Ferrari building a run of the mill cheap salon car. They would get a huge boost in sales short term as everyone would want a 'Ferrari' but long term the uniqueness of what Ferrari is and represents would be lost.
Report boycey May 16, 2013 10:15 AM BST
Extremely well put frog, the problem betfair are now going to find through their philosophy of growth at any cost, that the people at the top brought in to run the company are going to have short term goals and short term fixes to improve their c.v not Betfairs longevity as they know within 5 years they probably would have moved on.
Report askari1 May 16, 2013 1:17 PM BST
His target is to get revenues and EPS to a set amount by April 2015. Thats two years. I think the revenue figure is set at £498.3m which is quite a jump from the current £385m.

I'd guess that Mr Corcoran has something like nine months to show a decisive upward trend in revenues through the combination of sportsbook and exchange. Revenue at bf has come near to flatlining for three years. Management has taken the view that a whole change of strategy is needed to get it moving upward again.

Ed Wray and Richard Koch will have agreed privately that bf is worth substantially more than £8 a share and that the exchange model shd rationally take over the betting world. Koch will have said that his equity has been under water for too long and he wants to take the company private. Wray will have agreed on two conditions: 1) that he retains his stake in an unlisted vehicle (CVC wd have been more than pleased for others to bear the risk of the buyout); and 2) that Breon Corcoran, outstandingly the most successful betting exec of the last five years, remains at the helm.

Corcoran will have argued to the board that he was being asked to execute a strategy utterly different from his (the compound exchange / sportsbook model) and that he cd not guarantee hitting any of his targets unless given a free hand to run the company as he wished.

The question now is of how long he has to convince Ed Wray and other investors that the exchange model is essentially limited and that his model represents a significant advance on it for owners. In other words, how long before Ed Wray consents to new management running a pure exchange?

Richard Koch can now go away and spend six months or so on and off talking to people like Mark Davies to put together a management team that's fully onside with his vision. Mr Davies was no part of the current bid because of Ed Wray's stipulation that Breon Corcoran was essential to bf's future. Davies said so on his blog and cd not have been dissembling in so important a matter.

I wd imagine in the short term for Mr Corcoran to move on adjusting the pc in specific and targeted ways for side market MMs. He needs to pump revenue into the sportsbook from casual players and at the moment is not matching the conventional books' cashback offers. Is something like 'cashback if Torres scores first in the Europa League final' a winner for them i.e. are their side-markets that deep? Bf is either going to have unattractive sportsbook markets (to the bettors they want to attract) or will have to bear excessive risk themselves unless they can decant to some willing clients.
Report frog2 May 16, 2013 1:50 PM BST
Surely if they thought Mark Davies was the right man to be CEO they would have given him the job 2005 instead of David Yu? At the time he was the face of Betfair so you would have thought he would have been the perfect person to take the company to floatation in 2008.
Report askari1 May 16, 2013 2:12 PM BST
The thinking wd have been that they were getting bigger as a betting company, had secured their position among the big High St firms and didn't need an apologist for laying at the helm.

The question for the company is whether they want to be another betting company--somewhere in the mid-rank alongside 3.65. If they have higher aspirations, they prob. need a significant percentage of senior management w/ experience in the company, esp. on the technical side. The company was floated partly as a technology business, a British ebay, so they will have shareholders who expected to be holding something more than a steady-earning, two-bit bookmaker.

Without the founders returning, longterm bf investors are in a difficult position. When they hire someone like Mr Corcoran, he moves away from the exchange model and digs in, facing down opposition in the company and seeing a lot of old-timers leave. But it has to be an open question whether he has a working strategy to take bf's revenues and market share to the next level.
Report askari1 May 16, 2013 2:18 PM BST
As Chairman they have Gerald Corbett, who ran Railtrack at the time that the company failed when it had to find 750 mill. of damages and maintenance costs after the Hatfield disaster.

It's likely that his experience will make him terrified of any form of regulation. When Mr Corcoran says that he is going to take bf out of any jurisdictions where there is a question mark hanging over laying and replace the revenue through charges and new products, it's very possible that Corbett will be with him all the way.

