Betfair, the UK-based online betting exchange that went public last month and reached a valuation of more than $2bn, is looking to the US and California in particular for future growth.
David Yu, chief executive, who grew up in the Bay Area, returned to San Francisco this week for the Web 2.0 Summit, where I spoke to him on the sidelines about Betfair‘s US plans. Edited highlights after the jump:
Question: How do you make progress in a country where online betting is illegal?
David Yu: A lot of Americans don’t realise they can bet online legally through something like TVG, which is an advance-deposit wagering business. So part of our job is to get the message out that you can bet through these [Parimutuel] pools.
Betfair had never taken any bets from America, our view was that it was illegal and therefore we wouldn’t allow US residents to bet. But a couple of years ago, it felt like the US market was talking more about liberalisation, so I thought regulated gaming could gain momentum.
I hired a small team here in San Francisco to look at opportunities and we found two that were interesting.
We made a small minority investment in Watercooler, which has since become Kabam, a very successful social media applications developer in the Valley – nothing to do with betting, but we thought social media would be a really important channel over time and the centre of excellence for social media is in Silicon Valley.
The other opportunity was TVG -a a business that has been running for about 10 years with News Corp and Macrovision as previous owners. It was put up for sale at the end of 2008 and we paid $50m for it in January 2009, it’s a legal Tote-based pools product that’s licensed to operate in 18 states and has 70,000 customers. It also has a TV station and broadcasts to 35m homes on cable and satellite and has horse racing around the clock. You deposit money at TVG.com and make any kind of bet. It gave us this great foothold to understand American racing and we’ve things like a partnership with the Breeders Cup now.
One of the results is California passed a bill so that come May of 2012, California residents can bet on racing using a betting exchange. We have to work with the industry and the state over the next two years to work out the tax structure and regulatory requirements. A similar bill is going through the legislature in New Jersey, so we’re really encouraged that the US is starting to really take a note of this. We can use TVG’s backend, like payments and customer service, so all we need to do is plug in our exchange.
I’m not going to hold my breath for the US because I think sports will take a while but I think we can show regulators why regulation works and why a better regulated business is better for consumers. What they need to do is put in a sensible framework and then customers will use the licensed operators and the operators will pay tax. The problem with unregulated markets like America is that if you want to bet on sports, you have to go to some offshore operators, who knows whether you’re protected or not and the government isn’t getting tax for that.
Q – So what other growth areas are there for you?
We can do more in sports – offer more products, better interfaces. Second, we can add on other games- we’ve added poker and a casino and we will add more over time. The third area of growth is new channels such as mobile – we have iPhone, Blackberry and Android apps and customers spend more with us because they can bet more often.
The fourth area is around geographies – there’s a lot of headroom in the UK and Europe, there are new geographies like the US, China, Indian and Japan and those four are pretty restrictive actually, so those are long-term opportunities.
One other thing we’ve launched recently is the London Multi Asset Exchange (LMAX) that goes after a completely different vertical – financial trading. It was the obvious thing for our platform. It’s early days but it takes our order matching system, tailors it for financial trading so you can trade contracts for difference (CFDs) into the LMAX exchange.
We think there are other verticals like insurance and gold, anything that requires the syndication of risk we think is an interesting proposition. Financial products are really well regulated in the US. I don’t know what the right product would be for the US, but over time, I’m sure there would be some retail product relevant to the US market.
