Andrew Black
The co-founder of Betfair.com talks to Startups.co.uk about the gamble that paid off
19 September 2003

Name: Andrew Black
D.O.B.: 13/5/63
Business: Betfair.com
Type of business: Online betting exchange
Start date: July 1999 (website launched June 2000)
Employees: 260
Interesting fact: His grandfather was the Tory MP Sir Cyrille Black, a life-long campaigner against, among other things, gambling.

When Andrew Black, co-founder of Betfair.com says, “I’ve had a very varied career and done a lot of job hopping,” he’s making somewhat of an understatement. If ever there’s an entrepreneur that’s trodden an unlikely path to fortune and success, it’s Black.

Okay, so his is hardly a rags-to-riches tale, but Black has overcome being kicked out of university, sackings and personal tragedy to rise to the head of a business that’s giving the likes of William Hill and Ladbrokes a real run for their money. In fact, his 40-year existence has been so colourful it makes a mockery of his monochrome surname.

But every experience, Black insists, whether it be stocking shelves at B&Q, caddying on the European tour, dealing on the stock exchange, gambling for a living, or caring for his dying brother, contributed to the day he thought up Betfair while, get this, working on a secret project for GCHQ.

“I didn’t have my first proper job till I was 26,” says Black. But despite spending two years discovering “other things” and “who I was” at Exeter University, and then “earning enough money for beer”, his lack of career focus was borne out of something far more serious than carefree living.

“I had a brother who was struck down by a horrible illness just after I left Uni. He woke up one day and he couldn’t get out of bed. He had all sorts of troubles and then slipped into a coma,” tells Black. “It turned out he had a brain infection.”

Black stopped working and cared for his brother for the final two years of his life. “I couldn’t really conceive working then,” says Black looking back on a period of understandable depression. “He was my only brother and I just wanted to spend all the time I could with him.”

A brief, and unsuccessful, sojourn onto the European tour later, he landed his first serious job - working in software. In the following four years, Black’s natural flair for figures – “I’m quite a good mathematician” – was able to flourish as he wrote heavy code and saw how big business, particularly the stock market, worked.

The high-risk stakes of the stock market captured Black’s imagination; and prompted him to start gambling.

“When you’re at the sharp end of trading you’re trading very much in the short term and it is very, very similar to gambling,” says Black. “When I left I didn’t have enough money to go trading. If you’re trading stocks and shares you need quite bit of cash and I hadn’t got it.”

Instead, Black turned to more conventional forms of gambling for his kicks - and his income.

“I won £25,000 on a £20 bet on a horse and then had a £30,000 win from a £1000 bet on a race,” recalls Black. “I’d won about £50,000 in three months; compared to what I was earning at the time it was a lot of money.”

Black programmed his own models for betting on football and golf and also played bridge for substantial figures. But despite doing “pretty well”, it wasn’t enough to keep him occupied.

“I think I became bored of it,” he says. “At the end of the day as a gambler you might have more money in the bank than you started with, but you haven’t actually achieved anything. There is no product, no day’s work. I guess that wasn’t enough me, I needed to feel I was progressing.

“Also I started losing because I was bored and couldn’t keep my concentration - I’m not good at applying myself to something unless I know I’m interested in it.”

So he moved back to buying and selling shares. “I was seeing the whole mechanics of the New York stock exchange first hand and getting fantastic experience in this incredibly exciting environment.”

His excitement was cut-short – he was sacked after a disagreement over business ethics – and he returned to programming, “earning ridiculous amounts of money for very little work” in a period where IT skills were in demand.

However, Black’s obsession with the stock market and intellectual thirst for a challenge or bet never went away. While working on a secret GCHQ project he can say no more about, Black had the time to contemplate how this passion could be twinned with his IT skills.

“We started work at nine and finished at five and if you weren’t out of the office on the dot they got rid of you. So I had a lot of spare time. I was living in a small remote farmhouse and was lonely.”

But the solitude gave Black precious time to turn things over in his head and come up with ‘the idea’.

“I think that was very important. You’re not going to have ideas like that unless your brain has got time to freeflow and your mind is allowing time just to wonder around. If an idea is going to work you have to have the time to span every aspect of it, and usually you don’t get that.”

So where did the actual idea come from? “It was taken from the way the stock exchange works and from everything I’d done,” tells Black. “It’s very simple, Betfair is a cross section of taking stock exchange technology to the gambling market using the internet. In my career I’ve worked directly with the stock exchange, I’ve been a professional gambler and I’ve built websites. I’ve been there on all three of them.”

