Is the Tote turnaround more hope than reality?
Alizeti made its first play as a 25% stakeholder in the Tote by agreeing a £50m single-pool deal over seven years with Britbet. But with Alizeti still a minority stakeholder and Betfred holding most of the cards, is a turnaround of the stuttering Tote really possible?
Alizeti and Britbet announced a “landmark” seven-year deal worth £50m in October that would see the two businesses run a combined pool betting operation as part of Alizeti’s mission to revitalise the Tote. The news was announced in a press release that included quotes from just about every stakeholder in British horse racing, including Alizeti chief executive and racehorse breeder Alex Frost, who said: “We are committed to being part of helping secure British racing’s finances for generations to come through a revitalised Tote.”
His sentiments were echoed throughout the release by Betfred founder Fred Done, Britbet chairman Neil Goulden and Jockey Club chairman Simon Bazalgette, amongst others. But with Britbet keen to point out this was a complex commercial agreement, rather than some kind of fairy-tale partnership, it became clear that securing the future of the Tote might not be such a straightforward task for Alizeti. To set the tone, one source speaking off the record told EGR: “The first thing to understand is that this is a spider web of vested interests and backstabbers.”
The politics of UK horseracing can sometimes resemble George R. R. Martin’s Game of Thrones rather than professional sport, and Racecourse Media Group (RMG), Arena Racing Company (ARC), Betfred, Britbet and Alizeti are the key players in this narrative. Alizeti entered the fray in May after buying a 25% stake in the Tote from previous licence holder Betfred. The 25% stake was acquired for £20m, with Alizeti promising to buy out Betfred’s remaining 75% share as part of a £150m deal over a three-to-five-year period.
Minority report
As things stand, Alizeti are minority stakeholders in a business it has promised to revitalise. Alizeti previously said it planned to pay an annual “double levy” through sponsorship and prize money to boost racecourse finances and also cut the takeout rate for independent racecourses. However, with the financial details of the £50m single-pool agreement with Britbet undisclosed at present, questions will inevitably be asked of Alizeti as to how they plan to rejuvenate the Tote without owning a majority stake.
One unnamed source said: “What they’ve done so far is like me buying a 25% share in Newcastle United and saying, ‘I’m in charge of transfers and the stadium now’. [Owner] Mike Ashley would say, ‘I’m sorry, you might not like me, and the fans might not like me, but I still own 75% and until you buy me out, it’s my hand on the tiller’, and it’s the same situation with the Tote and Fred Done.”
EGR Intel currently understands the £50m single-pool deal to be broken down as a £7m upfront payment from Alizeti to Britbet, with a further £6m going to UK racecourses each year.
The combined pool deal is undoubtedly a step in the right direction and will help Alizeti sell the Tote placepot into international markets like Hong Kong and China to drive revenues. This will mean one key betting pool across one set of offline and online products, with no split pools or liquidity, and just one brand across digital, racecourse and international.
However, until the investment group completes its buyout of Betfred’s 75% stake, it will largely be stuck in a state of paralysis with product development limited as a result. “It all hinges on when Alizeti will complete their buyout of the Tote,” says one source on condition of anonymity.
“When that happens, we will get more of a sense of the meat on the bones. Once they are in complete ownership they can do what they want.” If and when the buyout does complete, the strategic direction of the group will be the responsibility of CEO Frost, chairman Eamon Wilmott and industry veteran Ian Penrose, who was recruited in September as part of a new-look executive management team to be based in London.
The A-team
Former Sportech CEO Penrose was hired as strategic and operational advisor at Alizeti, while the September appointments also included Simon Larkin as CFO, Paddy Burrowes as commercial director, Andy Hobsbawm as chief brand and marketing officer, and former Sun Bets managing director Jamie Hart as head of product.
It is undoubtedly an impressive team, but it is also likely to be an expensive one, as industry talent, especially at that volume, does not come cheap. EGR Intel understands current Tote operations generate approximately £9m EBITDA annually. Alizeti has already paid £20m for a 25% stake in the Tote and is reportedly contributing an annual fee as part of the £50m single-pool agreement with Britbet and UK racecourses, so the obvious question to ask is how, and when, they will afford to buy the remaining 75% stake.
Alizeti has told EGR that the 100% acquisition “remains a key priority” for the group but there are still no concrete financial details to support the buyout, including the timeframe of the purchase. Between three and five years was the period suggested initially, but there is speculation that a clause could see Britbet walk away from the single-pool agreement if Alizeti has not completed its 100% purchase within one year.
One UK racing expert told EGR: “Racing has taken 12 pieces of silver from Alizeti, [so] they’ll wait it out for a couple of years and if Alizeti goes broke, they will be in a position to take their own Tote over again. They will have run an on-course Tote for a while and will know what works and what doesn’t as currently, that is all still run by Fred [Done]. In a few years’ time, if Alizeti are doing well, they’ll stick with them, but if not, then they are in no worse position.”
The seven-year single-pool announcement was presented as a glossy commercial partnership between Britbet and Alizeti, but in reality, it is much more complicated than that. If it was simply a discussion between those two parties, a deal would likely have been completed months ago. Closer to the truth is that RMG, ARC, The Jockey Club, Betfred and several independent racecourses are all entrenched in any conversation regarding the Tote, alongside Alizeti and Britbet, with all parties eager to protect and grow their slice of the pie.
Some of the business relationships that run deep in UK horseracing have been forged, repaired, or even permanently damaged, as a result of Betfred’s seven-year exclusive period in charge of the Tote and negotiating in this industry is not easy. Alizeti, with good intentions and a great team behind the business, has cleared the first hurdle by sealing a single-pool agreement. Alizeti has come Together for the Tote, but can it revitalise a product that has been around since 1928? Only time will tell, but as 25% stakeholders, the chances appear slim.