Consolidation in the P2P Sector

The global landscape for person-to-person betting could undergo a massive change in the next year and online betting exchange Betfair.com looks to play a major part in that metamorphosis.

The British company, which launched its online services a year and a half ago, announced Friday a merger with one of its biggest rivals, Flutter.

Betfair: The P2P betting industry will become a billion-pound business within the next 12 to 18 months.

The combined new company, which will remain under the Betfair brand, is projecting annual turnover to exceed the £500 million mark, making it one of the United Kingdom's largest online betting shops.

Person-to-person betting has been on the rise since the two sites launches nearly simultaneously in the first quarter of 2000. Betting exchanges, which eliminate the bookmaker by enabling punters to bet directly with each other, remain a small piece of the global online betting market, but the two U.K. exchanges have managed to carve their niches. Officials from both companies predict the same success can be had on the global stage.

The new combined entity will boast more than 60,000 active registered users. The two sites individually are already matching over £10 million of bets each week. Betfair officials said the combined sites currently represent an estimated 15 to 20 percent of the total online U.K. betting market. The company also predicts the industry will become a billion-pound business within the next 12 to 18 months.

Betfair CEO Edward Wray, who will also be heading the new combined entity, told IGN that a major part of the company's global expansion plan for 2002 will be soccer's World Cup.

"With the World Cup in Asia next year there is a huge demand for that event," he said. "We recognize the potential in Asia. The more that sport becomes covered globally the more demand there will be for our service."

Flutter CEO Josh Hannah said the new Betfair will create a P2P exchange that is unrivaled anywhere on the Internet.

"The huge success of Betfair and Flutter to date has proved that this is a product the betting public wants, and by merging the two exchanges we will be ensuring that whatever the punter wants to bet on, the best odds will be available in size."

The P2P system lends itself to larger sites. The more punters wanting action on different games the better their chances are of getting matched up with someone from the other side of the bet. Betfair officials said the new site will offer better odds and a higher rate of bets matched. It'll also give users the convenience of getting the value all at one place.

In a prepared statement released to the media, Andrew Black, founder of Betfair, said the company is excited about the direction P2P betting can now go with the improved site and predicted that consumers will be as well.

In addition to Wray staying on as CEO of the new Betfair, Black will remain as head of product development. Hannah, Flutter's CEO and founder, will join the board, while senior management will be drawn from both companies

As part of the merger the Flutter site will only carry football and race betting with the start of 2002. By Jan. 15, the site will redirect all of its traffic to Betfair.

By merging the two operations Wray said Betfair will now be able to effectively market itself on a global scale, something that would have been a major challenge for either Flutter or Betfair to do on their own.

"It allows us to merge the customer base and liquidity and to get deeper into new markets without increasing our cost base," he said. "The new company will be slightly larger than either one of the two, but won't be doubling the number of the people at the new company."

The first phase of both companies was to plant a seed and perfect the product through the UK betting market. Wray said the time has come for them to branch out beyond the UK.

"Our focus the last 18 months has been on establishing a healthy and successfully business in the U.K.," he said. "The potential as far as international markets is huge. The only market we are not actively perusing right now is the U.S. for obvious reasons, but we are keeping close watch on that."

As a global perspective is taken with the new Betfair, Wray said a transition team will evaluate the popular aspects to the Flutter site and incorporate them into the new Betfair. He said the process would also include input from loyal and frequent users of Flutter.

Financial details of the deal weren't released to the public. Wray said it was a rather impromptu decision and the deal happened very quickly once both sides started discussing the possibility of a merger. As a result he is confident Betfair can become the global standard in the P2P arena and that both sides will be pleased with the end result.

"This deal marks us out as the clear leader today, and we will have to work very hard to maintain that position," he said. "We are aware of the threat of competition from other people. This deal was entirely opportunistic and everyone involved is very excited about it and believes it is a huge step up in taking the business forward next year. We fully expect this company to be fully profitable shortly after integration."