The transition from idea to business was a slow one, and might easily have never happened. “First thing I did was think it through, rethink it, rethink it, rethink it… I started planning it through, but it was still a bit of a fantasy and I did have doubts,” reveals Black.

“Things were pretty good and it was a time when as an IT contractor I had a great lifestyle, and a very happy wife. Did I really want to leave it all behind by going out on a betting venture?”

But, of course, Black did. “In my heart I knew I had to do it because I couldn’t face the thought of going to my grave having had one great idea and not actually putting it into action,” he says.

However, before doing anything Black wanted a partner. “I wanted somebody who understood business. I understood the exchange, gambling, the Internet and could deliver the product. But with the business side of things I needed help.

But finding one was difficult. “I showed prototype to people, but didn’t seemed to understand it. I was very bullish and believed in it, but I guess my rather strange CV went against me.”

Then, at a garden party he met Ed Wray, the brother of a friend. “Ed was talking about a horse he’d bet on but was complaining he hadn’t won much. I said, ‘well it shouldn’t have been like that, soon bookmaking will all change’. Ed said ‘tell me more’ and so I explained the idea.”

A short time later, and after the sudden death of Black’s father whom he respected immensely for his own entrepreneurial drive, Wray got in touch.

“Ed wanted to know if I’d done anything about the idea I’d mentioned before and I asked if he’d like to be my partner.” Wray agreed in principal but not without certain changes.

“He had a different take on it,” says Black. “He said I had the right product and the idea was great but he thought the business plan was totally wrong. He thought if it was going to be done it needed to be done properly and we’d need to raise some serious finance.”

The pair spent the next five months working on the idea. “It was a very difficult stage,” recalls Black. “There were a lot of arguments: I wanted to push on and became very irritable that we weren’t. But in retrospect it was the right thing to do.
In the end, Betfair was born and Black gave Wray half the business. “Looking back I think I could have cut a better deal for myself but I don’t regret that because without Ed’s involvement it wouldn’t have happened the way it did.”
Black and Wray wanted conventional venture capital but it turned out they’d somewhat missed the boat. “A company called Flutter had got there before us,” tells Black. “They were selling the ebay of betting and had got a lot of funding. They didn’t have the knowledge or substance we had, but it was still terrible news.”

"Initially we thought we might as well give it up now,” recalls Black. “We didn’t get any VC and Ed was very depressed. So we decided to present the idea to wealthy individuals we knew in the city that had money to invest.

“We’d pick a bank, do a presentation and two or three would leave the room having invested £25,000. They had money to invest. It soon added up and we cobbled together the £1 million fairly quickly.”

They added £30,000 each and didn’t pay themselves for the first eight months. The site was created and launched on June 9th 2000, the day before Derby day. As funds were tight, Betfair deployed guerrilla tactics to promote the launch.

“We led a procession with coffins saying ‘death of the bookmaker’ through the city and held fake demonstrations with ‘Betfair – unfair’ protestors to try and get some publicity,” tells Black.

The antics made the front page of The Times business section, but there was no reaction from the high street bookmakers who have since questioned the legality of Betfair.

However, their response was no surprise to Black, who appears totally unmoved about the how the bookies’ view Betfair. “I think they were probably right to ignore us at the start. If they’d made a big outcry all they’d have done would have been to publicise us. We never worried by their reaction and it’s happened very much as we expected.”

In its first week Betfair traded £30,000, but it wasn’t the overnight success some investors had been hoping for. “I always thought it would be one of those sites that would creep,” insists Black. “It takes people time to understand us. They come to us, have a look, go away, come back have another look, go away and then maybe come back and bet.”

Betfair hit the big league after merging with rivals Flutter. “There was a big fuss when they launched and they had all this money but it wasn’t until six months down the line that in became obvious people were using us,” says Black.

“They had a huge advertising budget but they also had a message board where people were discussing Betfair. Punters were coming into them and leaving to us. About eight months later they looked at the market and realised we had 97 per cent of the market and they had three, despite the fact they’d spent 10 or 20 times what we had. At that point they realised the only way forward was our way.”

After failed attempts to copy Betfair’s approach, a merger was negotiated. But Black admits he felt awkward about striking a deal with people he’d viewed as enemies for the past couple of years, and also with the way the deal was concluded (many Flutter employees lost their jobs on Christmas Eve 2001 upon the deal’s completion).

“I really hated, and I mean really hated, these people for copying us – I’d felt violated - so it was strange to talk to them. I hated the way things were done too; it was terrible, absolutely terrible.”

