paddy power and Betfair to merge

[Doobs]

Good luck getting on with this lot.

http://www.bbc.co.uk/news/business-34060117

[atdc21]

R.I.P Betfair

[arbboy]

Was this always powers long term plan to rent out their then ceo to betfair for a couple of years with the knowledge that he was going to bring betfair back to Ireland with him and resume his ceo role for paddy.

[arbboy]

15 years ago Betfair paraded a coffin in London announcing the end of bookmakers. Today there is news of Betfair merging with one of the biggest recreational bookmakers in the world. How did it all go so wrong?

The original idea was brilliant. Punters bet against themselves directly so the bookmaker takes no risk. Punters loved the new idea. They came in there tens of thousands to bet at bigger prices, lay horses they didn’t fancy and to trade on price movements. We all told our friends and they told their friends. We were all in it together fighting the establishment who was trying to shut Betfair down. Many customers worked for free helping Betfair build its case to stay in business. People like Andrew Black, Mark Davies and Mick Stone understood the change they were making to the world of betting. It was truly a revolution.

As the company grew liquidity grew. All was good. During the 2000s three major problems occurred. (1) Some punters were winning too quickly and (2) International expansion was stopped by increased protectionism (3) They failed to educate punters how to use the exchange.

Betfair has two options to deal with some punters winning too quickly. Either, assess who was winning and take measures to make the exchange fairer to stop them or charge the winners more money. No action was taken to make the website fairer. To this day you have in running betting on racing with a 1 second delay whereas the TV pictures can be over 5 seconds delayed. The on course players are cleaning up. The same applies in tennis. This unfairness drives the recreational punters away.

Their preferred option was the much hated Premium Charge. 40%-60% of winners’ money taxed. The result was the much loved company became hated. It was up there with the rest of them taking every last penny it could with Betfair. But nothing was done to stop the losers losing too quickly. To this day the on course players and courtsiders are still creaming off their supernormal profits. The only difference is Betfair now takes a bigger slice of those profits.

The result of the charge was a quick win for Betfair. But it started the long term decline of the stage. Figures (see ‘THE PREMIUM CHARGE MUST BE SCRAPPED’) show that non-inplay betting has been decimated by the Premium Charge. Side markets in all sports have all but disappeared. One of the unintended consequences is some bigger markets have grown due to big players churning money to avoid the charge.

Betfair have no idea how big the exchange would have been without the Premium Charge. 10%-20% annual growth in the horseracing pre-play markets stopped overnight. Without the charge would the average a race be over a million now? We will never know because they took the greedy short term choice rather than deal with the heart of the problem and making the exchange fairer.

It was natural that with the side markets gone, the exchange growth stopped, the Betfair educational department gone and other countries closing the door Betfair would go with sportsbook idea. The new CEO has done a great job for those that hired him. Share price flying and now a merger with his old firm.

But where does this leave the revolution? Those of us who have stuck with the exchange for fifteen years have been betrayed. All the founders left years ago and Betfair is now just another greedy corporation serving its shareholders and top management. The sportsbook is great for them. It brings in the mug money through bait offers like ‘best odds guaranteed’ and free bets. But no one that has a clue can place a bet. Like all the others it is not a bookmaker. It is place where losers hand over part of their pay check each week and winners are not welcome.
It was not supposed to be like this. Andrew Black set out to revolutionise betting not become a bookmaker. It was a good business making tens of millions a year in commission as an exchange. But somewhere along the line they got greedy and wanted more. They got more but the revolutionaries are now firmly part of the old establishment. There were several attempted revolutions in France before the monarchy finally fell. Will there ever be a second betting market revolution?

Great post on the bf horse racing forum which pretty much hits the nail on the head.

[arbboy]

Since when is a 52/48 'merger' not a takeover?  Betfair is now a subsidiary of Paddy Power surely?  I think this really is the beginning of the end for betfair as we know it.  It has been happening subtly for months with their advertising all focused on the sportsbook etc etc.

[AlunB]

Since when is a 52/48 'merger' not a takeover?  Betfair is now a subsidiary of Paddy Power surely?  I think this really is the beginning of the end for betfair as we know it.  It has been happening subtly for months with their advertising all focused on the sportsbook etc etc.

All the indications so far are much more like it's a reverse takeover. Betfair seem to be the dominant party, it's their CEO and CFO taking over and them who had more answers for analysts in the calls.

But we will wait and see. My feel though is this is much more like Betfair taking over PP than the other way around and some of the announcements are just for show.

[arbboy]

Paddy have effectively got their old CEO back from his 'loan period' at betfair.  He is now their CEO and they have the 52/48 power.  Whatever it looks like cosmetically the only thing that matters in a takeover in reality power wise is the % and this is in Paddy's favour here surely?

[doubleup]

A takeover is specifically when one firm says to the shareholders of the other firm "we will give you £x (or £x plus y of our shares) for your shares".  Do you want to take it?  A merger is where the firms agree to join and the shareholders of the two merging companies get an agreed amount of shares in the new firm.  (The calculation being based on the agreed value of both firms shares at a certain time.)  Shareholders can reject the deal if they don't think they are getting enough of the new firm.

[Chompy]

Great post that arb, esp for a Paddy Power Forumite. Those guys are something else, particularly the resident rofflers on the Specials Forum.

The bookmakers always win in the end. All the uproar among the Fodds boys when Betfair started up...they got there eventually.

[AlunB]

Paddy have effectively got their old CEO back from his 'loan period' at betfair.  He is now their CEO and they have the 52/48 power.  Whatever it looks like cosmetically the only thing that matters in a takeover in reality power wise is the % and this is in Paddy's favour here surely?

Not if it's a reverse takeover, although to be fair they have not said it was so. They did say this:  For the purposes of the Irish Takeover Rules, Betfair is the offeror and Paddy Power is the offeree.

Like I say it's not super clear at the moment. But all the talk gives the impression this is a Betfair led deal.

[AlunB]

Paddy have effectively got their old CEO back from his 'loan period' at betfair.  He is now their CEO and they have the 52/48 power.  Whatever it looks like cosmetically the only thing that matters in a takeover in reality power wise is the % and this is in Paddy's favour here surely?

That's a very odd way of looking at it too. There was no love lost when he left. They put him on 12 months gardening leave. He's now coming back as CEO and the current Paddy Power CEO is moving down to COO. I'd take the tin foil hat off if I were you

[arbboy]

Wonder who is next?  Hills and 365?

[AlunB]

Wonder who is next?  Hills and 365?

Amaya to buy 365?

I would say nobody could afford 365, but then I thought that about PokerStars

[arbboy]

Wonder who is next?  Hills and 365?

Amaya to buy 365?

I would say nobody could afford 365, but then I thought that about PokerStars

How much you think 365 is worth on the open market Alun?

[The Camel]

Excellent post arbboy.