It seems very unlikely that as Chair Corbett wd have endorsed any plan that envisaged international expansion. He will not have too much of an idea of the debates around liquidity and pc--rather having an idea that bookmakers win the more bets they take and that their key metrics are rather sales and margin.
Report frog2 May 16, 2013 2:43 PM BST
If Betfair does end up like b365 with less and less liquidity on here they will be prone to someone else coming in doing the job better.

No one has done it yet for horses but in sports sbo and pinny have shown limits and rubbish odds are not necessary to run a book. If that model becomes mainstream margins will fall and the recreational books will not be able to compete. Providing live video on a third division game in Peru is not going to help them.

Betfair is a complicated model to sell to the masses but better odds is not.

The current system is so wasteful. Spend hundreds of millions on promotions and advertising to get new customers and then cut them if they show any sign of winning. Its not a long term plan that will work. There is no loyalty in online betting. Eventually people will go to cheapest place to bet as long as they know they will be paid.
Report askari1 May 16, 2013 4:23 PM BST
But the exchange model is only best price on multi-runner markets where punters' information costs are high.

It was designed by racing enthusiasts and by chance happens to have a near-unimprovable IR product.

How is it going to win market share from punters' 'own' bookies?
Report TheInvestor2 May 16, 2013 11:17 PM BST
lower commission.
Report TheInvestor2 May 17, 2013 12:03 AM BST
When Betfair came along, it outdid the competition on 3 fronts:

1) Fantastic value for fun bettors relative to traditional bookies
2) Ability to trade or bet repeatedly in various directions
3) In-play betting

Now the bookies have much lower margins and they're offering in-play, as well as lots of streams and a stable site, while Betfair have increased charges. So for the average punter who places an occasional £10 or £20 bet, Betfair has gone from blowing the rest of the bookie world out of the water, to being only slightly better than UK bookies, and worse than 'the rest of the bookie world combined'.

The 3 points that made Betfair special, have been reduced to:

1) Better than average value relative to traditional bookies
2) Ability to trade is still there as a unique feature
3) Nothing special about this anymore.

So literally the only stand out point is that you can trade here. It's still the case that anyone wanting to have a few fun bets here and there, is still better off with Betfair than any single UK bookie, but people willing to shop around for the best odds, will not find Betfair to be best price most of the time on 5% commission.


Betfair wins hands down in a competition with any UK bookie on price, but I think it should beat the whole bunch of them together.

Just think how good the liquidity on here would be if only bookies that messed up their pricing offered better value than Betfair.
Report askari1 May 17, 2013 12:21 AM BST
Can you model it so that bf can cut comm. and still hit a target of 500 mill. revenues in 2015? How does that come out?
Report TheInvestor2 May 17, 2013 3:42 AM BST
Apparently, one of the reasons Lads bought the purple exchange is that they found a substantial portion of their online customers also had a Betfair account. These people are shrewd enough to understand Betfair often offers better value, and they can be bothered with accounts with different bookmakers.

It seems obvious to me, that with lower commission, having a lads account would be completely pointless for these people, and they would stop using them, as would everyone doing the same thing with all the other bookies.
Report TheInvestor2 May 17, 2013 3:46 AM BST
IBC clears hundreds of millions at small margins, you can read about them here using google translate.
http://www.spiegel.de/spiegel/print/d-80362919.html
Report CLYDEBANK29 May 17, 2013 9:16 AM BST
Betfair was great because it was fun, new and it was the punters' champion that stuck one up the then "whingeing" bookie.  The more the bookies the whinged the better it was for Betfair, it gave them publicity and advertised their better value product.

After a while it stopped being new, it stopped being fun, it stopped being the punters champion with the PC and the bookies stopped whingeing.
Report Tom May 17, 2013 9:18 AM BST
The Investor,

You missed a key advantage that Betfair has. That is in terms of size of bet you can get on in the bigger markets. You can easily get £10k+ on Betfair on most events. Try getting more than £1k on with bookies whether in the shops or online. Obviously it depends on prices but they are simply not interested in taking bets. Pinnacle are the exception to the rule.
Report DOUBLED May 17, 2013 9:38 AM BST
Really Tom ??

