BETFAIR AND HARRAH’S

Two prominent businesses involved in horse racing, Betfair and Harrah’s Entertainment, are facing opposite futures. Betfair, until recently a private company operating out of London, England, has just completed a wildly successful initial public offering. Harrah’s Entertainment was also planning an IPO, but backed off because of buyer resistance to the terms.

London-based Betfair was founded in June 2000 by Andrew Black and Edward Wray. Today, the company has some 3 million registered users and handles over 5.5 million bets daily on sports events, online poker, and other games. Betfair owns the horse-racing cable channel TVG and a 73.5% stake in an online financial-trading platform called LMAX that just opened for business.

Betfair went public in late October 2010. The existing shareholders sold 15.2% of the company at a per-share price of £13. Shares immediately soared by 19 percent to £15.50. At the close of trading on its first full day as a listed stock, Betfair had a market capitalization of £1.65 billion. This was roughly equivalent to the market cap for Penn National Gaming and was about four times the market cap for Churchill Downs.

Harrah’s Entertainment owns and operates casino properties globally and its portfolio encompasses horse racing tracks, including Louisiana Downs and Thistledown, and a one-half interest in Turfway Park. In January 2008, the then publicly traded Harrah’s Entertainment was acquired by affiliates of Apollo Global Management and TPG Capital for a frothy $30.7 billion in cash, financed mostly by debt. This was almost the precise time that the world economy was entering a severe recession, which is still taking a toll on gambling and entertainment. The Wall Street Journal recently called the buyout “an audacious gambit gone wrong.” Though Harrah’s has pared debt by $5 billion, it remains the most leveraged major casino company and its long-term debt of about $20 billion is ten times its adjusted cash flow.

In October 2010, Harrah’s Entertainment announced plans to conduct an initial public offering for an undisclosed number of its shares but dropped the idea in mid-November. It had hoped to raise $575 million for the purpose of funding expansion on the Las Vegas Strip and entering into a joint venture in Ohio. Hedge fund Paulsen & Company, a minority owner of Harrah’s, also intended to sell $710 million in stock at the time of the IPO.

While Betfair has many attractive potential strategic avenues to pursue, Harrah’s prospects for cutting costs dramatically and ramping up revenue and profits in order to grow its way out of its onerous debt burden are not nearly as promising.

Copyright © 2010 Horse Racing Business

Originally published in the Blood-Horse. Used with permission.

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