Horse Racing: Betting Exchange Chief Loses £1.1m

The full cost of the collapse of the Sporting Options betting exchange in November has become clear following the publication of the report into the failure by the firm's administrators, Menzies Corporate.

The exchange ceased trading with total debts of £5.4m, including £3.5m owed to betting clients, making it the most costly failure in the modern history of the betting industry.

However, much of the money owed to punters should eventually be recovered thanks to the rescue package put together by Betfair, the biggest exchange. Betfair, which has already paid out £1m, says that while less than 50% of clients owed money by SO have taken advantage of the deal, they account for well over 90% of the total owed to punters.

The biggest single casualty in the company's list of creditors is Kevin Griffiths, its managing director, who lost £1.1m of his own money by "seeding" the exchange in an attempt to create liquidity.

The administrators make it clear that the process of seeding markets started almost from the moment SO launched on May 30, 2002. This, in effect, turned the firm into a book maker with money at risk rather than an exchange which simply takes a commission from winning bets.

According to the report Griffiths, a former City trader, had already raised almost £1m from friends and relatives to start up. "After the launch," it says, "it became immediately clear to management that in order to develop [it would be necessary] to seed the markets to create liquidity and attain a critical mass of clients to support the business model."

The report adds: "This was done by advancing notional credit to 'internal' accounts that would place bets to attract customers to the site. [However] there was a substantial cost and Kevin Griffiths felt it was not possible to approach shareholders for additional funds so soon after launch."

Griffiths then sold "personal assets" to inject £1.1m into the site as seed money, but shrewd punters simply picked off the best odds, and that cash soon went. When administrators were called in last November just £100,000 remained of the £3.6m in the supposedly "ring-fenced" clients' accounts.

In addition to Griffiths himself, notable creditors include the Inland Revenue, owed £250,000 in gross profits tax payments on Sporting Options' commission revenue.

Thanks to Betfair, however, the punters should emerge relatively unscathed, including the half dozen or so who had accounts holding £100,000-plus when SO closed.

Last night Griffiths declined to comment on lawyers' advice.