Mega Deal Down Under: Betfair and PB

Less than two weeks after the Australian government published its review of the 2001 Interactive Gaming Act, the first major deal involving a betting exchange has been struck. Just like that, Kerry Packer's media conglomerate is back in the Internet gambling business.

The committee reviewing the IGA said in its findings released July 12 that no new provisions should be added to the legislation, essentially paving the way for states and territories to issue betting exchange licenses. In the wake of the news, exchange operator Betfair said it would immediately start negotiations with jurisdictions in hopes of securing the country's first such license.

The company faces significant opposition--traditional bookmakers and racing officials have threatened legal action if a license is granted--but it got a major boost Thursday when it signed a deal with Packer's Publishing and Broadcasting Ltd.

The two parties have formed a 50-50 joint venture to develop an Internet betting exchange geared toward Australian and New Zealand punters. PBL won't be required to invest money into the venture until Betfair obtains a license in Australia.

It's a blockbuster deal involving the world's leading betting exchange and one of Australia's biggest brands, but most agree that it doesn't guarantee Betfair an Australian license.

Australia's TABs, along with industry groups like the Australian Bookmakers Association and the Australian Racing Board (ARB), have been outspoken about the expansion of betting exchanges in the country. They argue that exchanges operate at an unfair competitive advantage by allowing users to set their own odds, that they damage the integrity of the sport and that they don't pay as much revenue back into rcacing as traditional betting operators do.

The ARB has specifically pointed to issues in Britain and Hong Kong, where they claim racing has been damaged by betting on the Internet and through betting exchanges.

Nevertheless, Betfair has been confident all along that it will secure a license, and the PBL partnership certainly doesn't hurt their efforts.

"What (PBL) brings to the party is they make us Australian," explained Mark Davies, the managing director for Betfair Australia. "We think we will get a license at some point, but we're not going to speculate where or when."

PBL chief executive John Alexander said Betfair is the ideal vehicle for exporting Australian racing to the rest of the world at a time when the industry's survival depends on increased turnover.

"Betfair has committed to paying the Australian racing industry the same percentage of its gross profit on horseracing as all other operators in that industry," Alexander said in a prepared statement.

He also pointed out that Betfair is committed to backdate any payments to the date from which Australians first began to use the service (in February 2003).

Betfair has targeted Australian punters as a U.K.-based operator, but it has expressed great interest (even before it started accepting bets from Australians) in obtaining licensing in Australia.

Without a license, they cannot legally advertise or sponsor events in the country. They've relied on media hype (much of which they received during the Rugby World Cup) to increase their Australian customer base up to this point.

Not only is PBL a well known brand in Australia, its background as a broadcaster makes it an excellent business partner for Betfair.

"They (PBL) have tremendous means to distribute the product," Davies said. "They have great relationships within sport in Australia and they are totally connected with people all across the sporting world. They also have distribution channels like Nine MSN and television operations that make them capable of getting the Betfair product in front of a large number of Australian punters."

The betting exchange venture, should it come to fruition, would also increase PBL's portfolio in the Australian gambling industry. The company owns Melbourne's Crown Casino and controls 40 percent (with a bid for a majority interest pending) of the Burswood Casino in Perth.

The venture would also reopen a door to the online gambling market--a door that was closed in May 2003 when the company shut down its CrownGames.com online casino due to Australia's restrictive online gambling policy.