by Real Business - Thursday, 30th August 2007

This is the page

Will Roseff was about to leave Britain. He'd signed the lease on the office in Malta; the servers were installed; the phone lines were in. Another British entrepreneur was jumping ship.

And then came the announcement, in July of this year, that the Labour government was scrapping the nine per cent tax it takes on betting turnover. Instead, from next month (October), the government will introduce a 15 per cent tax on gross profits. Roseff, joint-owner of Bet365.com, managing director of Backhouse Racing, owner of nine betting shops, unpacked his bags. He was staying in Stoke-on-Trent.

He's not alone. In tax havens around the world, British entrepreneurs dusted off their suitcases and prepared to come home. In a quid pro quo gesture, the UK's five biggest bookmakers - which had fled the British tax regime - all agreed to return their offshore-based tax-free internet operations to the UK. Okay, the UK goverment still stands to lose £300m in revenue over the next three years while
the bookies flock back. But at least the leak has been stemmed.

The negotiations over the taxation of betting revenue had been slow and difficult. Warwick Bartlett, doyen of the betting business (chairman of the British Betting Office Association and head of Global Betting & Gaming Consultants), led the industry's representations to government. He first submitted a new "economic model" to the government, through its bookmaking committee, in early 2000. The papers were passed onto Nottingham Trent University for a thorough going-over. Then came the consultation period. But suddenly, in October 2000, "there was a change of attitude" in government. A few months later, the deal was done. As a result, UK gambling could be transformed. "I've had lots of enquiries from existing online bookmakers, that are resident abroad, considering coming to the UK," says Bartlett.

Now come with us to the Colony Club, a discreet, surprisingly unflashy casino in London's Mayfair. Life is getting exciting at the tuxedo end of British gambling, too. The Gambling Review Body, led by Sir Alan Budd, recently presented its conclusions on the country's gambling legislation - the 1968 Gaming Act. Budd's findings were dramatic. He recommended allowing money-spinners such as under-one-roof betting emporiums for casinos and bingo, and reform of some of the Act's more esoteric regulations - especially those on casinos.

Farewell, then, to restrictions on advertising and promotion of casinos. Goodbye to the 24-hour "cooling-off" period, which means that new casino members must wait a whole day before they can gamble. Adieu to the limit of ten slot machines in each casino, the ban on drinks at the gaming tables, and the inability to extend credit. We may also see the end of the strange rule that limits casino openings to 53 permitted areas of the country - leaving towns such as Milton Keynes and Kingston-upon-Thames excluded.

The Colony Club's general manager, George Polhill, welcomes a looser regulatory regime. After all, could you run a business under these sort of restrictions? "All UK gaming legislation is based on the principle of unstimulated demand," says Polhill. Casinos are not even allowed to appear in phone books. If a casino wants to run a prize draw, the maximum prize is £10,000 - hardly likely to set a high-rolling gambler's pulse racing. All staff must be vetted by the police. For Polhill, the main benefits of the recommendations, if they happen, will be: the ability to advertise; credit-card gambling; and the relaxation of membership requirements. By being able to introduce "racing rooms", casinos will be able to take on the bookies, too.

But Polhill knows the downside. "We must be careful not to throw the baby out with the bathwater," he says. "The unique character of the classic Mayfair casino is closely linked to the restrictions placed upon us. Our clients expect exclusivity, intimacy and honesty." Top casinos such as this derive one-third to a half of their business from just 20 people. Annoy those clients at your peril.

The upside of such regulatory change could be enormous. Already more casinos are located in London than any other capital city; Polhill reckons London's casino turnover is £2.5bn. It cannot have escaped the government's notice that Eastern Europe (especially cities such as Prague) are emerging as serious competitors. Budd's new rules, if accepted, could mean more overseas punters' cash for UKplc.
Peter Collins of the Centre for the Study of Gambling at the University of Salford reckons that total gaming revenue - the difference between money staked and that paid out in prizes - could double to £15bn a year, assuming that the government accepts Budd's recommendations.

