Betfair’s Leadership Dilemma

July 4, 2011

Betfair faces a tricky leadership dilemma. Its CEO David Yu has taken the blame for its poor financial performance since its public launch last year. Will a change of leader address the problems which the company faces?

Background to Betfair launch and LMAX

The Telegraph outlines the leadership issue:

Shareholders are understood to have expressed their dismay at the leadership of the company after a gruelling nine months that have seen shares floated at £13 last October [2010] hit a recent £7.16 low [June 2011]

American CEO David Yu was Betfair’s chief technology officer before becoming chief executive in early 2007. The floatation required his technological skills in dealing with a financial innovation (LMAX) at the heart of its business model. This was explained at the launch of LMAX [October 2010].

Betfair, the world’s leading sports betting exchange, established LMAX and is the majority shareholder in the platform. Betfair changed the sports betting market by allowing its customers to trade against each other and invented the first truly successful exchange model for sports betting. The LMAX exchange solution, which has been developed over several years of rigorous research and development, is based on Betfair’s original matching engine but has applied and refined this model for financial trading, alongside proprietary and scalable in-house technology.

David Yu resigns

A further analysis from the Telegraph outlines the backround to Mr YU’s resignation

Brought to market by Goldman Sachs, Morgan Stanley, Barclays Capital and Numis Securities, Betfair has struggled to grow revenues and been hit by a range of regulatory problems, executive departures and the poor performance of its start-up LMAX financial exchange. In a recent note, Vaughan Lewis, a Morgan Stanley analyst, said: “Betfair has faced what we see as a perfect storm since listing.” He highlighted “adverse regulatory changes”, including an attempt by Italy to revoke Betfair’s licence and a draconian approach from Germany.

Having seen quarterly sales growth of 22pc at the time of the float, Betfair had also “effectively stopped growing”, while losing market share to rivals such as William Hill and Paddy Power. The leading internal candidate to replace Mr Yu is thought to be finance director Stephen Morana.

The Leadership Dilemma

Mr Yu’s resignation may be an opportunity for the company to introduce change alongside the appointment of a new leader. The difficulties may well be associated with the leadership of Mr Yu, but the core of the business model relied on his technical knowhow. The corporate ad campaign was memorable as a way of betting by cutting out the middleman and ‘betting fair’ between individuals (with a no-risk fee to Betfair, who is somehow represented as not being a middle man).

The euphemism

But will an internal candidate will be able to suggest a way out of the wider set of problems including those euphemistically labelled as “adverse regulatory changes” by Morgan Stanley? Will a radical new business model convince investors to stay the course?

Postscript

The BBC followed up the story

On Wednesday afternoon [JUne 29th 2011] its shares were up 0.2% after Betfair also announced that it would now return money to shareholders by buying £50m worth of its stock. Betfair’s betting exchange model allows its customers to bet against each other, bypassing the need for a bookmaker.

Mr Yu said: “The past 12 months have seen significant change at Betfair as the business continued to grow and made the transition to being a public company. “A huge amount has been achieved during the period, and I’m delighted that we have more customers than ever resulting in a record number of bets placed and that we’ve reported record revenue and profitability. Despite these successes, revenue growth… could have been stronger but we have delivered a significant improvement in margin resulting in profitability for the year above expectations.”

Mr Yu said on Monday that he would not renew his contract when it expired in October 2012, but he is expected to leave the company before that date.


How Isner and Mahut changed the game of tennis

June 24, 2010

A single match played at Wimbledon smashed all records for a set of tennis. It will lead to rule changes in the game to accomodate the changes brought about by stronger, larger fitter players, and the technological changes introduced into the sport. Tennis, like cricket, will change to prevent the occurance of timeless tests

The first round match of men’s singles between John Isner and Nicholas Mahut began on the Tuesday afternoon [22nd June 2010] and stopped as it was entering the last set at two sets all. The game resumed the next afternoon. Tennis has already restricted the number of games played in the first four sets of any official match with the tie-break if play reaches six games to each player in a set.

Wimbledon’s timeless fifth set

The tie-break innovation is a result of demands for more manageable time schedules for television audiences. Wimbledon, that bastion of tradition, persists with a timeless fifth set for its annual gram-slam tournament in June for male competitors. In this event , play continues until one player (or team) achieves a two game lead, 8-6, of 9-7, or more rarely 10-8 and so on.

The arrangement sometimes resulted in scheduling overruns, with the match resuming the next day. Which is how Eisner and Mahut returned to their outside count for what might have been a few more games to settle the match. Eisner, one of the tallest tennis players of all time, is noted for a near unbreakable serve unless his own concentration slips, or fatigue or illness creeps in to his game. This happens enough to permit opponents with more all-round game skills to win, and the most talented players have mostly survived his greater physical attributes. Mahut is also noted as a powerful player with a strong serve.

The longest match ever

The match-up meant that the players were each to hold serve comfortably. With Eisner serving to edge ahead each time, the game passed through the 20 game barrier. Various records were threatened and broken. The longest match at Wimbledon. The longest match ever. Then, incredibly, the single set lasting longer than any completed match before. Mahut staved off defeat at 11-10, 12-11 and so on through the twenties to 30-29. Eisner appeared increasingly fatigued but managed to find yet another unstoppable serve to win his own service game once again, and prolong the match.

Crowds began to gather an vantage points ouside the court. Players watched in the dressing room, and even commented on it in their own post-match interviews. The duration of the match seemed it impossible for the players to retain concentration or fitness to keep going. But keep going they did. Officials and ball boys and girls were replaced, but players and their superb Umpire kept on, far beyond the presumed limits of athletic concentration or physical capabilities.

