Q & A: Derek Handley, Feverpitch

Derek Handley is the founder and managing director of Feverpitch International Ltd., a person-to-person sports betting site out of Auckland, New Zealand. At 23, he has been called the youngest person ever to take a company to the New Zealand Stock Market, which he plans to do at the end of December with an IPO. Handley said Feverpitch will seek to raise $1.5 million with the New Zealand IPO and will enter the Australian stock market shortly thereafter.

For now, Handley said, betting on the site is focused on regional sports, but he plans on expanding to allow for wagering on sports from different parts of the world.

Handley spoke with IGN this week about what he's doing to set the business up for a bright future, including selling the exchange software, which he developed, and gathering a board of experienced directors including the former CEO and managing partner of Ernst and Young, Richard Waddel; and Jon Hart, the former coach of the All Blacks, the New Zealand national rugby team.

IGN: The concept behind your Web site is interesting. Can you go over it? What's your target audience and what sports do you offer betting on?

Derek Handley: We've currently got a pilot version of the site that's out there now, which allows people to bet against each other. The target audience for that is probably lower-value bettors, not professionals but more amateurs. The sports that we'll be doing for that site will probably include American sports.our R&D is here (in Auckland), but we're looking to target international markets. There's no person-to-person sites tailored to the U.S. kind of sports at the moment, that we're aware of, so we're looking at tailoring ours. We've got things like PayPal and NETeller lined up for the U.S. customers. We're working with some U.S. agencies to help us get it right and roll it out. That's the current site you see on the Internet, Feverpitch Exchange, which is one on one.

The second phase of development, which is almost finished, is going to roll out in the beginning of next year. It is actually more of a stock exchange environment. It's kind of like buying and selling bets, and that is tailored to bettors with more experience, maybe. Also maybe sharper pros; it will allow them to become virtual bookmakers. They'll be able to set their own odds and their own prices, and allow people to come and take them on.

IGN: What will that site be called?

DH: We haven't decided what it will be called, but it will be a spin-off of Feverpitch. It's almost finished, and we have to brand it for the target market. That site will allow you to set up markets. And also, if the market changes, for example in the stock market, if I buy something today and the price changes tomorrow, I can sell it on. . . It'll allow you to do that as well. So for example for futures bets, if you bet on a team in the NFL that's on really long odds at the beginning of the season and then halfway through the season they've done really well, dramatically, you can sell that bet and lock in a profit. That kind of betting isn't available to the U.S. market at the moment either. The closest to it is what you would call interactives, I think. That also allows people to bet during games against each other. For those companies (who do that type of betting) it's a huge risk. They have someone glued to the screen, watching the games, whereas we'll just open up markets and the people themselves will bet against each other, which means that we as a company don't have the risk in that game.

IGN: Are you worried at all about U.S. regulations? It's kind of up in the air right now.

DH: It is kind of up in the air right now, but we're looking at several other markets anyway. For U.S. sports in general, there's a following around the world. It's not just Americans, there are Americans, but there are also [fans] who live all around the world and are citizens of other countries. It's a huge betting sport worldwide. But we're also looking at more closer to home, using our exchange system for racing in Australia and potentially up to Southeast Asia as well.

IGN: You mentioned that the Feverpitch site is in a pilot phase right now. Can people use it for play-for-fun only?

DH: They can use it for real, it's just that we haven't really pushed it. We've had it up for the last five months, it's live, it's real. It has maybe about 800 members that we got from about 20 different countries just to test the system and give us feedback on various features, but it is totally live. We want to add bits and pieces of it over the next few months as we go to the next stage.

IGN: When do you expect to have a formal launch?

DH: We were going to go for this summer--New Zealand summer, which is now, but it looks like first quarter of next year probably. And we're also looking to license any of the software that we develop, which is the person-to-person site that's already there and also the exchange software that will be rolled out in the first quarter of next year, or partner with sites that have a strong user base that might want to use this kind of service, like a sports tipping site or a sports information site, that kind of thing.