Just one more stop, at the offices of Mark Blandford, or Simon Noble, or Andrew Black, or Josh Hannah, or any of the up-coming online gambling entrepreneurs.

The internet and gambling make a perfect match: no physical goods to transfer, and no geographical boundaries. Warwick Bartlett puts it in plain language: "The internet is forcing every country to look at their gambling rules. Everybody around the world wants to bet and the whole world now has the opportunity to bet outside their own country. This is denying many governments a lot of income from tax." The internet has dismantled the boundaries that enabled governments to contain gambling habits.

By changing its tax regime, the UK is drawing international punters onto UK-registered sites. Ladbrokes' e-gaming site takes around £2m per week and contributed £68.6m of gambling turnover to Ladbrokes. "A third of our customers are from the Far East betting on premiership football," says Andy Clifton of Ladbrokes.

The predictions are astronomic. Gambling via the internet and iTV in Europe will grow to £15bn by 2005, says research from Datamonitor - compared with only £4.8bn this year. Worldwide online gambling will grow to £123bn by 2015, says Merrill Lynch. It splits the forecast into: online sports betting, £100bn; online casinos £3.6bn; and online lotteries, £20bn. Much of this, says Merrill Lynch, could flow through the UK.

The new breed of online gambling entrepreneurs reckon they can beat their established rivals. "Our brand is purpose designed to be global," says Mark Blandford, founder of Sportingbet.com. "It says what we do. It's generic and translates into other languages. What's Cantonese for Ladbrokes, I don't know, who does?" he says, brandishing a business card with Cantonese on its reverse.
The war for online supremacy is on. "I enjoy the challenge of taking on the big boys. History will decide whether I win," says Blandford.

Branding questions aside, many of the online operators are surprisingly similar. On Gibraltar, Victor Chandler shares a building with the online casinos business of Ladbrokes. Mark Blandford was recently spotted on the island mulling over a gaming licence and possibly moving into the same building as Chandler. And before its purchase by Coral, internet operation Eurobet was also based there.
And many of the betting web sites use the same back-end technology. The likes of Ladbrokes, Bluesquare, Paddy Power and Stanley Leisure use the same proprietary software - licensed to them by a small UK software house called Orbis.

Orbis has become a key player. Since its formation in early 1996 by James Caddy, the small UK software company has grown dramatically - it was recently acquired by systems supplier NDS. Sales for the year to March were £12m; the average client spend on software and hardware is £750,000.

Click here to view pdf charts (Adobe Acrobat required)

Another background player is Andrew Black's Betfair.com. It isn't interested in building its brand. Instead it's looking to license its person-to-person software as a white-label product. Betfair provides the platform for an exchange where people can either propose a bet or accept one of those already posted on the site. This, says Black, creates better-value bets than the bookmakers as they add in their margins so reducing the value of the prices they quote.

Betfair.com only takes a commission of five per cent on any winning bets. It has already signed a deal with Racing Network and will be pursuing this route for international growth. "We want to be to the exchange betting market what Intel is to the chip market," he says.

Black's major rival is Flutter.com, which generally attracts lower average bets - £10 compared to Betfair's £50. While Betfair claims to have the superior software, its rival has the money in the bank - to last it two years to profitability - after raising £27m from the likes of Benchmark Capital (an early investor in auction site eBay).

George Coelho, a general partner at Benchmark, says: "Gambling will be big, but who will dominate? We believe that Flutter.com will do for person-to-person gambling what eBay did for auctions."

It's a tough climate for online ventures, with a downturn in the capital markets and a slowish acceptance of person-to-person betting. "The plan said we'd be in eight countries by now but we've changed our plans dramatically," says Flutter's co-founder Josh Hannah. "And it surprised me how difficult it is to communicate how Flutter.com is different - it is a continuous challenge to us."

