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Tuesday 15 January 2019

Raising the Stakes

Online betting has made Denise Coates the world’s highest paid woman. Her success at bet365 will invite more scrutiny of addiction and tragedy

By Martin Fletcher

The Potteries Museum in Stoke-on-Trent contains the world’s largest collection of Staffordshire ceramics – a display of exquisite vases, jugs, tableware and figurines from those glory days when the city was the hub of the world’s pottery industry. Today, just a few small, high-end companies survive. The industry was destroyed by cheap foreign competition, its demise hastened by the 1956 Clean Air Act, which prohibited the emission of toxic pollutants.

A couple of miles from the museum, the site of Josiah Wedgwood’s Etruria factory is now occupied by a large, angular, futuristic building with tinted plate glass windows and a car park full of expensive vehicles. The edifice houses the world leader of a very different sort of industry – one that produces nothing as beautiful as ceramics and that is also regarded as toxic by its critics: online betting.

Today, bet365 is the biggest private employer in this faded, post-industrial city. Just as Wedgwood made his fortune by selling pottery to royal households across Europe, so bet365 makes vast amounts of money by providing online gambling to the world. In 2017-18 it reported an operating profit of £682 million on net revenues of £2.8 billion, and its founder, Denise Coates, paid herself £220 million, plus another £45 million in dividends from her 50 per cent stake in the company.

Getty Images

Newspapers had a field day when her remuneration was revealed in November. They labelled it “grotesque” and “obscene”. They calculated that “the best paid woman in the world” earned £726,000 a day, 9,500 times the average UK salary, a thousand times more than the prime minister, double the entire wage bill of the Stoke City football team, which is owned by bet365, and more than the superstars Taylor Swift, Beyoncé and Katy Perry combined. Stacked in £50 notes, her salary would be almost twice the height of London’s Shard, or so The Guardian calculated. (It is possible that someone was paid more, but has not disclosed it; we have fact-checked the claim and, while there are many women who are wealthier, we have not identified any woman who took home a bigger salary last year.)

That the world’s highest paid woman operates from a business park in Stoke, not Silicon Valley, is astonishing. Britain has few world-beating companies but bet365, thanks to government policy and Denise Coates’s commercial brilliance, is one of them.

However her jackpot pay package could also presage trouble ahead. It invites exactly the sort of scrutiny that she personally does so much to avoid. It draws the attention of politicians, regulators, campaigners and customers to the vast profits that the gambling industry is making. That will only fuel the controversy over the price that sport and society pay for the industry’s success, and increase the clamour for tougher regulation.

That the world’s highest paid woman operates from a business park in Stoke, not Silicon Valley, is astonishing

Those who were appalled at Coates’s rewards included Charles and Liz Ritchie, a retired couple from across the Pennines in Sheffield. At a meeting in London we inspected the photographs of eight young men aged between 23 and 35. All were “extroverted, fun-loving, sporty, life-and-soul-of-the-party types”, said Liz Ritchie, a former consultant psychotherapist. All looked healthy and happy, but since 2015 all had been driven to suicide by their gambling addictions. Of those victims, three hanged themselves, two leapt from buildings, one jumped from a bridge and one threw himself in front of a train.

By its nature, it is impossible to know fully the cause of suicide. Many problem gamblers use multiple platforms and the campaigners do not – and cannot – attribute the deaths to any single company or online betting site.

The Ritchies’ 24-year-old son Jack was among them. Using his lunch money, he began gambling on fixed-odds betting terminals in bookies’ shops when he was still at school, and almost immediately won two £500 jackpots. At Hull University he progressed to online betting, using bet365 and other providers. He fought his gambling addiction for several years until, believing himself cured, he took himself off to Vietnam in 2017 to teach English.

One Sunday that November Jack contacted his parents from Hanoi to say he was feeling low and needed to come home: he had started gambling again. They paid his debt and offered to buy him a flight.

Three days later Jack emailed to say: “It’s happened again… I’m past the point of controlling myself and I’m not coming back from this one.” He attached a suicide note in which he said he would never be free of his addiction. Friends found his body at the foot of a building scarcely an hour later.

“Gambling eats away at you inside,” said his father, a former head of higher education research for the Department for Business, Innovation and Skills. “It eats away at who you see yourself as. It undermines you completely. His note was full of self-loathing and despair.”

“Gambling eats away at you inside. It eats away at who you see yourself as. It undermines you completely.”

The Ritchies began to investigate. From local newspaper reports alone they identified nearly 50 families whose sons had killed themselves because of gambling addictions. The couple now run Gambling with Lives, a pressure group of bereaved families determined to confront an online gambling industry that they accuse of “predatory” practices designed to snare the young.

“It’s totally immoral,” Liz Ritchie said of Denise Coates’s remuneration, but added: “We’re not talking about one person or one company. We’re talking about an absolutely systematic process of abuse that’s targeting our children. There are British companies licensed by our government targeting British children. Every person in the country should be horrified.”

