The history of Betfair has been written before and versions vary with some of the details. But here’s what really happened.
What sort of England ODI cricketer would Betfair’s Andrew Black have been?
Throughout the late 90s, England had a policy of stacking their ODI side with players who were often described as ‘’bits and pieces’’ cricketers. The idea was that they could all bat a bit, bowl a bit and field a bit. Put those three things together and you’ve got yourself a limited-overs international cricketer. You give yourself three bites of the cherry by hoping that they’ll come off in one of the three disciplines. Or at least that’s the idea.
Now put together a former pro gambler, City worker and Software Consultant and you’ve got Andrew Black, or Bert as everyone calls him. But Black is no bits and pieces anything. Black is a genius.
I can vouch for that from personal experience because having chatted to him a few times outside a certain Hammersmith office in the summer sunshine over a few Coronas, he blew me away. And I’m not one to be easily impressed.
He just has one of those minds that sees things differently to everyone else. And yes, he’s the mad-scientist sort of genius rather than the corporate, Versace-suit wearing kind. So much so that on every occasion I chatted to him, I was the smarter dressed of the two. And that’s saying something given I only ever wear a suit to weddings and funerals and consider wearing chinos as dressing smart for work.
A burly man, he wore Bermuda shorts from pretty much March to October with shin-length socks, sandals and a generic no logo t-shirt. He’ll chat to anyone and everyone and in the same manner whether you’re the tea lady or the Chairman of a FTSE 100-listed company. If you like horseracing, he’ll chat to you for hours.
But you don’t need me telling you he’s a genius. Just look at the facts: he invented Betfair.
The history of Betfair: Andrew Black, all-rounder
As a professional gambler, Black played bridge and of greater relevance, bet on horseracing for a living. He also had a spell programming his own models for betting on football and golf.
Which is all beautifully ironic because his grandfather was the Conservative MP Sir Cyril Black, a deeply religious, anti-gambling, pro-censorship, disciplinarian temperance campaigner.
Black was also employed by a derivatives business at one time and later owned a successful software company, evidence that he was whizz kid on the computers and internet front, too. So having done all three for a living at various stages and having a natural ability for mathematics, he had the ideal background and experience to be the man to come up with the idea that was to shake up the betting industry more than any other event over the last 25 years or so.
Betting Exchange based on stock exchange
His idea was based on the stock exchange. The latter operates on the principle of supply and demand. Traders buy and sell a pre-determined number of shares in listed companies at an agreed price. They use a broker with a license to execute the transaction to purchase or sell the shares and pay them a commission, either a flat fee or a percentage of the value of the transaction. The broker is a middle-man between buyer and seller.
Now why not apply this simple principle to sports betting, he wondered? Instead of buying and selling shares in companies, it would be odds on the outcome of sporting events. And instead of a broker, it would be a betting company in its own right building the software and managing the website that would allow gamblers from anywhere in the world to match bets against one another.
The betting company would for the most part operate like any other with a mammoth difference being that it didn’t set any odds, didn’t lay any bets and therefore had no liability. Laying a bet is just doing what bookies have always done- giving you odds on something happening. But here it would be customers laying the bets and other customers backing them. It would then charge a commission for offering its service of matching bets. In a very sporting manner, only the winner of each wager would pay commission, later determined as 2 to 5% of the gross winnings on any given betting market.
The BBQ party that changed betting
Of course having a great idea and turning it into a multi-million Pound business are two very different things. The history of Betfair relies on the fact that it’s two founders were like chalk and cheese.
By his own admission, Black lacked the experience and know-how to do things properly and methodically. Things such as getting the necessary investment and marketing the product to the right people. So it was fortunate for him that over an egg and cress sandwich, burger and glass of Pimms at a BBQ party, he met Ed Wray.
Their opening conversation was somewhat unsurprisingly about horseracing and more precisely about a racing bet that Wray had won but where he felt he should have won more. And if that’s a hard concept to grasp or sounds somewhat ungrateful given that at least he won, it’s not.
Any serious punter worth his salt will shop around for what is referred to as ‘best price’ or ‘top price’. To do that they will either have several online accounts or find out which high street bookies’ is offering the best odds on the runner or runners they want to back to win a particular event.
Back in the day that could involve driving round town and popping into different shops asking ‘’what price Best Mate in the Gold Cup?’’ or ‘’what you going on Ernie Els to win The Open?’’ but these days it’s much easier. You just go on different websites that tell you the odds offered by 20 or 30 different bookmakers’ on any given event and just place your bet with the company who’s offering best price. Like that website with the meerkats, just with betting odds rather than travel insurance or broadband quotes.
