Tim Howkins is not a gambling man – at least not at the moment. As the finance director of IG Index, the UK’s largest spread-betting company, he feels that it wouldn’t be right. ‘A gambling instinct isn’t necessarily what you want for the person holding the purse-strings,’ he says.
The 39-year-old former auditor does admit, however, that if he wasn’t working, he would be more than happy to indulge in a bit of financial spread-betting, the activity that provides some 80% of IG’s turnover.
He does, however, endure some ribbing from colleagues at the 187-strong company over his total disinterest in sport – spread-betting on which provides the remaining 20% of the company’s income.
The basic idea of spread-betting is the more right you are, the more you win. Obviously, this also means that the more wrong you are, the more you lose.
Although it takes a few minutes to get your head round how it works, plenty of people have made the effort, and spread-betting has turned into something of a growth industry.
IG has both driven and ridden this growth. Founded in 1974 by Stuart Wheeler, an obsessive poker player who stepped down as the company’s chief executive last month and who famously donated £5m to the Conservative party just before the last election, the company’s annual turnover for the year to 31 May 2001 was over £33m, up 41% on the year before. Its profit before tax was a healthy £15.4m.
It claims to be the UK’s leading spread-betting company in terms of both profitability and turnover. Howkins, who took up his post in July 1999, says it is signing up 90 or 100 new customers every month. ‘Spread betting is growing exponentially,’ he comments.
For most, spread-betting conjures up images of young pin-striped wheeler-dealers gambling away their excessive wage packets, but according to Howkins, this is not an accurate representation of IG’s customers.
‘A lot of people assume they are all City boys, but they are probably 10% of the client base if that. Beyond that, we have every single occupation you could imagine. We actually have more accountants than we do stockbrokers,’ he says.
He adds that the medical profession is very well represented. ‘For a long time one of our most successful clients was a dentist. He didn’t trade in the day when he was in his surgery, but he’d go home in the evening and trade on the Dow.’
Howkins emphasises that these people do not necessarily see themselves as gamblers and that IG, as far as its financial spread-betting is concerned, has the same view.
‘The clients on financials definitely view themselves as investing, not as gambling. And we want to be seen as a serious investment product, not a racy form of gambling,’ he says.
‘The attraction is that it is more flexible than buying the underlying share. I don’t know why anyone deals with a conventional stockbroker. You are dealing on margin, so you don’t have to put up all the money.’
Despite this, he is not keen on the suggestion that perhaps spread-betting is an unsuitable term for the activity. ‘Ultimately it’s tax-free because it is betting. We wouldn’t want to lose that,’ he comments.
The company’s status meant Howkins had to appear in front of the local magistrate when the the company moved to its new offices just a few minutes walk south of Blackfriars Bridge in London a few months before its flotation in July 2000.
‘It was an interesting experience having to stand in the dock,’ he says.
‘But they were satisfyingly disinterested in the whole thing and just nodded it through.’
Staff in IG’s lively offices are split over two floors. One is dominated by the massive financial dealing room, with big screens showing movements on the world’s stock markets and staffed by long rows of sales and client-handling staff. Upstairs is the smaller sports-dealing room, with banks of TVs showing sports results and events.
Managing the flotation was one of Howkins first tasks when he joined from Rees Pollock, where he was audit partner. The company is now audited by Ernst & Young; Howkins trained with its predecessor Arthur Young.
‘It was certainly an interesting time. I joined IG just about a year before the flotation and very much with the flotation in mind. That year was spent getting systems and procedures up to date. The business had gone through phenomenal growth.
‘In the space of two years it had gone from making #1m a year to making #10m, pre-tax. And the pressure on procedures that were essentially manual were phenomenal, so I had an interesting year fixing all of that. I probably got it pretty shipshape by the time of the flotation.’
Howkins describes the flotation process itself as remarkably smooth, if quite intense. ‘We have an in-house lawyer and he and I really shared the pain. I certainly never worked quite as hard in my life as that two or three-month period.’
Howkins also has other duties. One of his roles is to manage the company’s 45-strong IT department, an important part of his job given IG’s strong internet presence.
‘We are in the process of spending about #3.5m on a very substantial upgrade to our internet dealing,’ he says.
He is also involved in the company’s imminent expansion into the Australian market. The underlying dealing and risk will remain in the UK, but a sales and marketing team is being established in Melbourne.
‘It’s a wide-open territory and has superb demographics. The readership of investment magazines is about two-thirds of that in the UK despite there only being a third of the population.
‘The per capita investment in shares is one of the highest in the world. They also have a gambling culture and a tax environment in which betting is tax-free. That is virtually unique apart from the UK.’
Howkins other main task is the company’s risk management – managing its exposure limits and hedging activities. On days where the market ‘hoofs around’, as Howkins puts it, he is faced with the play-off between restricting the amount clients can deal and limiting the amount of bad debt risk versus encouraging new business to come through the door. ‘It’s an interesting one,’ he says.
Howkins and his colleagues had to draw on all their skills and energy in managing the impact of September 11 and its aftermath.
‘It was a completely mad day,’ he says.
‘The entire dealing desk was just crazy. The markets just plummeted. For much of the afternoon we were the only place in the world where you could deal the Dow. We knew we couldn’t hedge.
‘Normally we hedge in the futures market, and all the American futures markets just closed. Some of the opposition kept going for a while, but they are less comfortable running positions than we are.’
Given this sort of experience, when Howkins, who clearly enjoys the buzz of his job, does choose to stop working in the spread-betting industry, he could become a gambling man who actually wins.
AN IDIOT’S GUIDE TO SPREAD-BETTING
IG Index quotes a price for some date in the future. Take, for example, the FTSE Index. If you think the index will be higher than IG’s quote, you make an ‘up bet’ (you buy). If you think it will be lower, it’s a ‘down bet’ (you sell).
You then take your profit or pay your loss according to how much you have bet per point. You do not have to wait for your bet to expire – you can take winnings or cut losses at any time against IG’s current quote.
There is the danger of substantial losses but stop-loss mechanisms are available to limit these.
You can bet on all the major stock indices, FTSE-250 shares and other US and European shares, currencies, interest rates, options and commodities.
Sports betting works on the principle that the more right you are the more you win. Bets are available in a range of forms on a huge variety of sports.