But internet growth levels are bound to be high - they come from a base of peanuts. Warwick Bartlett, chairman of the British Betting Office Association, also questions some of the hyper-growth predictions. "Historically, betting only grows with inflation. But if £1 was bet on the internet last year and this year it is £2 then you can legitimately say that it has grown by 100 per cent. Sports betting growth in the US is phenomenal but this has simply been taken away from the lottery," he argues.

US operators are a big threat to online operators in the UK. At the moment the only states to allow betting - Nevada (home of Las Vegas) and New Jersey (home of Atlantic City) - are restricted by the Wire Act from offering online gambling services.

But changes are afoot, says Gavin Chittick, chief financial officer at Sports.com. "Twelve months ago there was no suggestion that there would be online gambling in the US but they now recognise the sheer amount of money flowing out of the US," he says.

The big Vegas and Atlantic City casinos have slowly turned positive on internet gambling, says Chittick. This could start the ball rolling towards a change in US regulations.

For the moment, it's all to play for.

Worldwide, gamblers generate turnover of some £580bn (the amount lost by punters). And that's not counting the amounts wagered illegally. Okay, the UK population gambles only a small amount of this - Merrill Lynch reckons it's around 4.5 per cent - but we are positioning ourselves to be a world centre, competing with the likes of Las Vegas and the Far East.

Britain has lots in its favour. The world's top bookmaker, Victor Chandler (see "The main man"), had to send over a trained workforce from the UK to run his Gibraltar-based business. Tax havens may have their temptations, but a skilled computer-literate workforce is a big boon to a betting business.

Technically, Britain has an edge too. Web-based bookies are booming (Click here for "Runners and riders"). These rely heavily on broadband connections. The UK may have its problems here, but connections can cost up to ten times more on some overseas islands.

And our old friend Orbis is here, too. As we discovered earlier, the Chiswick-based company does the back-end software for most of the internet bookies.
In the longer term, the UK should also benefit from being the world leader in digital TV. Sure, the internet has tempted more people to have a flutter, but digital TV will really open up gambling to the mainstream, says David Rai, account director at digital media company Victoria Real (it works with William Hill). "iTV is the 'killer app'," says Rai. And the UK is in a position to clean up.

BSkyB revealed recently that it had generated £33m of revenue through betting on iTV in the second half of 2000 - its biggest revenue stream over the channel. Some forecasters reckon that iTV could represent up to 50 per cent of total gambling revenues around the world.

The UK also has clear and respected gambling regulations. These set it apart from the rest of the world. "Gamblers, not surprisingly, like to get paid," says Bill Wilson, chief executive of quoted sports content company TeamTalk, which has a partnership with Ladbrokes to provide an online betting service. "It should, therefore, be able to sweep up all the world's gambling revenue." Says Warwick Bartlett: "It is often said that governments on some islands make a decision on the back of an envelope, whereas we have a proper regulatory framework. Customers here get the best deal in the world."

The opposite is true on some islands. "These other islands will always be looked at as being somewhat 'on-the-edge'," says Sports.com's Chittick. "When you have a regime such as the UK's, with all its infrastructure and legal system, then people have more faith dealing with you."

"The main man"
It's not easy to get an interview with Victor Chandler.

So Glynn Davis went to Gibraltar to talk to the man who plays for the highest stakes - and discovered that the high rollers' high roller wants to shed his exclusive image.

In an industry packed with entrepreneurial characters, one stands out. The legendary bookmaker Victor Chandler is perhaps the world's most fearless punter. Where other, larger, bookies hesitate, 50-year-old Chandler regularly puts his neck on the line.

Take the £1m bet he accepted - on Brazil to beat France - in the 1998 football World Cup final. No other UK bookmaker touches such bets. But in Chandler's long career, these have become a trademark. (In case you don't remember, Brazil lost and Chandler won.)

