Pooling power: What does the future of UK pool betting look like?

Ask around the industry and it’s safe to say the Tote, which is 90 years old this year, isn’t held in a particularly high regard. “[Bet]Fred got greedy and ruined it,” says one pro punter speaking off the record. “Clearly the balance between liquidity and getting the rake right can be tricky, but he has raised the rake and lowered the liquidity which can’t be good in any respect.”

Fred, of course, is Fred Done, the billionaire owner of Betfred which bought the Tote and a seven-year exclusive licence for British pool betting for £265m back in 2011. That exclusive licence expires on July 12 this year and, according to Sky News, Done has agreed to sell a 25% stake in the Tote in a deal that would value the business somewhere between £125m and £150m.

It’s a pretty significant drop in value for a once-integral part of the betting ecosystem, and it speaks to a changing gambling sector and also changes to the Tote itself. The rake on win pools rose to 19.25% last year with place pools at 20%, in part to cover on-course losses which ran to £2m, according to Betfred.

“It’s become a noose around Fred’s neck,” says Stephen Harris, a former racing trader at Sporting Index and current racing editor at BettingExpert.com. “He’s never been able to grow the business at all. All he’s done is increase the margins dramatically and made it impossible for anyone with half a brain to use.”

Betfred declined an interview request for this article but defended its record since taking control of the Tote in an emailed statement. “It will be business as usual for us when our exclusive licence expires in July 2018 and although we won’t be on a number of racecourses, we’ll still be operating Tote Direct and internationally,” a spokesperson told EGR.

“We purchased the Tote for £265m in 2011 and we have provided the government a clean exit and stuck to our promises on jobs, sponsorship and our direct contribution to racing. We promised the government £9m in direct contributions to racing yet averaged £13m a year.”

As noted above, Betfred is in talks to sell a chunk of the Tote, which could perhaps benefit from an injection of cash from new stakeholders – reported to be the so-called Azileti consortium led by Eamon Wilmott, the chairman of Total Performance Data. Azileti has pledged to reduce that sky-high takeout according to the Racing Post.

By racing, for racing

The chief competition for the Tote in an unrestricted pool betting market will come from britbet, a joint venture between 55 UK racetracks and technology provider Colossus Bets. The product will be available on track and online, and its stated goal is bringing pool betting back to relevancy.

“When [Sir Winston] Churchill established the Tote in 1928 he did so with the intention of giving the sport its opportunity to secure revenues with a modern and relevant offer,” says David Williams, director of communications at britbet. “In recent years we believe pool betting in the UK has deviated from those ideals and we are keen to return it to its core focus.”

Judging by the reaction to Betfred’s offer, key will be reducing the takeout to a more reasonable level. Can britbet afford to do that? After all, as Harris notes: “Fred’s not daft – you can see why he increased the takeout; it’s an expensive operation to run. You’ve got to have someone at every window on the track.” Britbet has made no firm promises on its own takeout, saying it will keep rates “broadly in line with pool betting industry norms”, in part because B2B partners expected a basic margin from the product.

However, Williams says actual takeout rates will be a lot lower for punters thanks to a cashback programme for online customers and the addition of minimum guaranteed prize pools for some exotic pools. He explains: “For example, if you receive £50,000 in stakes into a pool which is won with a £100,000 guaranteed prize, your takeout is a large negative number. Ambitious guaranteed prize pools is one device we have to give value to players and provide a competitive offering.”

But, of course, price alone will not make britbet or any pool betting product a success. Online bookmakers and exchanges routinely bet to 105% or lower on a given race, reflecting a takeout the Tote will never be able to compete with.

The differentiation will have to come from exotics and massive prize pools that can attract recreational and pro punters alike. “It wasn’t so long ago that both novices and syndicates were playing the Scoop6,” Harris says. “So it can be done.”

Britbet says it will be offering “attention-grabbing guaranteed pools” far more frequently than existing offerings, while modernising the product with Colossus Bets’ cash-out and syndicates features. “We’ll have brand new bet types too as we look to engage existing pool betting customers and appeal to new audiences,” Williams says.

Although he declines to elaborate further on these bet types, Colossus Bets offered a clue ahead of the Grand National with a free-to-play ‘First Five’ correct-order competition boasting a £100,000 prize. CEO Bernard Marantelli noted the game was “a taster of pools to come” for britbet.