However, Black’s regret at the way things were handled was perhaps tempered by Betfair’s reported favourable terms in the merger. “Basically we got the lionshare and, in all intents and purposes, we held the reins,” says Black.

Befair also got access to a “top class” CTO, the hardware and most importantly “the big punters” that were essential to driving the business on.

“It was critical. Not in any of the predictions we’d made did we foresee what happened,” says Black. “They had a huge user base of people who didn’t have a product that gave them what they wanted. Big gamblers weren’t betting as much as they wanted. We gave them more to bet and more liquidity.”

“It’s fair to say it was the major catalyst in getting to the types of level of business we’re out now and being able to manage it.”

Since then Betfair has established itself as the No.1 online betting website, and last year, Ernst & Young named Black and Wray, ‘Emerging Entrepreneurs of the Year’.

“We should have won”, insists Black unimpressed at, metaphorically, not taking all three points. His frustration seems to stem from a feeling that Befair often doesn’t receive the credit it deserves. “We created something totally new, totally unique and have come such a long way in such a short period of time. Not many other businesses can claim to have done the same.”

And Black has come a long way too. He no longer gambles and has moved away from the running of the business. Ed Wray has also stepped down from his position of CEO too, so how are things different?

“I definitely worked seven days a week and at least 10 hours a day when we started. I used to have a lot of responsibility too, but have a lot less now. I don’t have duties anymore, I don’t have a department anymore, I don’t have a people working directly for me anymore.”

Working for Black is something he likes to be a pleasurable experience. “We’re not big payers, but we do what we can to provide them (Betfair’s employees) with everything they need. It’s very social here and there’s a really good culture.

“We do what we can to make it a lifestyle place to be so people can come in and live their whole life around the company: make friends, socialise, participate in sports and feel like they’re really being looked after. It’s something that’s really important to me.”

He’s also moved his family out of the city and to a bigger house in the country. So is Andrew Black now, for once, totally settled? If I offered him odds on this question I think for once he’d be flummoxed whether to ‘back’ or ‘lay’.

Black has aired his disapproval at the government over tax issues – although he insists Betfair has been treated well by the authorities – and when asked if he’d start another business, he can’t contain that entrepreneurial instinct.

“Yes, I would but it’d be a difficult choice,” he says. “Again, I’ve got everything I need, but I would do it. And I’d do it alone as I know about running a business now.”

So as a man who’s bound to have whispered the odd tip in the past, what does Black have to someone starting out in business?

“Don’t trust the bad guys. If you don’t like someone or have a bad feeling about them, don’t do business with them. It’s the same with employees; you shouldn’t carry on with bad sentiment for the sake of it. Don’t be afraid to make hard decisions.

We all know the TC statement that no-one gets credit is false. I would like to see a 3rd party involved to find out just how many are allowed this luxury.

But they want a seat at the top table....AMERICA and when it opens its border to internet betting(and it will) things like this dont bode well with this firm getting an invite at that table.

They won't lose winning customers, it might not be the case with losing ones who have plenty of options.

whataboutthat, I meant winning / losing customers overall. I wasn't referring to that one market. Overall losers can pretty much get on where they want.

21M lay IP at 29 on a 13/8 shot 6 out and all to play for! Palpable error, anybody who tried to explot this was greedy and unscrupulous and should themselves be temporarily suspended from Betfair.

Anybody in general Feck. IR, Pre race or Football etc. People will always gamble and on here is the best opportunity to green up. (Or Red) I think Betfair know that they have you because they don`t have the competition.

Before Betfair introduced the bet matching logic I used to make books for several years on the pre-race horse racing markets. One downside to this modus operandi was the effect of late withdrawals and the subsequent applied reduction factors. Sometimes a reduction factor and work for and sometimes against. It's a risk that has to be taken into account but ultimately it's a case of swings and roundabouts. However, on Tuesday the 13th June 2008 I was trading the 7.20 Great Leighs race in which the favourite, Temple Of Thebes, had been heavily backed in the lead up to the race from, if my serves me right, approximately 7/2 to 8/15. Turnover was good and I had a very good green book and had matched approximately £10k worth of bets. Everything seemed fine until just before the race when the favourite decided to be a madam and proved difficult to load into the stalls. After 2 or 3 attempts the starter had enough and decided to withdraw her. As a result of Betfair applying a reduction factor that was more applicable to the horse's Racing Post tissue price and early market activity, the reduction factor applied after the race did not not reflect the late market move for the above horse. Subsequently, after the race I was left with not only a now red screen but I also had a negative balance to the tune of several thousand pounds. Ultimately I was told that I needed to cover the losses which I did as it was in my long term interests and I was also threatened with legal action. So the moral of the story is that balances can go negative and some of us have to pay should something go drastically wrong. (it was after this episode that Betfair reflected later market activity into the reduction factors, this of course was little comfort to me!!)