History in the making

Extended sets are other rather boring, but in this one ,the tennis was remarkable error-free, with some highest quality rallies and winning shots. With each game completed, and the announcement of an even more incredible score, there was a renewed burst of applause. The spectators were watching history in the making, and appeared to know it.

At an incredible 59-59 games, and ten hours of play, the match was suspended, to be continued the following day. The entire set had been captured by the BBC’s cameras and commentary.

To be continued

As will this post. Whatever happens, history has been made. But not just in the statistics. The possibility of such drama and titanic personal struggle has also revealed the possibility of the inconvenience to schedules in future tournaments. Pressures from commercial interests will prevail. Even at Wimbledon.

They think it’s all over: It is now

On the third day, after still more astonishing play, Isner gambled, struck out for the sidelines and broke Mahut’s serve. The final score was 70-68 in the fifth set, and the overall contest the longest match in tennis history, at 11 hours and five minutes of play over three days.


A is for Albatross as Airbus struggles with the A400 project

April 18, 2009
Airbus A400 EADS mock up

Airbus A400 EADS mock up

Der Spiegel continues to be the window into the complex world of EADS and its giant subsidiary Airbus. In a major interview with Airbus CEO Thomas Enders, Der Spiegel throws light on the corporate challenges facing the organization and its leadership.

The double whammy

Der Spiegel was in particularly robust mood in its interview with Thomas Enders recently [March 2009]. The two-part report opened with a series of fierce questions challenging the company’s long-term viability. Ender’s truculence comes through, even in translation and from the printed page. The second part of the interview concentrated on a single project, the A400M and that made the story appear all the more damaging

Technological innovation is notoriously risky, and there must surely be additional risk factors emerging as a consequence of the financial turbulence of the last year. The A400M is becoming known as its albatross. The plane, still yet to fly, is a military transport plane promising payload deliveries over extended distances under extreme conditions. Delays and production mishaps have plagued the project (even in comparison with the more publicised woes of the company’s other high-technology efforts).

Der Speigel as rotweiler

Der Speigel runs excellent and probing articles. One can’t help admire its success in its interviews with Germany’s business leaders. [In style it reminds me of the aggressiveness of England’s Newsnight programme and its chief Rotweiler Jeremy Paxman]. In the issue carrying the Thomas Enders interview, there were similarly tough questions asked of Robin Goudsblom, a Lidl senior manager, over the company’s personnel scandal;and of Nikolaus von Bomhard, CEO of reinsurance giant Munich Re, over banker bonuses.

Enders comes clean

Under fire, Thomas Enders is remarkably direct. He was first reminded of a recent wager.

SPIEGEL: Mr. Enders, on December 31 you won a bottle of champagne. You had wagered that Airbus would manage to complete 12 of your super-jumbo jets by the end of the year. That bottle could cost your company millions because, in the heat of the race against the clock, quality and safety may have fallen by the wayside.
Thomas Enders: No, we haven’t made any compromises here. Our customers are generally very satisfied with the A380. But, as you know, it is an extremely complex aircraft, which now unfortunately — like every new model during the introduction phase, I might add — has some teething problems here and there

Then he faced equally direct questioning on a range of general topics such as Government subsidies. These did not result in subsequent wider headlines, perhaps because they were ‘nothing new’ either in question or reply.

Part two of the report gave a focus to the entire interview in the plight of the A400M. The level of openness from Enders deserves attention from students of leadership:

SPIEGEL: Your biggest worry is currently the planned A400M military transport aircraft, which has been in the news for months. Which countries could cancel as buyers in the future?

[Enders denied the specific charge of cancellations and accepted accusation that the company had to shoulder some blame]

Enders: EADS should never have signed this contract. Our American competitors would never have accepted such conditions. We’ve made big mistakes, and errors have also been made on the customer side. We should now rectify these together.

Enders went on to deal frankly with equally tough questions on ‘[r]ivalries and power struggles between the Germans and the French’, consolidation of the European headquarters in Toulouse [‘maybe a good idea’], and the loss of a major American military contract.

Leadership notes

I was struck by the tone of the interview and by the fascinating technical insights provided into corporate and production management.

How important is the interview to EADS? This is one of the questions open to reflection and debate. I suggest that Der Spiegel is a media leader in news of the Airbus adventures from a European perspective. Its interviews are guaranteed widespread subsequent coverage. A typical example is the report in Aerospace [30 March 2009]. Even The Economist draws on the Spiegel interview, although its piece shows evidence of its own deeper research [bonus points to the Economist for that].

The interview has to be taken seriously by the company leadership. A faulty performance (and it is a performance) would become part of a subsequent narrative developed in the media.

How well did Enders do? You could assess the interview for strengths and weaknesses. A misguided remark might become a hostage to fortune for the company in the future. On the other hand, the impact is mediated by several communities deeply concerned with the future of the company and whose judgments go to make up the ’conventional wisdom of the dominant elite’ . Enders has the responsibility to defend his position without being too defensive, and avoid easy-to-refute claims. Which in this case involved a painful level of openness. If he appeared a bit testy at times, that might be a permissible weakness rather than a fatal one.

Despite tough times, the corporate leadership of EADS seems to have stabilized under the urbane Louis Gallois, and his Airbus CEO, the former paratrooper Thomas Ender.

To go more deeply

We have followed this story in earlier posts. The Economist article on Airbus can be found in its April 11th -17th, 2009 issue.