Wednesday, 3 March 2010

Ten years on...

It was exactly ten years ago yesterday that I quit my last job, at JPMorgan. People often ask me how I first got involved in Betfair, and I can remember the first time I heard anything about it as if it were yesterday, so it seems like a suitable moment to tell the story!

I was sitting at my desk on the trading floor at JPMorgan - a corner desk in the middle of a room about the size of a football pitch - where I had spent most of the last four-and-a-half years surrounded by screens. Down the aisle between two rows of desks stormed one of the Managing Directors in Fixed Income - the man who ran the Syndicate Desk, Paul Hearn.

Paul was someone I had come to watch very carefully, in that way that you study an object of curiosity: he was the sort of person on whose every word you hung, but purely on the basis that it might well be his last. These days he is more relaxed, judging from our chance meeting at a dinner a fortnight back; but at the time, I expected him to have a coronary every time he opened his mouth. And as I sat there minding my own business, I suddenly became aware of him stomping towards his own desk - diagonally across the corner divide from mine - even more buff and bluster than normal.

"ED WRAY'S LEAVING THE COMPANY!" he bellowed to no-one in particular, his arms waving around demonicly. "He's going to set up some sort of BETTING company! Reckons he's got a different way to do it - but haven't these people always got a different way to DO IT!" My ears were caught between wanting cover, and pricking up.

I knew who he was talking about. Edward Wray worked in Capital Markets, bringing new bond issues for various sovereign states. Our interaction was mainly limited to him coming to ask me where comparable bonds traded in the secondary market, to give him an idea where he might price new issues. But we shared a great love for sport, and it was through this shared passion that he had come to rumble me six months earlier (before he headed off on the sabbatical which was spent testing Betfair's business viability) as I sought an exit from the City by moonlighting with the media in the hope of being offered a permanent role.

I'd got myself freelance work writing cricket reports for the Daily Telegraph and reading the sports news for BBC Radio Five Live. Ed had heard me doing late-night and overnight shifts on the radio, and, as one of the very few on the trading floor who read a a white paper rather than a pink one, had, the previous summer, sidled up to my desk with his Telegraph open.

"So, Mark," he said with a wry smile. "There's a report in today's paper on yesterday's county game between Surrey and Somerset, written by Mark Davies, the day after you were off sick. Is this coincidence, given that last week, the day after you took a day's leave, there was another report by Mark Davies, on the match between Nottinghamshire and Middlesex?" I'd had to admit it was a fair cop.

It became increasingly clear over the months that passed that it would be unsustainable for me to pursue my media ambitions while working in the City - a fact brought home to me, as I walked up towards Fleet Street from our office on Victoria Embankment after the markets closed for New year 2000, to have my senior salesman put his arm round my shoulder and wish me a change of luck with the new Millenium. "I've never known someone have as rough as trot as you've had in '99, Mark," he told me. "Three members of your family, and two friends die; and so much illness? Things can only get better for you, mate."

So it was music to my ears, soon after Paul Hearn had announced to anyone within half a mile that Ed was off to set up a business, when Ed suggested to me that his new venture might be my answer. It was, after all, a fledgling business; who knew if it would go anywhere; and, he told me, if I made any significant progress in pursuit of my dream of presenting for BBC Sport, we could always come to some arrangement where I could take unpaid leave if I was offered too many days to be able to have as holiday. He wanted someone who understood business, he said, which he presumed I did as I was trading corporate bonds; and - in case his business took off - he needed someone who knew the media. That, he was right in saying, was where I was spending increasing amounts of my time; and it was, in any case, the industry I had grown up with. Would I, he asked, be interested in having a conversation?

I didn't need any persuasion: I agreed to go and see the product, and talk about the idea. And so, a short time later, I went one evening to a small attic room in Putney, without any desks, and with one computer perched on one of the many boxes which constituted the only furniture, to meet Ed and his business partner, Andrew Black. How Andrew (or Bert, as he is known) had come out with the idea and given half of it to Ed has been well documented. Also there that evening was Sean Paterson, who at the time was offering his services on a consultancy basis as Ed and Bert, but who later became the company's first CFO.

Bert gave me a quick demo of the product, as it existed then. As I remember it, it was nothing more than an Excel spreadsheet at the time, although my knowledge of software packages is not deep. Whatever, it certainly didn't have any bells and whistles.