IGN: Did you develop the software yourself?

DH:Yeah, we're also the developers. We've developed it from. . . about two years we've been working on it. In-house, basically. That's what we do in New Zealand.

IGN: How'd you get the idea for this company?

DH: The idea stems basically from an interest in stock markets and also an interest in betting, and combining the two because currently bookmakers control the marketplace. It's actually a marketplace where there are thousands of people betting, but they're all betting against one person, which is a bookmaker. Whenever they go to a bookmaker or online somewhere, in actual fact if it was a real market, you'd allow the people to participate with each other, which they can't on share markets. So it's just a natural evolution of certain elements of the industry.

IGN: In an article on stuff.co.nz, you said you think the online environment allows people to do things they can't do offline. Can you go into that in more detail?

DH: Well, for example, the Internet is the only place you could create a virtual stock exchange where people all over the world could participate easily. When you have the technology it removes the need for having an actual marketplace. The Internet's probably the first real medium that's allowed people to do that. Also, wireless Internet through cell phones and in the near future, interactive television.

IGN: Are you making a version of your software for use in cell phones and interactive television?

DH: We've already done that. You can use the current site using the WAP protocol, you can also use text messaging, which is really popular in non-U.S. markets, markets which are Europe, Asia and Australia, they all have the same standard for cell phones, and you can use text messaging, which is like little e-mails, which the site uses as well.

IGN: Where are your operations?

DH: We do the research and development is in Auckland, in New Zealand, but the actual betting site is run from a corporate base in London. As opposed to picking Antigua or Costa Rica, where a lot of the other players are, we choose a solid jurisdiction, I think.

IGN: So where is your license from?

DH: We have legal opinions in England to say we don't require a license because we're not actually taking the risk of a bookmaker, we're just an exchange operator. We don't participate in the marketplace, because I'm not setting the bets, them I'm not a bookmaker.

IGN: How did you get the other directors on board? It seems like you have people with a lot of experience.

DH: I choose them specifically for what their strengths were. The lawyer, Jock Irvine, I've known him since the beginning of this process, he's the first person I went to to talk about it. He's heavily involved in gambling in this part of the world, Casino Control Authority and all these kind of things, and he's also on the Norfolk Islands Gaming Authority, which is one of the states of Australia, they're trying to set themselves up as an online hub. All these kinds of people I just approached because I thought they'd be appropriate, like Len Ward, who has experience on the futures exchanges and that kind of market. They all are really interested in the idea, and when I presented to them they were all very keen to be involved.

IGN: What do you see happening in the next few years for Feverpitch?

DH: I think after rolling these pilots out in the next quarter, we'll focus on key markets and just continually build our customer base, and hopefully be the leaders in each market that we choose, and partner or license our software in other markets that we don't feel so confident in, to try to help other operators provide this kind of service to their customers as well.

IGN: Is there anything else about that company that you wanted to talk about that's a key element?

DH: I think a key element would be that, compared to other books and online sites in the marketplace, one of the key worries of people is whether they're going to get their money back when they put it over the counter. When they put their credit card number online, are they actually going to get paid, because you see a number of bookmakers in Costa Rica and places like that, they fold, and they lose all the customers' monies. A couple of those have just happened in the last month or so. We're never going to be in that position, because we always have the customers' funds separated in an escrow account, not for operational purposes. They'll be held in a cash-management trust kind of environment where they're never used for our own purposes. They're separated, and I don't think a lot of books online can give that kind of guarantee.

And the reason we want to go public was not only to raise money, because it's not a very big amount of money. The reason was that the disclosure requirements, the transparency, the scrutiny that we'll be put under as a public company in a regulated environment, will enable anyone who bets with our service to know that there is actually accountability behind the whole process, it's not just a just a private, dodgy kind of company in the backwaters of some kind of tax haven. And that was a key reason for actually deciding to do it. Then you can have some element of trust behind the operation.