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Betting on the New Economy

26 July 2000

Although Old Economy companies are increasingly edging out their New Economy rivals on the Internet, there is one example of a newcomer that still has old-style big boys on the run.

What makes this story particularly impressive is that this company operates in an industry that has massive potential for huge revenues over the Internet. The industry is gambling, and the company is Ofex-listed Sportingbet.com.

Under the guidance of its founder Mark Blandford, it has taken a few big gambles since it was formed in October 1998, and most of them have come good. His first was to realise that by registering a bookmaking business offshore he could offer tax-free betting over the Internet. And his second was to invest his savings in setting up such a company.

Another major gamble was to develop his own software, and then resisting the temptation to license it to one of the big players, despite the lure of a £100,000-plus offer. It would have come in pretty handy, too, since his new company's bank account wasn't exactly overflowing with cash at the time.

Sportingbet.com has since gone on to achieve a market value of around £160 million, and with 23% stake in the business, Blandford can look back with some fondness at this decision to resist the overtures of one of his major rivals.

This risk taking streak is in great contrast to the UK's major 'gamblers' - Ladbrokes (part of the Hilton Group (HG.:LSE)) and William Hill - who still haven't, after two years of trying, got a clue about what the Internet can do for their businesses.

Of the big three betting operators only Coral can be praised - for buying online business Eurobet - although its strategy of going all out for growth rather than for margin is questionable. It also lost its marketing director the other week to none other than Sportingbet.com.

In its favour, Coral does at least look as if it will manage to float this year, probably for somewhere around £1 billion. William Hill, on the other hand, has no chance of hitting the market this year. Due diligence of the business hasn't even been carried out yet.

Against the stumbling moves of these dinosaurs, Sportingbet.com looks likely to beat the pair yet again by joining the main market ahead of them both. It is currently receiving advice on moving from Ofex to the main market and securing a place in the techMARK. This will give it a greater capacity for fund raising, which will help it maintain its strategy of achieving growth chiefly through acquisition.

This strategy has seen the company buy Costa Rica-based online bookmaker Betmaker.com in May, which gives it greater access to punters in the US and Canada. What makes this deal particularly interesting is that Coral has admitted to having looked at the business but, not surprisingly, didn't take it any further.

So for £9.5 million, Sportingbet.com acquired a business that is forecast to turn over $200 million and make a pretax profit of $7 million this year. To me this looks like a profitable dotcom.

Meanwhile, in the UK, Sportingbet.com was the first company in the world to take a bet on Interactive TV after signing a deal with Telewest (TWT:LSE) (Board) in June. Its results, which are due out within the next week or so, should provide more evidence that this new economy player still has its bigger rivals on the run and that it's not all doom and gloom among the dotcoms.

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