Betfair: Andrew Black
The co-founder of Betfair.com talks to Startups.co.uk about the gamble that paid off
Name: Andrew Black D.O.B.: 13/5/63 Business: Betfair.com Type of business: Online betting exchange Start date: July 1999 (website launched June 2000) Employees: 260 Interesting fact: His grandfather was the Tory MP Sir Cyrille Black, a life-long campaigner against, among other things, gambling.
When Andrew Black, co-founder of Betfair.com says, “I’ve had a very varied career and done a lot of job hopping,” he’s making somewhat of an understatement. If ever there’s an entrepreneur that’s trodden an unlikely path to fortune and success, it’s Black.
Okay, so his is hardly a rags-to-riches tale, but Black has overcome being kicked out of university, sackings and personal tragedy to rise to the head of a business that’s giving the likes of William Hill and Ladbrokes a real run for their money. In fact, his 40-year existence has been so colourful it makes a mockery of his monochrome surname.
But every experience, Black insists, whether it be stocking shelves at B&Q, caddying on the European tour, dealing on the stock exchange, gambling for a living, or caring for his dying brother, contributed to the day he thought up Betfair while, get this, working on a secret project for GCHQ.
“I didn’t have my first proper job till I was 26,” says Black. But despite spending two years discovering “other things” and “who I was” at Exeter University, and then “earning enough money for beer”, his lack of career focus was borne out of something far more serious than carefree living.
“I had a brother who was struck down by a horrible illness just after I left Uni. He woke up one day and he couldn’t get out of bed. He had all sorts of troubles and then slipped into a coma,” tells Black. “It turned out he had a brain infection.”
Black stopped working and cared for his brother for the final two years of his life. “I couldn’t really conceive working then,” says Black looking back on a period of understandable depression. “He was my only brother and I just wanted to spend all the time I could with him.”
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A brief, and unsuccessful, sojourn onto the European tour later, he landed his first serious job – working in software. In the following four years, Black’s natural flair for figures – “I’m quite a good mathematician” – was able to flourish as he wrote heavy code and saw how big business, particularly the stock market, worked.
The high-risk stakes of the stock market captured Black’s imagination; and prompted him to start gambling.
“When you’re at the sharp end of trading you’re trading very much in the short term and it is very, very similar to gambling,” says Black. “When I left I didn’t have enough money to go trading. If you’re trading stocks and shares you need quite bit of cash and I hadn’t got it.”
Instead, Black turned to more conventional forms of gambling for his kicks – and his income.
“I won £25,000 on a £20 bet on a horse and then had a £30,000 win from a £1000 bet on a race,” recalls Black. “I’d won about £50,000 in three months; compared to what I was earning at the time it was a lot of money.”
Black programmed his own models for betting on football and golf and also played bridge for substantial figures. But despite doing “pretty well”, it wasn’t enough to keep him occupied.
“I think I became bored of it,” he says. “At the end of the day as a gambler you might have more money in the bank than you started with, but you haven’t actually achieved anything. There is no product, no day’s work. I guess that wasn’t enough me, I needed to feel I was progressing.
“Also I started losing because I was bored and couldn’t keep my concentration – I’m not good at applying myself to something unless I know I’m interested in it.”
So he moved back to buying and selling shares. “I was seeing the whole mechanics of the New York stock exchange first hand and getting fantastic experience in this incredibly exciting environment.”
His excitement was cut-short – he was sacked after a disagreement over business ethics – and he returned to programming, “earning ridiculous amounts of money for very little work” in a period where IT skills were in demand.
However, Black’s obsession with the stock market and intellectual thirst for a challenge or bet never went away. While working on a secret GCHQ project he can say no more about, Black had the time to contemplate how this passion could be twinned with his IT skills.
“We started work at nine and finished at five and if you weren’t out of the office on the dot they got rid of you. So I had a lot of spare time. I was living in a small remote farmhouse and was lonely.”
