Q & A: David Harding

What's it like to be one of the biggest bookmaking companies in the world? IGN seeks the answer through an interview with David Harding, William Hill's chief executive officer.

While Harding was unwilling to share specific numbers and details about William Hill's operations, he offered plenty of information on both the U.K. betting industry and gambling on the Internet.

William Hill was founded more than 65 years ago, and currently offers betting opportunities through its 1,500 licensed betting offices located throughout England, as well as through telephone and Internet accounts. William Hill also operates an online casino licensed in Antigua using software provided by Cryptologic.

Of course, being the second largest bookmaker in England isn't all a bed of roses. For example, the British Horseracing Board (BHB) filed suit last March against several U.K. sports betting firms for displaying pre-race data from its database on their websites, but targeted William Hill in particular because of its strong presence in both the United Kingdom and internationally. The Board is hoping that both U.K. and international Internet sites will be required to pay for using information from the database. To date no decision has been made, leaving both William Hill executives and BHB officials on tenterhooks.

Given the relatively close nature of the British bookmaking industry, the BHB case also affects many others who have to choose which side of the room to sit on during meetings such as the recent British Betting Offices Association Seminar.

Following the BBOA Seminar 2001, held on January 23 , we caught up with Harding, and here's what he had to say. . .

IGN: One of the biggest issues facing the U.K. bookmakers concerns betting duty. It's been suggested that the government might require bookmakers that have fled offshore to return to England should the betting duty be either dropped or abolished. Would William Hill be willing to make such a move?

David Harding: We don't know enough yet about what the actual proposals are to make that decision. We're very supportive of what the British government is trying to do, supportive of the principle. Clearly when we understand the details and we're able to evaluate the case, we'll make our decision. We're very supportive and excited about what they're trying to do.

IGN: When the Gambling Review Body issues its recommendations for reforming British gaming law, how do you see that affecting the industry--gambling as a whole, bookmaking and casinos?

DH: Inevitably it's going to move towards deregulation. The question is: How far, and will it be favorable? We’ve lobbied hard for relaxation on slot machine regulations because we believe the betting shop environment is a very well-regulated environment; it's very difficult for teens under 18 to get in there. We lobbied against gambling in pubs; we believe that will lead to illegal gambling.

IGN: What if the GRB recommends that Internet casinos be licensed to operate in the United Kingdom? Would you bring your casino to the U.K.?

DH: Again, we must look at the impact of the economics of our business and of the perspective tax situation. Location is around that economic situation of which taxation is one part. Competition in cyberspace is another issue. And I think with a number of bookmakers and casinos who are out there, it's yet to fully evolve what the winning business model will be.

IGN: Should the British casinos open up online? How do you think their excellent reputations will affect the online industry?

DH: In cyberspace, it's a big question of whether you can differentiate yourself with the casino experience. Probably not. Again, a game of blackjack is a game of blackjack, and a roulette wheel is a roulette wheel. Graphics can change slightly, but ultimately the underlying game is somewhat the commodity. Then you're left with the decision to bet with a brand name you can trust. Because we're a fixed-odds bookmaker, that happens to have an online casino, are we going to be at a disadvantage to someone who operates a casino elsewhere? We don't believe so. We believe our brand name and the integrity we have for paying out will mean that we can compete very well with those people. They have no advantage in running an online casino. The skills they have in hospitality you don't have as a fixed-odds bookmaker. But, the software that drives the product online is the same. So, it really comes down to the integrity of the brand, and ours holds up as well as anybody's.

IGN: How is your casino doing?

DH: We're very pleased with it. As I say, the competitions have got more and more, and a lot of people offer a free incentive to start. We do find there are proportionate customers who clearly shop the offers. They take the free offers, then you never see them again. There's a portion of customers who do this. But, once those people are out of the way, we find that the people who join us and play regularly stay with us. I can't give you the stats. Out of 600 online casinos we're certainly not in the upper quartile. Our brand name will certainly put us in the upper decks.

IGN: From how many different countries do your players come?

DH: That would be in the 10s or 20s. They come from all over the world.

IGN: What about for your bookmaking site. Do you have bettors coming from many different nations? Coral Eurobet, for example, claims it's got customers from about 127 different countries.

DH: I don't have a similar number. It wouldn't surprise me if it was the same. I don't count the one guy who comes from Latvia.

IGN:Do you take bets from American players?

DH: We don't do anything to incentivize American players that come to our site, but equally I'm sure there are some people domiciled in America who are choosing to break the law of the land where they are sitting. We are legal where we operate and we do nothing to encourage other people to break the law of their land. There is a very clear message on our site that makes it clear to the punter that they should satisfy themselves that they are operating legally where they are domiciled.

IGN: There's a rumor that William Hill has been dissatisfied with the casino software from Cryptologic. Would you care to comment on that?

DH: No, it's working very well.

IGN: Have your customers all begun using the latest version of the software?

DH: It's slowly happening; it's working very well. The relationship with Cryptologic is good. We're working with them to evolve new services moving away from their standardized, almost franchised offer to customize much more to our customers' and our needs. We are working very closely with them.

IGN: Some people are now calling this the "Golden Age" for punters. What do you think?

DH: Yes, absolutely. There are a lot of people starting up Internet bookmaking sites, perhaps that don't have the experience in bookmaking that we do. The back office skills of odds compilation and risk management are not things that they have. They come from selective C.G.-type marketing backgrounds, and they think very much, "How do we increase turnover?"