Don't matter, i'll catch it on Ch4+1 at 8pm

Rollo, I'm on classic so if you pm me let me know on here.

Feck,
I've sent you a PM.

Angry punters none the wiser after latest Betfair statement

Punters waiting to hear what caused the multi-million pound Betfair void bets fiasco on Wednesday were not much wiser on Friday evening after the company released a statement that shed little more light on the sequence of events than the news it had made public the day before.

By By HOTSPUR (J A McGrath) telegraph.co.uk

The episode, which has shaken the betting industry to its foundations, was explained away yesterday as a technical glitch, triggered because of “a unique sequence of events that had never happened before”. But we already knew that, Michael Calvin the company’s spokesman, had told us as much on Thursday.

Angry punters who are demanding that Betfair honour the bets, worth £23million, matched on Voler La Vedette during the in-running betting market provided by the exchange on the Christmas Hurdle at Leopardstown, were forced to wait until late on Friday for a statement from the exchange’s CEO, Stephen Morana.

This statement revealed that the unnamed customer at the centre of the incident had less than £1,000 in his account at the time, yet an automated programme – a 'bot’ as they are called – that he used had developed a fault causing it to request a large number of big bets, which were then capable of evading the exchange’s preventive system due to a technical glitch within the core exchange database. 'Bots’ are widely used by Betfair clients to match bets on the betting exchange’s website,
For the second time this week, Betfair emphasised that the account in question “has no commercial relationship with Betfair other than being a customer”.

The statement also stressed that Betfair had a reputation for integrity, but the fact remains that the world’s biggest betting exchange is fighting to maintain its reputation in face of opposition from a band of irate punters, who dispute the company’s decision to void bets on this market

The length of time taken to issue the statement has added to speculation that something serious infiltrated the sophisticated Betfair computer systems. The company strenuously denies this and is confident that these events can never happen again.

Betfair falls short in new attempt to end unease over voided bets

• Rogue bets were laid by a 'bot'
• Account had less than £1,000 in it


Greg Wood

guardian.co.uk, Friday 30 December 2011 21.26 GMT


The Betfair betting exchange on Friday issued what it described as a "full and final statement" on the extraordinary in-running betting patterns which turned the Christmas Hurdle at Leopardstown on Wednesday into one of the most high-profile and controversial races for many years. However, the statement offered little additional detail about how it came to process and accept a bet with a theoretical liability of nearly £600m from a customer with less than £1,000 in his account.

All in-running bets on Wednesday's race were declared void as a result of the rogue bet, which appeared to offer Betfair's clients a chance to back Voler La Vedette, the 13-8 second-favourite, at odds of 28-1, to a maximum of just over £21m.

The bet appeared in the early stages of the race and was available until Voler La Vedette, who was travelling ominously well throughout, crossed the line as an easy winner.

As many as 200 Betfair clients are believed to have placed bets totalling just over £800,000 on Voler La Vedette, with a theoretical return of about £23m. Instead they simply received their stake money back when Betfair voided the in-running betting due to "an obvious technical fault which allowed a customer to exceed their exposure limit".

Friday's statement, described as an apology and explanation to Betfair customers from Stephen Morana Betfair's acting chief executive officer, said that the bet had been placed by an automated betting programme – or "bot" – via the site's Application Programming Interface (API), which is designed specifically to work with betting software.

Morana's statement said that the "bot had developed a fault, causing it to try and place a very large number of bets on the exchange. These bets were large in size and mispriced. As [Betfair customers] know, the Betfair system is designed to prevent customers betting unless they have the funds to cover their maximum liability.

"In this case the customer had less than £1,000 in their account so none of these bets should have been accepted. However, due to a technical glitch within the core exchange database one of the bets evaded the prevention system and was shown on the site. This was an issue that was triggered because of a unique sequence of events that had never happened before."

The nature of the unique sequence of events was not explained, however, although Morana's statement assured Betfair customers that "there have been no subsequent occurrences of this fault and we've taken steps to prevent its reoccurrence in the future. Lessons have been learnt in terms of how quickly we need to respond and how we need to communicate with our customers."

