Betfair boss wants larger slice of the pie

[dave nz]

BETFAIR chief executive Andrew Twaits tells a funny story about being the verbal punching bag of the racing establishment as he poses for a photograph in the boardroom of the bet exchange's Melbourne office.

He's standing in front of a giant picture of a horse in blue and white colours winning a race that Betfair sponsored on Caulfield Cup Day last year.

The horse is McClintock, Twaits confides with a laugh, adding that the owner is Gerry Harvey. The billionaire retailer, like many of the big players in the racing industry, has been a strident critic of Betfair and online Bookmakers. A few weeks before the race, Harvey launched a tirade against the new kids on the block in an interview with the ABC's 7:30 Report advising them to "put your share in like the rest of us, and stop the bullshit".

Twaits was looking forward to the irony of handing the winner's trophy to Harvey, but the retailer wasn't at the track.


Betfair arrived in Australia in 2006 with a radical business model able to often offer better prices than state TABs. It operates as an exchange for punters' bets rather than a traditional "book" and takes a slender commission of between 2 and 5 per cent of all wagers.

Betfair punters can back competitors to lose as well as win.

So it's not surprising the company has often found itself locked in brutal battles with mainstream racing and totalisator interests.

When Western Australia banned its citizens from using Betfair in late 2006, the company responded by going to the High Court to have the ban thrown out.

"A week or two after they passed this legislation banning Betfair, the government introduced a bill over there to legalise brothels, which really said a lot about how irrational their approach to bet exchanges was," Twaits says.

The win spurred the company to return to the High Court and overthrow an advertising ban that has seen the profile of online gambling outfits soar in the past year and a half.

Couple this with a draft Productivity Commission report recommending a liberalisation of online gaming laws that plays into the hands of Betfair and the online bookmaking brigade, it's little wonder Racing NSW, Tabcorp and other established industry players are angry.

For Twaits, it's mostly water off a duck's back. After winning a licence in Tasmania in February 2006 after a bareknuckle brawl with the racing industry, the company has become a growing niche player in the Australian gambling industry.

Twaits joined the company from Cricket Australia in a corporate affairs role as it fought to win a licence.

"I think they were looking for an Australian face of the business and I was the first Australian employee," he says.

"There was a lot of misinformation. It was frustrating at times but I always thought we had a good story to tell: it was a really strong business model, it was unique.

"We were always going to have prove ourselves . . . I think in the four years we have been licensed in Australia I think people have now sat back and realised: what was all the fuss about? We haven't caused the downfall of the totes around the country."

The deep pockets of the company's two shareholders -- the Packer family's gaming arm, Crown, and the British parent company -- have helped sustain the fight.

Twaits, who has served as CEO since August 2008, concedes it has cost Betfair plenty to win its beachhead in Australia. Filings with ASIC show the company posted a $11.8 million loss in 2009 with revenue of $30m.

However, Twaits says that after 18 months of advertising, one in three online punters now has a Betfair account. The company has struck a series of product fees and integrity deals with AFL, cricket and racing in all states bar NSW that have largely brought it into the fold. Having reached the point of broad acceptance for Betfair, Twaits is now keen to talk about its plans for expansion.

The 38-year-old former lawyer wants to offer an online poker and casino site to Australians and wants punters here to be able to bet online while events are in progress. He also hopes to offer bets on the finishing position of the ASX All Ordinaries and other indices.

But first, he has one remaining skirmish to settle -- the bitter court battle with Racing NSW over industry funding.

Betfair is challenging Racing NSW's decision to tax operators at 1.5 per cent of turnover, arguing that it favours the Tabcorp-run NSW TAB. The NSW TAB, like other state totes, has far higher margins but returns more to the industry under the terms of its monopoly retail betting licence.

Betfair wants to be taxed on gross revenue, a regime it has established in most other states and with sporting bodies such as the AFL and Cricket Australia. The company says the 1.5 per cent tax accounts for half of its revenue on all NSW racing bets, but just 10 per cent of the TAB's.

A decision is expected shortly and Twaits says the verdict, and the outcome of the Productivity Commission's recommendations, will determine how fast the company grows in Australia.

Among Betfair's critics there are those who believe TABs underpin racing's funding and Betfair and other online operators undercut them on price without contributing as much to the industry.

And there are those who object to punters being able to bet against a horse or athlete winning. Twaits rejects both criticisms and says Betfair now has many private supporters within the upper echelons of the NSW racing industry, but laments the fact none will speak out.

In the meantime, the company's opponents, including Harvey, are more than happy to fill the void.

The retailer, who has 150 horses in work, says he and other large owners might be forced to abandon Australian racing if Betfair's push was successful as prizemoney would plummet.

"The whole racing industry is at stake," Harvey says. "If that model came in, I would have no horses in work, it would be as simple as that. I'd probably close Australia and do my breeding and racing in New Zealand."

Racing NSW chief executive Peter V'Landys says Betfair's case is based on misleading spin.

"Tabcorp's contribution equates to 5 per cent of turnover and we are asking Betfair to pay 1.5 per cent of turnover," he says. "They want to profit off the back of 50,000 participants and not pay for it. "We are very confident that we are going to win because their argument is so misleading and frivolous."

Twaits is more careful with his comments with the case still undecided, but says the Racing NSW's position is irrational.

"They gave no evidence as to why they thought the 1.5 per cent fee was the right thing for the racing industry and they didn't call any experts to say why it wasn't discriminatory," he says.

"So all you've got is what's said out there in public, which, when you actually analyse it from an economic perspective, doesn't make any sense."

While the funding argument remains undecided, Betfair has arguably won the battle on integrity. Broad acceptance in Britain, strict adherence to the law and unprecedented openness with sporting bodies and regulators have seen the initial fears over its operations pushed into the background.

Twaits says racing makes up about 75 per cent of Betfair's business, but this may diminish.

He warns racing is on "the fast track to becoming a fringe sport" and needs to win greater mainstream appeal.

Despite his forthright views, Twaits rejects the suggestions Betfair remains among the rebels of the industry.

"We have proved over the last few years we are prepared to stand up for ourselves, but overwhelmingly we will try to work with people one-on-one to find a solution," he says.