Profile: Stephen Morana, CFO of Betfair

Despite news that the mooted flotations of fashion retailer New Look and London Eye operator Merlin Entertainments have been shelved, rumours that online gaming business Betfair will join the listed world in 2010 continue to gather pace.

Analyst David Buik of BGC Partners summed up New Look and Merlin’s problem with his comment in The Telegraph in February that sentiment, not valuation, stood in the way – but he added that he believed a Betfair flotation would be “the only one I can see getting away easily… lots of people have heard of it and there will probably be strong interest from retail investors.” Of course, the company is saying nothing and its chief financial officer, Stephen Morana, isn’t about to break rank.

“The reality is, we are a very successful private company that people want to write about. Being private means one of the options is an IPO, but I think we’ve proven that there are many other options for strategic growth and to get liquidity to shareholders as well,” says Morana. “An IPO remains one of the options that are on the table.”

He refuses to outright deny, though, that a flotation is on the cards, saying only that the business would “do the right thing for the shareholders” and that “at the moment, we’re really focusing on trying to grow the business as best we can” – naturally. Meanwhile, stories abound that Betfair has retained the services of Goldman Sachs and Morgan Stanley to advise it on what is said to be a £1.5bn flotation to happen this Autumn.

Up the ante

That move could give Betfair the financial flexibility to buy up other, small players in its space and would give it the liquidity to fight its case in other, lucrative but untapped markets where some of what it does, such as sports betting, is either illegal or monopolised by local players. Morana has his sights set on Japan and China (whether the fact that Japan’s Softbank is a big shareholder in the business is a help or not is unclear). Betting legislation abroad is a game changer for the business, as it was in 2005 when its first foray into the possibility of a flotation was canned due to concerns about the health of the industry and the effects of legal challenges to online sports betting from the US.

For Morana, it would be a golden opportunity to lead it into its next natural phase of development, though the world’s largest online betting company remains something of an upstart, raising both his profile and the work he has done in preparing it for the public stage. He joined the business in 2002 as head of finance (though the title belied the fact that the business had no finance function at that stage) and was made finance director in 2005 by the time a finance team was in place. He became CFO in September 2006, overseeing 70 staff in and out of the UK.

Morana has relished the learning curve of leading and building a growth business from its early stages; his CEO, David Yu, joined shortly before he did and was made CEO the same year Morana was made CFO. “When I joined we had a purchase ledger clerk who came in two days a week and an accounts manager who came in one day a month to reconcile and to pay payroll,” he says. Today, the business relies heavily on its finance staff given its numbers: £250m of client money on deposit through their betting accounts, £4bn in bets through their site each year, $3.1bn in the bank – and no debt. “It’s a hugely complex monster and it’s been the biggest challenge and learning curve,” he says. “I’ve been fortunate enough to be in a position to build that [finance] team.”

Safe bet

He might have been expected to go for the CEO role when it became vacant in 2006 and, to the outside world, having been one of the most senior people in the business and not becoming CEO at that time looked as if Morana had been passed over. The CFO bats this accusation down insisting that he believed Yu’s technology background – he had been both chief operating officer and former chief information officer at Betfair and is a fully paid up computer geek, with the relevant scrolls from Stanford and California universities to boot – made him the natural candidate, so much so that Morana did not even apply for the role.

“David is one of the most intelligent people I’ve ever come across and can do whatever he needs to very well,” says Morana. “He is probably one of the most sought-after CEOs in the country.” Well, that would be hard to back up with hard evidence, but at least for Morana he has the pleasure of working alongside a CEO he believes in.

And he thinks that the board’s selection has been vindicated many times over. “David’s record since 2006 speaks for itself – he has doubled the size of our business. He was definitely the right choice.” Would he want that job one day, say, if the UK’s most sought-after CEO was tempted away? “That’s a difficult one. It’s a case of semantics,” he says cryptically. “I hope to work for David for the foreseeable future and if he was to leave, I think it would be difficult for the company. And I don’t want to worry about all that for now.”

Indeed, Morana is unusually vocal about his belief in Yu and his job supporting him, driving strategy, building a finance function that can support the business and ensuring the company has the right business partners from a finance perspective as well as understanding the needs of shareholders. “You’ve got to be able to give your CEO very frank, honest advice and once he’s made a decision you’ve got to be able to support him all the way,” he says.

And the admiration is sickeningly mutual: on Morana’s appointment as CFO, Yu said he found it “particularly gratifying to have witnessed first hand the excellent job Stephen has done for us” and lauded his “great motivational and leadership qualities”. He also has strong working relationships with the two co-founders that sit on the board, chairman Ed Wray and Andrew Black – so much so that Black named a thoroughbred horse after him. (The horse, Morana, was a winner at Ascot last year.)


Horses for courses

Morana’s experience would put him firmly in the frame for the top job. Having joined Betfair from Sapient, the Nasdaq-listed tech and business consultancy for which he was head of UK finance, he imported a mixture of gaming, internet and technology experience from elsewhere. And he counts Betfair’s co-founders as personal friends, something that would surely smooth the way.

Floatation or no, Morana sees himself sticking around at Betfair for some time yet. “I have the best job in the country as a CFO. I don’t think there’s a more exciting or challenging place to be,” he says, reiterating that he doesn’t feel he’s at the stage where he has to make a decision about his next move. He is quick to play down any notion that he’s too comfortable in his job after a five-year stint.

“I’m definitely not in a comfort zone. Betfair wouldn’t allow people to be in a comfort zone, but I can look at my career progression for the next couple of years and think that, personally, I can achieve what I want from continuing to drive the CFO role within Betfair.”

Sitting as the only other executive director alongside the CEO on Betfair’s board, presenting at most investor meetings and driving the agenda of the audit committee is a first for Morana. He is also non-executive director at behavioural analysis oufit Featurespace and LMAX, Betfair’s spread betting spin-off (which used to be known as Tradefair).

It may well be the perfect CFO job, but there are still big issues with which Morana must contend. One such issue is the regulation of online gaming– something he finds “incredibly frustrating” and that strikes at the heart of the business model. He hopes that in Europe in a few years’ time a single license for online gaming companies to trade in any country will emerge, allowing it to be treated as any other product or service and taxed as such – tapping huge demand for sports betting in Asia, for example. “We want to work with governments, we want to pay taxes and we want to work with sporting bodies,” Morana says.

“We believe that protecting underage and problem gamblers is absolutely key. We want to raise the bar, but if governments won’t work together on that you end up competing at the lowest common denominator and that’s not good for the industry as a whole.”

Morana hopes to still be in the business when the rules change. “At some stage,” he says, “governments have to realise that prohibition in these countries hasn’t worked and that regulation, licensing with an equitable tax policy will be beneficial for the customer and the UK government.”

Whether it’s at Betfair or elsewhere, it seems likely he’ll continue to drive the agenda in the online betting market somehow.

This interview first appeared in the March edition of sister publication Financial Director.

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