Morana concluded by saying that he had been "personally devastated when this event occurred" and offered a further apology to all those affected by it.

Whether the latest "full and final" report on the Voler La Vedette fiasco will draw a line under the affair and restore confidence in Betfair's systems remains to be seen. Beyond the 200 or so customers who will feel personally bruised by the affair, some of whom might yet attempt to seek compensation via either the courts or the Independent Betting Arbitration Service, others will have been left with a sense of unease that such a bizarre bet could slip through the net, and also about the extent to which "bots" operate on the site.

Speaking to the Guardian on Friday evening, Morana said Betfair accepts that a significant number of customers will have concerns.

"When we investigated, it was as if there had been 10 different stars all in alignment," Morana said. "I would have said before the Leopardstown race that this was something that could never happen, the odds against it were just infinitesimally large.

"It was a system issue which should never have happened and we have put a fix in place to stop it happening again. We are talking about an infrastructure dealing with billions of bets a year and this one managed to sneak through.

"We match eight million bets on weekdays and up to 15 million on a Saturday and that's something we are very comfortable with. This was a body blow, which undermines the trust we've built up with our customers, and we've got to prove to people that it was a one-off.

"Yes, we are disappointed when we feel we've let our customers down, but to my mind, I think the vast majority are people who realise they've got a better chance of winning with Betfair than with a bookmaker, and they appreciate that this is quite a complicated beast that we've built."

He means BOTS, Ash...

What's going on here then

That Morana chap has some balls.

seriously.

To still come on and completely try and hide facts from us AGAIN!!! even though Calvin said on ATR they would tell us everything. He's another one....Its easy when you're doing PR stateside on TVG for the Breeders Cup talking up betfair odds to the yanks...completely different when you're under scruitiny on ATR huding facts from innocent punters and hiding behind T&Cs.

comical.

200 customers who feel bruised by this, i had no bet on the race but i feel very strong about the way this has been handled, betfair youre a disgrace and i personally hope that you end up in court

"Yes, we are disappointed when we feel we've let our customers down, but to my mind, I think the vast majority are people who realise they've got a better chance of winning with Betfair than with a bookmaker, and they appreciate that this is quite a complicated beast that we've built."

He missed out 'and when you reach certain thresholds we will pull your trousers down on a weekly basis and take a further 40-60% of your winnings for having the audacity to be a winning customer'

as posted on another thread, I got hit by a reduction factor that made balance go into the red for a few grand. Betfair wanted the money which they duly got. It was 'only' a few grand though :-)

I have always regarded the premium charge as an attempt to recoup money from the bot runners .  From that point of view , Betfair's position becomes debatable . If one of your customers wins all the time , do you bar him ( like the bookies do , and we have got bookie speak these last 2 days from the top at Betfair ) , or do you let him work away and take a big percentage of his ( guaranteed ) winnings for youself ?

The concept of person to person betting as encapsulated in the founders brilliant idea did not I am sure include the concept of pre-programmed computers skipping around markets and creaming off small but regular profits .

Computers are machines which do as they are told .  Rubbish in equals rubbish out was the first slogan I heard when I started as a computer programmer many moons ago . Binary code is ingenious , but does have certain criteria to be observed and protected . De bugging was always in the equation , particularly when new programs were being introduced/ tested . Nothing I suspect has changed , and the hoax or rogue bet may be a billion to one chance , or it may involve a sharper mind than anyone has been given credit for .  When people can hack into the Pentagon computers etc trust in infallibilty goes out the window .

Once upon a time I was standing near a numpty fobt type machine , the person operating it stood back as the screen went "Chinese" -- to illustrate the occurrence -- , and the machine emptied itself of all its contents .  Apparently the company providing the machine said this could never happen , but it did . Never trusted machines / computers / sales pitches / company statements from then on , nothing is impossible or too improbable .

So if I had seen the 22 million at 29 I would immediately have not believed it as my mental arithmetic "head " would have kicked in , on auto , just like a bot .

Did not see the win market at all on Voler  , but some of those who bet in running on it deserve to win ( or lose ) something on bets struck before the rogue appeared , and the place market should stand ( Betfair could compensate any of the autotraders who link the place market lays / bets to the win market if they want , personally I would say "tough " to them )  , amounts involved for any adjustment on that market  would represent .00001 % of share price fall .

Reckon some of the sharp minds have not been at their best this week , unfortunate because a lot of us have great admiration for Betfair , but sometimes you have to cope with the rough as well as the smooth , and this week was not a good week for anyone involved .