The outsiders

While britbet and the Tote look to be the frontrunners for pool betting dominance, britbet itself admits it isn’t a straight match. “We’re conscious it will not only be about britbet and the Tote as we enter a competitive marketplace,” Williams concedes. “From mid-July the market will be open to any operator wanting to offer British racing pools and we expect others may be keen to enter the space.”

Williams does not put forward any potential rivals, but Colossus Bets COO David O’Reilly says the current cutthroat fixed-odds landscape could see several operators turning towards the lower risks associated with pool betting. “Against a backdrop of increasing customer frustration and trading risk, it is not impossible that an operator or a consortium could seek to offer racing via a risk-free pools model,” he says.

“This could have been done historically via a commingling arrangement with the UK Tote, but now the market will be open for anyone to do this. It would not be a simple undertaking, but it is no longer impossible,” O’Reilly adds. Harris puts up Betfair as a potential runner, suggesting it could be a good fit if it developed the right technology. “They already offer tote bets, so they could do it themselves and offer a kind of tote exchange,” he says.

One senior industry executive speaking off the record had a similar idea, claiming Paddy Power Betfair has been working on an in-house project on pool betting, although he said any product would unlikely be ready by July. Another potential competitor could be i-pools which runs prediction pools under its own brand as well as for the Telegraph Media Group.

“I wouldn’t be surprised if Tristan Macdonald and i-pools had a crack,” says the executive. “I suspect they have plans around July to ramp up given the ending of the monopoly. They’re the only obvious competitor in the market who’s likely to do more.” Several individual tracks, including Chester and Bangor, will run their own pools, further fragmenting liquidity.

Renaissance

So is there a revival in the future for British pool betting? The pro punter who requested anonymity deems it doubtful: “I think not, unless they really rip it up and start again.  That would take vision, energy, patience and money,” he says. “Maybe Bernard [Marantelli] might be the answer but nobody else seems that interested.”

The biggest issue is simply the level of competition in the UK – the most saturated fixed-odds market in the world, where bet365, for instance, runs racing as a loss leader, routinely offering an under-round on place markets in major races. It’s a far cry from Hong Kong where the giant pools are underpinned by a monopoly. However, pool betting operators in the UK could have something to learn from their overseas equivalents, even if they compete in very different environments.

A technology company call Longitude, for example, has developed software used in Australia, among other places, that can create a single pool for win, place and exacta bets, thereby generating that all-important liquidity. “That’s a very clever piece of software, so if you found a way to do something like that it would help build those headline-grabbing pools,” the unnamed executive says.

O’Reilly, however, says Colossus Bets is looking to learn from “innovators in the wider gambling sector,” rather than “international operators who have succeeded in uncompetitive markets”. He adds: “Product innovation is our focus, but we are more likely to find inspiration from a fixed-odds or exchange betting operator – or maybe even a casino operator – in a competitive market such as the UK, than from a pools operator offering tote betting in a format which has largely remained unchanged in the last few decades.”

Fred Done

Betting Expert’s Harris is optimistic about the future of the sector in a more competitive environment, saying: “Bernard [Marantelli] has the right idea, offering a lower margin product with big guarantees. They [Colossus Bets] are very good at marketing, they know how to use social media and shout about big guaranteed pools, and that can appeal to a broad range of punters”.

The anonymous executive is also positive, saying he could see the pool betting sector “tripling in size” if it is well run and well marketed. “There’s definitely an appetite for large pool bets – you can see when there’s a Scoop6 rollover that liquidity grows quickly, so if you have those pools on a regular basis, there’s definitely something there,” he says.

The winner’s enclosure

Who will emerge victorious and become the dominant pool betting operation is still anybody’s guess at the minute, but a consensus is emerging that, like VHS versus Betamax, one dominant product will emerge. “The tote is, in my view, a natural monopoly,” says the unnamed executive.

“The reason Betfair is better than Betdaq is liquidity. Whoever can build that liquidity first between the Tote and britbet will kill the other one off. I think the winner will be whoever has the most money,” he adds. “If the Tote gets bought and has £150m behind it, it has a very good chance. If not, britbet can compete quite well.”

It’s an uncertain future for pool betting then, even before delving into issues like returns to racing. However, the old free market adage that competition is good for everyone appears to be true here. Both britbet and the Tote look likely to lower current pool betting takeouts and invest some significant time and money into their products. And while UK pool betting will never rival the giant operations in places like Hong Kong and France, it can feasibly be rebuilt to become an important part of the betting ecosystem once more. Just like Churchill envisaged.