Try getting 10k on any horse at York today and you will get on ...... but you will be backing a large chunk at 1/100 about a 3-1 shot Laugh
Report DOUBLED May 17, 2013 9:39 AM BST
That is if you try to get on now Shocked
Report Do wah Diddy May 17, 2013 10:15 AM BST
THEY NEED TO GET INTO THE U S A SO THEY CAN BET ON THE RODEO MARKETS,
Report Tom May 17, 2013 10:43 AM BST
Doubled,

You will be able to get £10k on within 30 mins of the race starting at prices more favourable than any bookie. You try getting more than £2k on with any bookie at any stage. Of course you are never going to be going to be able to get that sort of money on at this time of the day. We all know that horse racing is rancid to its core. Anyone offering early prices to that level will be very poor very quickly. You try and get £10k on a PL match with one of the big 3. Just ridiculous.
Report TheInvestor2 May 17, 2013 11:58 AM BST
Tom
Date Joined:     26 May 01
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17 May 13 09:18 Joined: 26 May 01 | Topic/replies: 24 | Blogger: Tom's blog
The Investor,

You missed a key advantage that Betfair has. That is in terms of size of bet you can get on in the bigger markets. You can easily get £10k+ on Betfair on most events. Try getting more than £1k on with bookies whether in the shops or online. Obviously it depends on prices but they are simply not interested in taking bets. Pinnacle are the exception to the rule.


Yeah that's right, my points were mainly relevant for the fun bettor, rather than people making a profit, and they will generally be allowed to bet large amounts with (some of) the bookies as well.
Report DStyle May 17, 2013 1:01 PM BST
it's a pleasure to read your analysis on this askari.
Report askari1 May 17, 2013 9:53 PM BST
Dstyle, thank you; you have to take what I say w/ a pinch of salt as I am not an insider but actually a hobbyist compared to full-time bettors on here. 20% of my guesses will be off.

The gross amount lost for the last year of records by the UK consumer to the remote industry is estimated at 2.04 billion., according to the Gambling Commission Industry Facts published last December. We know that bf captured 346 mill. of this, so some 17%. The 356 mill. figure is for 'core' revenue, comprising the exchange, sportsbook, games and poker.

Meanwhile the amount lost on sports betting in betting shops was 1.4 billion (and on FOBTs and games 1.6 billion). 9.1 billion was wagered on sports, with horses the most popular sport with 5.15 billion bet. Football had just over a billion. The horses resulted in a profit for the layers of 668 mill. at a margin of about 13%.

The big trend in sports betting for the estates is the erosion of margins on the horses due to the chains losing their pricing power to bf; this has led to an erosion of revenues (down 13% over the last two years). It is a rational response for the High St. to seek to move their recreational bettors onto the FOBTs.

It is clear that the remote handle just for UK bettors & gamers is much larger than the amount wagered in shops on sports. We don't know how much larger without having a number for the remote gaming profit margin. It's likely, though, to be less than the 13% margin the offices make on horse racing and 23% on football. It makes complete sense for bf to have a games and poker offering, given the share of gross yield (punter losses) surely contributed by these forms of gambling. I've always thought their games obtrusive and insensitively marketed (I still do) but looking at the numbers, there's no way that they can't have it and invest in it.

I'm not sure that there's much headroom on sports betting for bf to British online bettors. The two areas for growth will be 1) licensed European countries w/ previously limited or no betting options; the key product here will be IR football, and 2) arguably, bettors who do not currently bet online.

The other growth area will be mobile, in that some people who do not bet on their computer may come to bet on their phone. The reason bf is marketing 'cashout' is that its greatest danger is that these people try them as a novelty, quickly lose and go stale. I wd guess that these new bettors include a lot of the people wagering 9.1 billion in shops. Bf has to be a lot more clever in targeting them, for instance in racing channel adverts, sponsorships and other content that can penetrate into the office environment.
Report Hotblack Desiato May 18, 2013 5:07 PM BST
Tom makes a vital point - If you can see it in front of you and you think it represents value (minus deductions of course), then you can help yourself to as much as you want. Not so with our High Street buddies.
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