Chandler never wanted to join the family business, founded by his grandfather in 1926. But his father died early of cancer and the young Victor was drafted in with a cousin.

The early months were tough. The betting shops were poorly managed. In accordance with racing industry rules, Chandler had to give up the company's pitches on the racecourses. A power struggle developed with his cousin. Victor won.

Chandler was desperate to maintain the company's presence on the "rails." This is the prime area on a racecourse between the members enclosure and the Tattersall stand (the betting ring). It's where the big money is put down. Chandler knew the company had to be there. "We had always been there and I thought we should stay there," he says.

Rails bookmaking proved a near-disaster. Chandler lost heavily. "My losses were nearly the final nail in the coffin for the business," he says. "But losing is the quickest way to learn."

Chandler made a crucial decision around this time. He brought former employee, Joe Dunbar, out of retirement to straighten out the shops business. This gave Chandler the freedom to develop his forte: satisfying the needs of the world's high-rolling punters.

These were legendary days. In a quiet voice, Chandler recalls one of his Arab clients taking him to his mansion in a huge limousine after a bad day's gambling. After the client - even 30 years later, Chandler won't disclose his name - had consumed great quantities of drink and handfuls of caviar, he removed his frustration by firing shots at pictures of jockey Lester Piggott in his indoor shooting range.

Flamboyant punter Terry Ramsden became a friend during this period. He is said to have enjoyed a £50,000 "treble" - betting on three horses in individual races - before breakfast each morning. Although he went on to lose millions, Ramsden's entry in the Guinness Book of Records lists him as enjoying the largest winning bet - £9m. Unfortunately William Hill had a maximum pay-out of £3m.

The company, today called Victor Chandler International (VCI), ran a tightrope between survival and extinction. "In the early days if we had a bad race meeting then it put the existence of company in jeopardy," says Chandler. "When Dawn Run won the Gold Cup at Cheltenham in 1986 it was a mega-blow as we lost £300,000. It was a long journey home."

But he also remembers making £750,000 from one Cheltenham Festival. Another hefty success was on the Mick Channon-trained Piccolo that won at Royal Ascot in 1994; Chandler pocketed £400,000. "We had lost for the first two days and got it all back on the third," he smiles.

Chandler's most profitable period was in the late-eighties under Thatcher's Conservative government. Every Monday evening, yuppie City traders flocked to Windsor's race meetings. "There was big money on-course from London's gangsters and City boys," Chandler recalls. Then business took a dive. "When the stockmarket crashed in 1987 we had lots of bad debts. John Major then put up the interest rates and it's never been the same since."

What sets Chandler apart? His greatest gift is getting on with punters. He loves racing and racegoers. Bringing in new, big-spending clients requires graft and a lot of luck. "But I got to like the people as I could always relate to punters," says Chandler.

And he understands the important numbers. "My history master drummed percentages into me. I'd got nowhere with ordinary maths but I knew that a 2/1 bet had a 33 per cent of winning," says Chandler. To be a really successful gambler, "you need the ability to pool information quickly and take risks. But don't chase losses like Nick Leeson. Pull back and recoup if it all goes wrong. Go away for a week and rethink."

He very nearly quit in 1975 when Playboy Casinos wanted to buy him out. It was a lucky escape, says Chandler. VCI was in a dip and it wouldn't have been a good deal. Last year, VCI almost sold out again, to sports investment group Enic. Disagreements over price killed the deal.

Chandler is still disappointed about the failed Enic deal. It would have provided extra funding to grow the offshore business - based in the tax-free betting principality of Gibraltar - much faster than is now possible. "It would have enabled us to create a bigger platform for the future," explains Chandler. "It is enormously expensive to develop technology and with their funds we could have moved much more quickly."

The offshore business is a mixture of telephone and internet betting. It attracts worldwide punters to bet on a wide variety of sports. And it's changing the fabled Chandler model. While his reputation is built on dealing with mega-punters, the internet has drawn the business towards volume business with a lower average stake. "We have a reputation that we don't want to keep," says Chandler. "I would like to see the average bet size come down."