Well, they will offer very attractive prices; they will expose themselves to a higher level of risk. If you look at the way serious punters bet, they look for value. And if there is value to be had in prices, these guys will get hit. So what's happening is, they're spending more on marketing to attract customers because they don't have the brand name. Their back-office costs are relatively high because they can't spread those costs across a whole range of platforms. I only have one team of odds compilers for all my betting shops, telephone and Internet. They've got roughly the same numbers of people if you want to cover all the same sports as we have, and they don't have the historic knowledge of the risks. So we know that the serious punters can take big money from us and we'll limit how much they can take from us. Those guys now are able now to shop around, get good prices from people who do not have the financial stability that we have.

IGN: How do you differentiate yourself from your competitors?

DH: I think that there are things we do in terms of product innovation that differentiate us for a period. There are things we do in terms of software that differentiate us from our peers, because we have our own software. A lot of people run the Orbis platform, which has now been bought by BSkyB. If you're the Tote, Blue Square or Ladbrokes, you suddenly find your core software coming from somebody who's threatened to become a competitor. We have our own. So, I think there are things that you can do to create types of advantage through innovation, either in product or system. Of course, all of those can be copied very quickly. Ultimately, the process of competition will come down to brand and customer service.

IGN: Some of your competitors, like Ladbrokes and Blue Square, are offering services via wireless and interactive television. Is William Hill taking that step too?

DH: We are participating in all channels, we're particularly watching how the whole market evolves. So, yes, we're in interactive. We're on the Telewest site, so we know what the customers are looking for, we know how customers are behaving. And we understand the economics of how to do that. We're not convinced that the majority of punters, particularly in the U.K., are sitting in front of their television screens and expose to their spouses how much they are betting. Betting is a very private activity. That's why betting shops will remain a place where people want to go.

IGN: So punters prefer to remain secretive?

DH: Well, I prefer to use the phrase that it's a private activity. It's just not an activity that people want to broadcast. Another reason people like betting shops is that it's a cash activity, they like to bet with cash. They feel they've got more control; it's a medium they're comfortable with.

IGN: Christiansen Capital Advisors predicts that the estimated global Internet wagering expenditures will hit $3.1 billion in 2001. Do you see figures like these as being a realistic look at the industry and what's going to happen number-wise?

DH: I always have very grave reservations on some of these numbers that say there's umpteen zillion people who have a PC, and if only 5 percent of them have a bet, you'll get a turnover of X. Because if you take a massive number and a small percentage, you still get a big number. I prefer to deal with reality, I know what turnover I'm taking. I know what turnover Coral's is taking, I know what turnover some of the major players are taking. I also know the nature of that turnover. For example, Coral's just shared their information: 80,000 customers. They also showed a very large turnover, but they explained that a chunk of that came from what they called consolidators. In other words, they have a relationship with café-based bookmakers in Asia or Italy. That café-based bookmaker is laying bets for the customers at the café and then choosing to place the aggregate bet on the Internet. I don't see that as true e-commerce business.

IGN: What do you see that as then?

DH: You're paying someone almost a premium to put really large amounts of turnover down. It's very, very low-margin business, so you might take 10 times the turnover or value that I do, but you're dealing with a bookmaker on the other end who is basically hedging you. They're probably betting to 1 percent or 2 percent of margin. Now 1 or 2 percent doesn't have to have much to go wrong before you can get some bad losses. We want to build a truly mass-market e-commerce business and be a directory business.

The question you asked was whether I believe the Internet market is as big as some of these pundits say. I don't see evidence that betting via the PC is going to create really big figures. Now, when we have much faster Internet access, when we have mobile Internet access, when we have mobile always on Internet access, then one of the disadvantages of the PC, speed, will go away. To log onto the Internet, go through your credit betting procedures--even on a very fast site like ours--can take minutes. If you place a telephone bet, it takes 30 seconds. So a lot of people like that convenience factor. The Internet has other opportunities: You can do it much more on your own time; you can access much more information; you can study form and history as well as place your bet on the Internet. But, it's not behavior that a lot of people have. For the horseracing punter, a great majority of the bets are placed just before they're off. A lot of the attraction for a horseracing punter is believing he's picked the best way to bet, how the market is formed and making his bet just before the off. The Internet is not mature yet. I believe that the Internet will be huge. People just expect the Internet to be huge overnight and that betting shops will disappear overnight. The evidence is that it's not happening. In fact, I'd be a complete Luddite if I said it was never happening. I believe it will happen, and we're doing our best to make it happen. But, we're not going to put all of our eggs in one basket. We'll continue to offer our customers choice.

IGN: OK, what about the operators? In the last few months, there have been several pretty high-profile deals. Do you see much consolidation happening soon?

DH: There are pretty low barriers for entry for getting started up. But, "Do you have the financial stability to stay and the integrity to attract your customers?" is another question. It depends upon how you mean consolidation. I think there will be some smaller bookmakers going to the wall because they don't have the financial stakes. But, I don't see consolidation as a big issue.

I guess some of it expands from people who want to create scale very quickly. At the end of the day, if you think you're buying a customer base, it's tough to see. Our evidence is that a significant proportion of customers with any online bookmaker have an account with one other. I'm not saying there's no loyalty, because I think there is. We have over 40 percent of the telephone betting market, that can only be because we consistently deliver service and therefore we have a high degree of loyalty. So, you can create loyalty provided you deliver the service. But, I don't think it's like other industries. By definition, the serious punter is always going to shop the prices. So, if you can't buy a robust customer book, what value do you place when you buy this business?

Now, if you don't have a system and you don't have people, then you might want to buy that infrastructure. We have a system and we have the best people, so the only reason I'd buy someone else is for their customer base. And I've got a funny feeling if I looked deep inside of their customer base, most of the time we've already got those customers.

I think consolidation's going to happen, but I think it's going to happen by small players dropping off.