Always getting best price is crucial for a long-term profit, particularly when having big bets or betting at high odds. Let’s say you put 1000 quid on Phil Mickelson to win the Masters. If you take 12/1 with William Hill rather than 14/1 with Ladbrokes you’ve just cost yourself two grand if he wins by not shopping around. Same if you just have a fiver on a horse at 66/1 rather than the 100/1 he was available at elsewhere. You’re going to lose plenty of bets and there’s not much you can do about that. But you need to make sure that when you do win, you make the most of it.
As a serious punter Black knew this only too well. One of the hallmarks of Betfair is that by allowing customers to ‘negotiate’ odds at which they place bets with each other, it creates a competitive market which in turn means you secure higher odds than you would with a traditional or ‘fixed odds’ bookmaker. So Black told Wray that he knew of a way that this wouldn’t happen next time he had a winner. And so the conversation about the Betfair model started.
Not that it was all plain sailing from that meeting onwards. What followed was months of finalising a business plan, seeking investment and turning this idea into something tangible. The trump card as far as they were concerned was that whereas one was an ideas man, the other was a business man. There’s no point having two people who are too similar in a team like that. Or any team, for that matter.
How Andrew Black and Ed Wray would have made a good Ryder Cup pairing
This is a point well illustrated in golf by a Ryder Cup captain’s choice of partnerships in four-balls.
Two players from the USA take on two players from Europe over 18 holes. Each player has their own ball and all four try to play each hole in the least number of shots. If Europe’s best score across their two players is a birdie and the USA’s is par, then Europe win the hole. If they both get pars as their best score, they share the hole.
In addition to picking two players who get on at a personal level and enjoy each other’s company, you want two players with contrasting playing styles. The first part of that simple strategy was ignored by the USA’s 2004 Ryder Cup captain Hal Sutton when he paired Tiger Woods and Phil Mickelson together at Oakmont on the opening morning.
They were his two big star players but as the two men fighting it out for both the top prizes in the game as well as the hearts of the American golfing public, they enjoyed a frosty relationship at the best of times. A bit like Andre Agassi and Pete Sampras in the tennis a few years earlier.
Having lost in the morning’s four-balls, Sutton then put them together in the afternoon’s foursomes and they lost that one, too. It was a huge body blow to the USA, their big gun pairing of individual talent trumped by Europe’s team-based philosophy. They never recovered from Sutton’s mistake and lost the Ryder Cup on home soil by a record margin of defeat.
But Sutton had also made a mistake in terms of ignoring the second part of that proven strategy. The most successful four-ball partnerships have often been a combination of a mercurial, aggressive, big driving player with a steady-Eddie alongside him. The idea is that the former goes for birdies and that the latter makes sure they at least make par, so they don’t lose the hole to an opponents’ par.
Sometimes making par is more than enough, especially when you’re ahead in the match. But other times, particularly when you’re behind, you need to go for birdies or go home. That’s why getting that partnership just right is so important.
Woods and Mickelson are both aggressive players who trust their prodigious talent, length off the tee and ability to do what others can only dream of to play great golf. Playing the percentages isn’t really their game unless they’re at the stage of the tournament where they’re in the lead and don’t need to force the issue. Their gambler’s instinct explains why they’ve won 19 Majors between them but that doesn’t mean they make a good four-ball pairing.
Black and Wray would have made a good four-ball team. Black was all brains, inspiration, impatience to get the show on the road. Wray was business-savvy, patient, calm, methodical and collected. They’d need the best assets of both men as they sold the idea to City boys they knew from having worked there, with lots of disposable cash and little time to see two guys with an idea that wasn’t so easy to explain. Or when a rival company called Flutter who mysteriously had the exact same idea as them, launched their business first with far more capital, announcing themselves as the Ebay of betting.
The 2000 Oaks was Betfair’s first-ever market
But they got there in the end. Between the two of them, friends and investors they raised the million pounds needed to launch Betfair, the betting exchange. Which they did on June 9th 2000, the day before Derby Day. The first-ever market Betfair market was the one for The Oaks. Mark Davies, one of Betfair’s investors and later my boss, gives some insight into what happened over those days in a post on his own blog.
‘’From memory, I think about £3,400 was matched (on the first-ever market). Many people remember our mock funeral which made the front page of the business section of the Sunday Times, when we paraded a coffin around Finsbury Circus and its environs proclaiming, “the bookie is dead – make your own market!”.
Far fewer remember the demo we arranged outside the Sports Cafe, where a rag-tag-and-bobtail group of actors donned mackintoshes and flat caps, and held up placards saying “stop the launch”. The Sports Cafe launch was the ‘official’ launch, but it wasn’t a whole lot more successful than the private one.”
Betfair is said to have had £30,000 traded on it during its first weekend across all its markets. These days they’d easily trade that on a single Danish Division Two football match.
These days Betfair is one of the leading players in the Betting industry. They now also run a Sportsbook and you can read about the differences between the Sportsbook and the Exchange and how you should use one some of the time and the other the rest of the time.
You can also read a full review of why Betting Maestro likes Betfair so much as a two-product betting company.
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