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4. Betfair

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Estimated Value: $5 billion

Business:
World's largest Internet betting exchange where users can gamble on everything from horseracing to tennis matches.

Location:
London, United Kingdom

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More Info: About Betfair

CEO: David Yu

Investors:
Index Ventures, JP Morgan Partners, Benchmark Capital, UBS Capital, and Soft Bank.

Analysis:
People love gambling, and Betfair provides a safe, simple, and un-sleazy way for them to do it. The company allows bettors to place bets and bookies to arrange them, and it keeps 5% of winnings.

Betfair's business is illegal in the United States of Arbitrary Morals, of course (thanks to the gambling lobby?), but the rest of the world isn't so uptight. Unlike other British market makers, Betfair has been smart enough not to accept American credit cards, which puts it out of reach of US regulators. We suppose the British government could destroy Betfair with an attack of Americanitis, but we don't see that happening. In fact, their neighbor--the E.U.--is reportedly looking into whether or not the U.S. ban on Web betting hurts E.U. companies, and, if so, it might be willing to take the US to the WTO court.

Softbank bought a 23% interest in Betfair for $600M in February of 2006, implying a valuation of $2.6 billion. The company has grown from $10 million in revenue in 2002 to $365 million in 2007 and generated $70M in operating profit in fiscal 2006. We estimate about $500 million in revenue in 2008 and believe the company is worth about 10X that. Thus, we estimate that Betfair is worth about $5 billion.

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