With a new management team in place, Chandler wants to take more of a back seat. But will he be allowed to? "I intend to become more a figurehead and less hands-on," he says. "But my wife would not put up with me being at home all the time."

Runners and riders
Old faces and new in UK gambling.

Ladbrokes
Part of the Hilton group, Ladbrokes is the UK's largest bookmaker with 1,880 high-street shops, an online operation that opened for business in February 2000 and the second-largest casino operation in the UK. Last year it contributed around £2.6bn to Hilton's turnover.

William Hill
Operates a chain of 1,525 betting shops and an internet operation that includes an online casino. Its owners, CVC and Cinven - which paid Nomura £825m for the business in 1999 after it failed to float the group - are currently trying to sell the business.

Coral
Owner of 860 betting shops and the Gibraltar-based internet betting operation Eurobet, which it acquired in November 1999. This brought Coral an online turnover of around £10m per week with versions of the web site in five languages. Coral's owners, Deutsche Bank, had hoped to float Eurobet in 2000 for up to £1bn but even half this amount would now be optimistic.

Victor Chandler International
It was the first operator to give its clients tax-free online betting when it moved offshore in May 1999. It has also moved into joint ownership between Victor Chandler and the renowned punter Michael Tabor. Average bet size is £100 and around 60 per cent of turnover comes from horse racing, with the remainder mainly from football. Much of the company's business comes from overseas, particularly in south-east Asia.

Sportingbet.com
Offers fixed-odds betting on a variety of global sporting events. Only seven per cent of a £324.7m turnover comes from the UK. Pre-tax losses for the year to March 2001 were £4.2m.

Blue square
Sister company of City Index, Blue Square is owned by Intercapital. It specialises in fixed-odds betting on a variety of sports as well as gimmick events such as hamster racing and Big Brother. As well as an internet operation, Blue Square expects its greatest growth to come through its digital TV operation. Most of the company's turnover derives from the UK.

Form guide: Like Victor Chandler, Mark Blandford is a reluctant entrepreneur. The son of a Herefordshire farmer, "who should have gone on to the farm but it looked too much like hard work," his first sign of entrepreneurship was "when I was 11 years old and I was reading the Sunday Express. An ad for unit trusts guaranteed return of six to seven per cent and I'd got £101 in a Post Office account earning only two per cent. I'd asked my parents why don't I move it and they said okay, provided I decided which one." Blandford has had a colourful career: selling-on cars he bought at auction, production controller for processed foods at a poultry company, football commentator and betting shop owner. He also developed a software program that was so successful at picking winners that it got him banned from 20 racecourses in the UK. In November 1996 he came across the internet at a local council business demonstration. Eureka. He sold his small chain of betting shops and created Sportingbet.com, based on tax-free Alderney. It's now listed on the Alternative Investment Market at a £100m valuation. Blandford's motto: "the idea of hell is to look back on a lifetime of missed opportunities."

Betfair.com
Formed by Andrew Black in 1999 to offer better odds on horse racing than the bookies. The business makes its money by taking a five per cent cut of the net winnings from bets on a variety of sports - horse racing accounts for up to 70 per cent of its business. This chiefly comes from the UK; average bet size is £50. The company plans to grow by striking partnerships with other web sites and creating co-branded betting sites and taking a share of the revenue.

Flutter.com
Created in April 2000 by Vince Monical and Josh Hannah with funding of £27m from venture capitalists. Its person-to-person betting site attracts an average bet size of £10 on a variety of sports and charges a commission of five per cent on a punter's winnings. The company hopes to have up to 30 per cent of the total online betting market within five years. Only ten per cent of current turnover comes from outside the UK.