But it didn't need any. I remember exactly what my reaction was: it was, I thought, so simple, and so well-executed; I couldn't believe I hadn't thought of it myself. And the thought flashed through my mind that if one in a hundred people reacted to it as I had just reacted to it, the concept was going to fly.

Exactly what the timescale was between that moment and me resigning from Morgan, I am not certain. It feels in my head like I quit the following morning, but there must have been things to work out. Whatever, I handed in my notice on 2nd March 2000, at the time much to the envy of many of my colleagues, who told me that they wished they had the balls to do the same. That sentiment changed within a matter of weeks, though: the NASDAQ peaked on 10th March, and shortly after,'s share price collapsed, heralding the bursting of the bubble.

It was a hairy time. Not that I got any sympathy from any of my City colleagues, who thought it was the most hilarious thing that I had quit to join a start-up, leaving a very lucrative job, with such impeccable timing. I had a rush of e-mails from "friends" (!) with mocked-up P45s, and repeated comments that they would buy the Big Issue off me providing I sold it on Blackfriars' Bridge, just outside the office. To make matters worse, I must be the only trader in history to have been asked to work his notice: normally, they march you out of the door there and then. Either they thought I wouldn't do any damage, or I couldn't do any more than I regularly did already. Or maybe it was genuinely the case that they had no-one else spare to make a price.

Looking back, the success of Betfair makes it easy to forget just how un-obvious it was to an awful lot of sensible people that it would work; and just how big a risk it was at the time. At our launch party at the Sports Cafe, to which I invited all my former brokers and many a big City punter, we were repeatedly told it would never beat spread betting, which they all knew and loved. Meanwhile, six companies launched in a six-week period with the same idea: disintermediate the risk between your customers rather than taking it on yourself, and you can deliver far better pricing. Five of the six (one of which was Coral's offering, Play2Match - conveniently forgotten by the bookies today!) no longer exist; and Bert's model, with its order-driven trading and best execution, came through. Every attempt to enter the market today skins itself remarkably similarly to Betfair, as 'the only way to do it' - as if it's obvious. It wasn't so obvious at the time!


  1. Hi Mark,

    What do you think it was that caused Betfair to triumph over the other similar business models that launched at the same time? With large companies like Coral giving their backing to P2P projects it must have been a competitive landscape. Was it simply a superior product on Betfair's side or did Betfair have enough of a first-mover advantage to hit critical mass before the competitors did?



  2. Mark (Mark who asked the question of course)- have a read of You Bet: The Betfair Story it is all in there and is quite an interesting read.

  3. Mark - everyone did it a slightly different way. it wasn't first-mover advantage at that point, because we weren't first! But we were first to do it with a model that aggregated demand, whereas everyone else had a different model.

    The flutter model, for example, was basically a glorified bulletin board: you took prices which directly opposed yours, but if you wanted to bet £100 at 2/1 and someone wanted to bet against for £50 at 3/1, you didn't match. The result was that people split their £100 bet down into fifty lots of the minimum £2, so that they could get taken by as many people as possible.

    An analogy would be you walking into your local greengrocer and asking him for 10 oranges, at 10p each. if he replied that he didn't have ten oranges, he had 50; and anyway, they weren't 10p each, but 5p each, you'd tell him to stop being daft. But that was effectively what happened with the other sites: the two things were not seen to be a match.

    in contrast, we aggregated demand, and we gave best execution, so we quickly generated liquidity where others were generating none. It took 9 months before anyone was able to replicate the technology, and by that stage, first-mover advantage was important. Although many people generated levels of liquidity which were well past the level at which people started to take note of us, those levels were by then dwarfed by the levels we had reached, and looked insignificant.

    To be fair to our technology team, though, I think there is more to it than simply the liquidity issue. The fact is that it is not an easy thing to run when you get into big volumes, and I think customers understood that there is a difference between matching bets at speed when you aren't doing many of them, and still doing so when you are handling millions of transaction. I thik it's easy enough to make your site LOOK like Betfair; but it's another thing for it actually to have the same capabilities. Those capabilities haven't come cheaply. I think that it's been the continuous investment that has allowed us to stay where we are, but of course we had to get there first, and that was where being the first people to get it right gave us a huge boost. So, thank Bert!

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