But the solitude gave Black precious time to turn things over in his head and come up with ‘the idea’.
“I think that was very important. You’re not going to have ideas like that unless your brain has got time to freeflow and your mind is allowing time just to wonder around. If an idea is going to work you have to have the time to span every aspect of it, and usually you don’t get that.”
So where did the actual idea come from? “It was taken from the way the stock exchange works and from everything I’d done,” tells Black. “It’s very simple, Betfair is a cross section of taking stock exchange technology to the gambling market using the internet. In my career I’ve worked directly with the stock exchange, I’ve been a professional gambler and I’ve built websites. I’ve been there on all three of them.”
The transition from idea to business was a slow one, and might easily have never happened. “First thing I did was think it through, rethink it, rethink it, rethink it… I started planning it through, but it was still a bit of a fantasy and I did have doubts,” reveals Black.
“Things were pretty good and it was a time when as an IT contractor I had a great lifestyle, and a very happy wife. Did I really want to leave it all behind by going out on a betting venture?”
But, of course, Black did. “In my heart I knew I had to do it because I couldn’t face the thought of going to my grave having had one great idea and not actually putting it into action,” he says.
However, before doing anything Black wanted a partner. “I wanted somebody who understood business. I understood the exchange, gambling, the Internet and could deliver the product. But with the business side of things I needed help.
But finding one was difficult. “I showed prototype to people, but didn’t seemed to understand it. I was very bullish and believed in it, but I guess my rather strange CV went against me.”
Then, at a garden party he met Ed Wray, the brother of a friend. “Ed was talking about a horse he’d bet on but was complaining he hadn’t won much. I said, ‘well it shouldn’t have been like that, soon bookmaking will all change’. Ed said ‘tell me more’ and so I explained the idea.”
A short time later, and after the sudden death of Black’s father whom he respected immensely for his own entrepreneurial drive, Wray got in touch.
“Ed wanted to know if I’d done anything about the idea I’d mentioned before and I asked if he’d like to be my partner.” Wray agreed in principal but not without certain changes.
“He had a different take on it,” says Black. “He said I had the right product and the idea was great but he thought the business plan was totally wrong. He thought if it was going to be done it needed to be done properly and we’d need to raise some serious finance.”
The pair spent the next five months working on the idea. “It was a very difficult stage,” recalls Black. “There were a lot of arguments: I wanted to push on and became very irritable that we weren’t. But in retrospect it was the right thing to do.”
In the end, Betfair was born and Black gave Wray half the business. “Looking back I think I could have cut a better deal for myself but I don’t regret that because without Ed’s involvement it wouldn’t have happened the way it did.”
Black and Wray wanted conventional venture capital but it turned out they’d somewhat missed the boat. “A company called Flutter had got there before us,” tells Black. “They were selling the ebay of betting and had got a lot of funding. They didn’t have the knowledge or substance we had, but it was still terrible news.”
“Initially we thought we might as well give it up now,” recalls Black. “We didn’t get any VC and Ed was very depressed. So we decided to present the idea to wealthy individuals we knew in the city that had money to invest.
“We’d pick a bank, do a presentation and two or three would leave the room having invested £25,000. They had money to invest. It soon added up and we cobbled together the £1 million fairly quickly.”
They added £30,000 each and didn’t pay themselves for the first eight months. The site was created and launched on June 9th 2000, the day before Derby day. As funds were tight, Betfair deployed guerrilla tactics to promote the launch.
“We led a procession with coffins saying ‘death of the bookmaker’ through the city and held fake demonstrations with ‘Betfair – unfair’ protestors to try and get some publicity,” tells Black.
The antics made the front page of The Times business section, but there was no reaction from the high street bookmakers who have since questioned the legality of Betfair.
However, their response was no surprise to Black, who appears totally unmoved about the how the bookies’ view Betfair. “I think they were probably right to ignore us at the start. If they’d made a big outcry all they’d have done would have been to publicise us. We never worried by their reaction and it’s happened very much as we expected.”
