Betfair, the online wagering operation, has made offers to California racetracks and horsemen to apply a 10-percent commission on bets made through its betting exchange, a far higher rate than the company applies to its customers in overseas jurisdictions, the company’s U.S. president, Stephen Burn, said on Wednesday afternoon during a panel discussion at the University of Arizona Symposium on Racing and Gaming.
Although Burn said that Betfair is “still a long way away from having anything set in stone,” the offer of a 10-percent commission indicates that the company is willing to significantly modify its business model to address the concerns of U.S. racing interests. Betfair currently applies a 2- to 5-percent commission on winning wagers in European countries and Australia, a rate that U.S. horsemen and racetracks contend is far too low to generate revenue that would replace the cannibalization of parimutuel handle that would be expected to occur in the advent of exchange wagering.
Under the model, the U.S. racing industry would retain two-thirds of the commission, and Betfair would retain one-third, Burn said.
“For every dollar we earn, the sport should earn two dollars,” Burn said.
The 2011 symposium was the third in a row in which Betfair officials encouraged the U.S. racing industry to strike agreements that would allow the company to operate in the United States. So far, two states, California and New Jersey, have authorized exchange wagering – in part because of aggressive lobbying by Betfair. But the launch of betting exchanges in both states is predicated on the operator reaching agreements with racetracks and horsemen, a prospect that has so far proved elusive for Betfair because of the concerns over the impact of its business model on the industry’s revenue streams, which are eroding under a 25-percent decline in handle over the past three years.
Betfair, which bought the account-wagering company TVG in 2009, is focusing its efforts on reaching a deal with tracks and horsemen in California because the state is the largest parimutuel market in the United States. But it’s still far from unclear when or if the company will be able to strike a deal in the state, as horsemen and tracks have yet to provide any public support for Betfair’s entry. In any case, the legislation passed late in 2010 would not allow exchange wagering until May 2012, at the earliest.
Betfair’s strategy to change its business model for the United States will also likely complicate its already contentious relationships with the racing industries in foreign countries. Many overseas racetracks have complained that the company’s commission to racing in those countries – 10 percent of gross profits on horse race wagers – is far too low, and at the end of the panel, a representative of British racetracks asked Burn to explain why the business model offered to the U.S. racing industry was so much more generous than the one offered to tracks in his country.
Burn, who is British, countered that he did not believe that the models differed to a great degree, citing fees the company paid to the British racing industry in addition to the commission. But the exchange between the two officials clearly illustrated that Betfair’s model will continue to face pressures on both sides of the Atlantic.
Burn also stuck to his guns on the benefits that betting exchanges would offer to the U.S. racing industry, citing the younger demographics of the typical Betfair customer when compared with a typical racing fan. And he also said that if racing is going to survive, the industry will need to adopt innovations to keep pace with the evolving tastes of the gambling public.
The U.S. racing industry, Burn said, needs to partner with Betfair instead of “pretending we’re some 19th-century doctor in Europe, where we cut our patients, bleed them, and apply a bunch of leeches, and when that doesn’t work, cut them and bleed them some more. When the patient is dying, you need to do something other than cutting and bleeding them.”