Ig index
Formed in 1974 by former City fund manager Stuart Wheeler to enable UK punters to speculate on the price of gold. Initial funding came from private investors but the company's growth into all forms of spread-betting including commodities and sporting events led to its flotation last year. IG is the leading financial spread-betting company and number two in sporting spreads to Sporting Index.

Gobarkingmad.com
This subsidiary of the quoted Gaming Insight (formerly Gaming Internet) offers 24-hour greyhound racing from meetings around the world including the UK, Australia and US. It currently operates a web site; an interactive TV service is expected to follow. The business was created in late 1999 but only recently went live.

Intertops
Intertops.com, a global online betting site licensed in Antigua since 1997. Has the unusual claim-to-fame of issuing the first subpoena by e-mail, when chief executive Simon Noble discovered that the intertops.co.uk domain name had already been registered by a cybersquatter.

Form guide: Andrew Black, 37-year-old founder of Betfair.com, financed the start-up with money he made as a professional gambler. Black did approach venture capitalists, but was pipped by bitter rival, Flutter.com. "We wrote the business plan and then looked for money but Flutter.com had got there three weeks before us. We were getting nowhere. Part of me hates them but then I also feel sorry for them because they have all this money to invest - wisely."

Form guide: Blue-blooded Stuart Wheeler - Eton, Oxford, the Guards and merchant banking, where he was sacked for bad stock picking - is one of the godfathers of spread-betting. IG, and others, are beginning to blur the lines between sports betting and financial trading. Financial non-betting is a major growth area for IG. As well as foreign exchange, it does margin trading on shares through an instrument called a CFD (Contracts For Difference). Clients can trade equity options on margin thereby giving them the exposure to an equity but without having to pay out the full amount for the shares. This financial business overlaps with the core sports betting because IG's major clients are based in the City and will bet on both financial instruments and sports. CFDs could even become an alternative way to trade shares for both individuals and institutional investors. In this vein, it's noteworthy that the football pools company, Zetters, has just acquired IFX (a non-bank market-maker in spot and forward foreign exchange and over-the-counter currency options).

Glynn Davis is a journalist and author. Over the past few months, he has met just about everyone who counts in Britain's gambling scene.

Tags: chandler, betting business, internet betting, uk, betting turnover, sports betting, person betting, uk gambling, online sports betting, betting revenue, betting shops, victor chandler, betting business chairman, company business, spread betting, east betting, online betting service, betting ring, chandler won, online gambling, chandler knew, chandler recalls, internet gambling, explains chandler, gave chandler, sets chandler, online casinos business, core sports betting, total online betting market, sports betting growth, clients tax free online betting, shops business, 525 betting shops, 860 betting shops, betting web sites, exchange betting market, online turnover, victor chandler internationalit, gambling turnover, branded betting sites, fixed odds betting, small uk software company, betting shop owner, global online betting site licensed, offshore business, person betting site attracts, uk goverment, chandler lost heavily, worldwide online gambling, cent tax, online operation, person gambling, tax free betting principality, chandler won disclose, gibraltar based internet betting operation eurobet, business plan, leading financial spread betting company, world gambling revenue, victor chandler shares building, chandler long career, gibraltar based business, business makes, company growth, family business, legendary bookmaker victor chandler, uk average bet size, volume business, chandler regularly puts, enable uk punters, fabled chandler model, internet operation, online casino, internet bookies, online operators, uk largest bookmaker, gambling rules, online gambling entrepreneurs reckon, spread betting including commodities, uk registered sites, coming online gambling entrepreneurs, uk bookmaker touches, online lotteries, online supremacy, online ventures, offering online gambling services, company plans, financial business overlaps, gambling habits, chandler made crucial decision, company turnover derives, nottingham trent university, bet365, bookmakers, bartlett, quid pro quo, tax havens, labour government, tax regime, british entrepreneur, change of attitude, consultation period, gross profits, betting gaming, gaming consultants, office association, result uk, colony club,