In its first week Betfair traded £30,000, but it wasn’t the overnight success some investors had been hoping for. “I always thought it would be one of those sites that would creep,” insists Black. “It takes people time to understand us. They come to us, have a look, go away, come back have another look, go away and then maybe come back and bet.”
Betfair hit the big league after merging with rivals Flutter. “There was a big fuss when they launched and they had all this money but it wasn’t until six months down the line that in became obvious people were using us,” says Black.
“They had a huge advertising budget but they also had a message board where people were discussing Betfair. Punters were coming into them and leaving to us. About eight months later they looked at the market and realised we had 97 per cent of the market and they had three, despite the fact they’d spent 10 or 20 times what we had. At that point they realised the only way forward was our way.”
After failed attempts to copy Betfair’s approach, a merger was negotiated. But Black admits he felt awkward about striking a deal with people he’d viewed as enemies for the past couple of years, and also with the way the deal was concluded (many Flutter employees lost their jobs on Christmas Eve 2001 upon the deal’s completion).
“I really hated, and I mean really hated, these people for copying us – I’d felt violated – so it was strange to talk to them. I hated the way things were done too; it was terrible, absolutely terrible.”
However, Black’s regret at the way things were handled was perhaps tempered by Betfair’s reported favourable terms in the merger. “Basically we got the lionshare and, in all intents and purposes, we held the reins,” says Black.
Befair also got access to a “top class” CTO, the hardware and most importantly “the big punters” that were essential to driving the business on.
“It was critical. Not in any of the predictions we’d made did we foresee what happened,” says Black. “They had a huge user base of people who didn’t have a product that gave them what they wanted. Big gamblers weren’t betting as much as they wanted. We gave them more to bet and more liquidity.”
“It’s fair to say it was the major catalyst in getting to the types of level of business we’re out now and being able to manage it.”
Since then Betfair has established itself as the No.1 online betting website, and last year, Ernst & Young named Black and Wray, ‘Emerging Entrepreneurs of the Year’.
“We should have won”, insists Black unimpressed at, metaphorically, not taking all three points. His frustration seems to stem from a feeling that Befair often doesn’t receive the credit it deserves. “We created something totally new, totally unique and have come such a long way in such a short period of time. Not many other businesses can claim to have done the same.”
And Black has come a long way too. He no longer gambles and has moved away from the running of the business. Ed Wray has also stepped down from his position of CEO too, so how are things different?
“I definitely worked seven days a week and at least 10 hours a day when we started. I used to have a lot of responsibility too, but have a lot less now. I don’t have duties anymore, I don’t have a department anymore, I don’t have a people working directly for me anymore.”
Working for Black is something he likes to be a pleasurable experience. “We’re not big payers, but we do what we can to provide them (Betfair’s employees) with everything they need. It’s very social here and there’s a really good culture.
“We do what we can to make it a lifestyle place to be so people can come in and live their whole life around the company: make friends, socialise, participate in sports and feel like they’re really being looked after. It’s something that’s really important to me.”
He’s also moved his family out of the city and to a bigger house in the country. So is Andrew Black now, for once, totally settled? If I offered him odds on this question I think for once he’d be flummoxed whether to ‘back’ or ‘lay’.
Black has aired his disapproval at the government over tax issues – although he insists Betfair has been treated well by the authorities – and when asked if he’d start another business, he can’t contain that entrepreneurial instinct. “Yes, I would but it’d be a difficult choice,” he says. “Again, I’ve got everything I need, but I would do it. And I’d do it alone as I know about running a business now.”
So as a man who’s bound to have whispered the odd tip in the past, what does Black have to someone starting out in business?
“Don’t trust the bad guys. If you don’t like someone or have a bad feeling about them, don’t do business with them. It’s the same with employees; you shouldn’t carry on with bad sentiment for the sake of it. Don’t be afraid to make hard decisions.”
Andrew Black was speaking to Startups.co.uk web editor, Matt Thomas