Betfair US | The dream that died

I read today that California voted convincingly against online Gambling this week: –

https://apnews.com/article/2022-midterm-elections-sports-california-f4f4f87d391d31a18c781256b42c8133

Since 1994 I’ve been making regular trips to the US.

My first big trip to visit was to work in Houston. On that trip, I picked up a book about Warren Buffett that set off a sequence of events that would see me return stateside at least once each year since then. So one year, I thought I’d pop in to see Betfair stateside.

How Betfair got started in the US

In 2009 Betfair acquired TVG to gain a presence in the US market. This appeared to be a way to enter the US through the backdoor and learn a bit more about the market before, perhaps, gaining some traction for an exchange.

TVG is based in Los Angeles, a short drive from where my favourite place to stay is in LA, Manhattan Beach. As the name suggests, it’s right on the beach and going for a walk there is the perfect way to start or end the day. My initial draw to this area was that a friend lived there. He is a hedge fund manager whom I met on a trip to Omaha Nebraska.

When I first visited, it had that classic Californian vibe you see on TV. Walking along the strand to get a coffee in the morning and staring across the bay was the feeling you imagined you would have if you were able to do such a thing. Subsequent visits meant I became familiar with the area, and I would rent a place through Airbnb and ‘live like a local’.

Anyhow, enough reminiscing, it was the perfect location for many things but also was a very handy location for the short drive to Betfair.

Shortly after Betfair bought TVG, Stephen Burn was appointed CEO, so I felt a visit was in order. Stephen was previously working for Betfair in the UK and took on the task of doing something interesting with the US business.

Betfair US offices

I’ll never forget the first drive to their offices. When you first do something like this, there is always that anticipation of what you will find. It’s fun and exciting to do stuff like this.

As you approach the building, it looks impressive from the curbside, but what doesn’t in the US? It’s a towering building overlooking the Howard Hughes centre.

Betfair was not the entire building, only one floor, but it’s quite a large floor. On that floor, it was split between the very public-facing broadcasting, ops and customer service, with the administration on the other side. It’s a very different setup from Betfair elsewhere in the world.

This is mainly a legacy of TVG and a lack of traction on the exchange side. The best way to describe TVG is like ‘At the races’, but where you interact with the channel to place bets. So while it’s a sportsbook, it’s a content-driven broadcaster with a sportsbook.

Stephen was kind enough to meet me and have an in-depth discussion with various key people and then tour the operations. It was an exciting and insightful day, and it gave me a much deeper appreciation of the problems Betfair had getting an exchange established in the US.

After plugging away for a few years, he resigned and was temporarily replaced by Martin Cruddace. Martin was also from the UK but was ultimately replaced by a new CEO, Kip Levin. The whole thing then got packaged up within other entities, and Kip became president of FanDuel and now Foxbet.

The relevance of this will be discussed in a moment.

Trying to help the exchange takeoff

I’ve tried to do my best to promote the concept of a sports exchange in the US over the years. But, obviously, I hold little weight in the scheme of things, so I could only offer a lot of enthusiasm for the concept as a user and vendor.

So I had to settle on a role as an influencer across as many interested parties as possible. That’s primarily how I ended up at the Breeders Cup at Santa Anita and Del Mar. I also visited Reno, Nevada, to talk about the concept there. All I could do was sing the virtues of the exchange mechanism and its many benefits, but it was a tough sell.

People who haven’t been exposed to it really liked the concept. But the lack of visibility of it in the US hindered any adoption. The same battle was being fought there as was in the early days in the UK. Focusing on the harm an exchange could do rather than the benefit it brings, especially to punters.

Things happened so fast in the UK there was little that traditional bookmakers could do; in the US, they had a bit more practice. But also, in a land where money talks, existing interests appeared to dominate the agenda. I’m pretty sure that if a US technology company had invented it, it would have gained traction in the US.

Why it was so hard for an exchange to get established

The industry is very fragmented in the US. Several bodies represent racing’s interests. Trying to get an agreement across parties is almost impossible. Tracks are owned independently of the legislation, and then you have the bookmakers, the jockeys and many other issues standing in the way of change. That’s on a regional level, and then you have the state and federal legislation.

I got to know a lobbyist in Washington, and it’s interesting to see how that works. But outside of interested parties, two key issues were present.

On a state level, you had individual legislation that tended to be state-centric. This tended to require all activity to be restricted to that state, and that activity required a license, of course. That came with a ‘license fee’, of course. You also had to commit to certain things as well. Equipment, resources and so on.

When Betfair finally launched in New Jersey, if you wanted to participate in the exchange or supply services to it, you had to pay a $100,000 fee for a CSIE licence and also commit recourses to the state of New Jersey and be based in New Jersey. Effectively it was just limited to people there already.

You also had the federal legislation, the Federal Wire Act of 1961, which did not allow the transmission of gambling information across state lines. Many cases have been brought against people breaking this law. While it was initiated for one particular reason, the legislation appears to have helped crush anything that happens over the internet.

Everybody knows that you need liquidity to make an exchange work. Limiting it to just people and third parties in that particular state would mean that liquidity never reached critical mass. Exchanges were killed before they were really born in the US.

If a US technology company had started the idea, we might be in a different place. But they didn’t!

The death knell

I remember when the Betfair and Paddy Power ‘merger’ took place. I immediately started to wonder how that would affect US progress. I didn’t have to wait long for an answer.

Up to this point, even if you couldn’t use the exchange in the US, it will still open for business in Mexico and Canada. Soon after Paddy Power got involved, they made a commercial decision to shut down Canada. It wasn’t illegal; it was just a judgement call to protect existing interests in the Canadian market.

Wind forward a few years, and suddenly there is another ‘merger’, and it was inevitable that with such a large US presence, the axe would fall on the exchange. Soon after things were formalised the doors were shuttered on the NJ exchange.

So we went from hopeful optimism to a market where exchanges were utterly extinguished. For a country that prides itself on a free economy, competition and equality of opportunity, this was a middle finger salute to fair ‘wagering’ and a competitive market with a disruptive competitor.

The future

During my many visits to the US, consumers were really keen on the idea and were fascinated by the concept and the opportunities it would bring. There is definitely ground-level enthusiasm for exchanges.

But a lot needs to change for them to take off, and fresh blood needs to make that happen. They also need to be independent and not need to sell when a decent offer comes along. They need to think BIG!

Fortunately, several people see the opportunity and are trying to make waves in the market. I wish them the best of luck and would be happy to support their efforts. It still feels like a lot of unfinished business there. Of course, anything can happen, but the lack of progress to date it’s obviously disappointing. But while there is a case to be made, I’ll do my bit to make it.

The US is a big market, but it’s very fragmented. There are wildly differing views across all the states, and while there is some token progress in the East and West, there is still a great deal of work to be done. But the size of the market may still present an opportunity, eventually.

Laying on the beach

I meandered into Los Angeles bay one evening up to my waist in water to watch the sunset.

I held my iPhone aloft. But not to take a picture, I did it to test the 4G connection. The speed test returned a value of about 18Mbps down and 12Mbps up. So there is a reason to remain optimistic and hope that something will happen.

There would be no better feeling than laying on the beach.

Lifeguard station in Los Angeles bay 34th Street The lifeguard station on 34th Street.
3 Comments
  1. brian S 5 years ago
    Reply

    Very interesting article,
    Thanks Peter

  2. Betting Exchange 1 year ago
    Reply

    Very nice and informative. Thanks for posting.

Leave a Comment

Your email address will not be published.