Owning a Sportsbook is Not a Licence to Print Money

Jonathan Barker

Rich men like to buy football clubs and racehorses and impatiently wait for results and trophies. Over the past decade, a number have been tempted into buying or setting up sportsbooks on the assumption that they are a licence to print money. Scarily, for some, their entire betting experience has been a losing one, therefore everyone else must be a mug too so running the sportsbook must be a road paved with gold.

Think of some online bookmakers and look at how they go about their business. How solid are firms like Centrebet or Ladbrokes, two names which come immediately to mind when thinking of established firms? These companies have an international spread of customers that few can beat. They are in the strongest of licensed territories giving the customer the security of knowing their funds are protected. Only someone completely new to betting won't have heard of them, and their range of betting options are up there with the best. Rather than being brilliant in any one area, they are in the 'one stop shop' category because they cover pretty much everything and if you were going to recommend a bookie to a once-a-year punter, these would be high on the list.

How about newer firms with less history? You might go back a few years to Betfair or a new kid on the block in Lasseters. Betfair over seven years has established itself as one of the biggest in the business with licences in several countries and a business plan which takes very little risk. Lasseters are quite new but are backed by a land casino and have Australia's best betting PR man in ex-Centrebet head honcho Gerard Daffy at the helm. If there's one guy who knows how to make the most of Australia's unconstitutional advertising restrictions by getting his face on daytime TV plugging election markets or getting Ray Warren to mention his prices for the swimming at the 1998 Commonwealth Games in Malaysia, it's the big man originally from Warrnambool. No need to invent million dollar bets to get into the press, a bookmaker with a higher degree of integrity you'll struggle to find anywhere. I wonder how much of a hit Centrebet have taken with Daffy no doubt luring a lot of punters who like to bet with the man rather than a corporation.

What about the smaller books at the bottom end of the food chain? Take the likes of BetStar and Sports Acumen. Both have limited marketing budgets and run modest promotions from time-to-time. These businesses have been around for a while (with BetStar as Alan Eskander, leading Melbourne rails bookie) with sound business models. They aren't going to take on the big players for unlimited amounts nor are they going to offer ridiculous promotions that are too good to be true.

So what's it take to set up a brand new sportsbook? A combination of deep pockets, a great PR machine and very good marketing. To start off as a new book and do most of your marketing in your prices means 60% of your punters will be arbers or pros - and you will need to have hired some very sharp risk managers to be able to play them effectively. Without the small fish/mug punters who bet without a great deal of thought or research, it makes it very difficult to stay in the black.

Let's take a look at bookies who have closed up in recent years. Premierbet focused on the Asian market with football handicaps and on the back of one of the sharpest men in the industry, Tony Bloom. Very little marketing was done into the mass market, so the client base was sharp. When he sold the business to an investment firm, they lost the name, much of the expertise and the flow of new losing clients through the door virtually stopped.

Tattsbet was a doomed venture from day one. Based in the over-regulated gambling jurisdiction of Tasmania (ever wondered why all the new corporate bookies tend to head to Darwin?) so that the head office could keep a closer eye on them and run all the IT from Melbourne, the board had no concept of competition or risk. Why would they? A monopoly on lotteries and half the poker machines in Victoria meant they never had to worry about losing money or dealing with rival firms. Despite hiring staff with years of experience in the game, all the important decisions were made by the board, with an average age well past the normal onset of Alzheimer's and generally understood to be beyond the level of learning new tricks.

"A great brand name, but let's only take customers from outside Australia in case it endangers our lotteries licence."

"Let's write to every national government and ask them if online betting is permitted there. If they write back and say yes, then we'll accept customers from there.."

"No Aus customers but make them bet in AUD anyway as it's easier for our accounts."

"We want to have 100,000 customers each having $5 bets rather than 1,000 having $500, but we're not going to spend any money on marketing because the brand is strong enough.'

To their credit, when Tattsbet was wound down, everyone was paid in full and promptly. That's the beauty of the Australian system. Such tight regulation and large financial bonds held as security ensures punters' funds are safe in virtually every case. Compare this to the UK, a regulated environment where the likes of Premierbet, Sporting Options, Luvbet and Netbetsports have disappeared with little protection for the punter. The new Gambling Act which was enacted in September 2007 is expected to tighten this up a little, but while company accounts aren't regularly monitored by a government body, more often than not it will be trying to save the Titanic with only the captain's helm still dry.

Caribbean sportsbooks are even further down the chain but there are some great books that have passed the test of time. Olympic, Pinnacle, WSEX and 5Dimes are just some which continue to thrive in an environment where US interference never seems to end. But have a look at all the shipwrecks there over the years and a new Caribbean bookmaker is not a place you want to leave large sums of money come the end of the NFL season - it's traditionally the time for the fly-by-nighters to pack up and run.

The simple rules of business mean that there will always be bookmakers closing down and others starting up. Thankfully it looks like we are now past the lawless stage where they could pop up anywhere and any bloke with too much cash could open one. Eventually the efficiencies of competitive economics means the honeymoon period of profits for all ends and only the strong survive. There will be bookmakers in Australia who will go broke, as there will in every other jurisdiction open to competition. But at least I know where I've got the best chance of being paid out in full - Australia.

© 2007 Punting Ace.com