Denise Coates’s grandfather, Leonard Coates, was a miner from Stoke-on-Trent. He won the Military Medal in the First World War for holding up a German advance with a Lewis machine gun. He had 14 children of whom Peter, Denise’s father, was the youngest.

Peter left school at 14. He was a keen footballer who joined Stoke City – home of the legendary Stanley Matthews – as an amateur, but was not good enough to turn professional. He instead founded Stadia Catering to service football grounds, and opened a dozen local betting shops under the name Provincial Racing.

Denise, now 51, is the oldest of his four children. She attended a local comprehensive and went on to read econometrics at Sheffield University, where she proved brilliant with figures. She graduated with a first.

In her spare time she worked in what she once described as her father’s “small chain of pretty rubbish betting shops”. She now took them over, turned them round and added more until she had nearly 50. Then, in 2000, she spotted the relatively limitless potential of online betting and took the biggest gamble of her life.

Having failed to persuade venture capitalists in London to back her, she mortgaged the betting shops to raise £15 million and persuaded her younger brother John, a newly qualified lawyer, to join her. The following year she launched bet365 from a Portakabin in a car park, buying the domain name on eBay for about £20,000.

For four years it was touch and go whether the company would survive. “You start a 24/7 business and you work 24/7… I’ve worked harder than you could possibly imagine,” Denise Coates told The Guardian in 2012 in perhaps the only interview she has ever given.

But she got three key things right. She opted to develop her own software rather than buy it off-the-shelf like most rival online betting companies. That enabled her to adapt and develop it as technology advanced.

She pioneered “in-play” betting – a revolutionary development that allows punters to bet not just before but throughout sports events, greatly increasing their involvement and excitement.

Coates was also swift to internationalise the business after selling the betting shops in 2005. Bet365 studiously tailors its product and advertising to individual countries. Its website can be accessed in 19 languages, and there is hardly a sporting event on any continent – from trotting in Finland to curling in Brazil – on which it will not take bets. It is widely believed to target the vast Chinese market – a grey area because online betting is illegal in China.

“You can be in just about any country in the world where internet betting is legal and bet365 is the go-to brand for sports betting,” says an industry insider who declined to be named.

Purely in business terms, bet365 has become a spectacular British success story. It now boasts 35 million customers, who wagered £52 billion in 2017-18 – more than the entire GDP of a country like Tanzania or Lithuania. It has secured roughly 8 per cent of the global online betting market. It has more than 4,000 well-paid employees, at least half of them in Stoke. Its revenues soared 25 per cent last year, and its operating profits 31 per cent.

Unlike many of its rivals, bet365’s operation is still based primarily in Britain and the company paid £78 million in tax in 2017-18. Likewise Coates, instead of adopting the usual tax avoidance methods of the mega-rich, paid the top rate of tax on her £265 million remuneration package. “Her annual tax is the annual running cost of your average NHS hospital,” Paul Leyland, of the gambling consultancy Regulus Partners, notes.

“She’s a national heroine,” the industry insider contends. “Look how much money she’s brought into the country from all over the world, and she’s investing it locally. She’s paying UK tax, which is unusual for someone as wealthy as her – most British billionaires leave and the money ends up somewhere else. She employs lots of local people. No EU grant could achieve what she has.” David Cameron’s government clearly shared that view. In 2012 Britain’s “Betting Queen” was awarded the CBE for her services to business and the community.

For all its success, bet365 is an intensely secretive company. It employs no public relations firm, has no press office and ignores most media enquiries. Coates is equally private. She runs the operational side of bet365 from its Stoke headquarters while her brother John, her joint chief executive, deals with corporate matters. She is seldom photographed or seen in public. She avoids journalists. Unlike her father, her brother and her husband, Richard Smith, a former civil engineer whom she met as a student at Sheffield, she does not attend Stoke City football matches.

“She’s a national heroine. She’s paying UK tax – most British billionaires leave and the money ends up somewhere else. She employs lots of local people. No EU grant could achieve what she has.”

She lives with her husband and five children – some of them adopted – in a large, secluded house next to her parents’ outside the Cheshire village of Betchton, near Sandbach. When I stopped at the entrance to her drive one recent morning a security guard clad in black fatigues bore down swiftly on my car.

She appears to enjoy her wealth, which Forbes magazine puts at $3.6 billion. She has a helicopter and an Aston Martin with personalised number plates, and she is currently creating a “modern country estate” in a hidden valley not far from her present home.

Right now the site is a muddy bog with a giant yellow crane towering overhead, but when finished it will include a modern mansion designed by Lord Foster, 52 acres of landscaped grounds, a lake, stables, cycle track, sunken tennis court and gatehouse. The public road that leads past the site is closed to all but construction traffic for two years.

People who know Coates say she is a perfectionist who is interested in money only as a measure of success. “I don’t think she’s driven by money, just by succeeding and doing well,” said a source who has had business dealings with her. Of the Coates family in general the source said: “They don’t lead lavish lifestyles. You kind of wonder what it’s all for. Ultimately I think they’ll give it away.”

Coates already gives substantial sums away. Her company has donated at least £200 million to the Denise Coates Foundation, a charity that supports local hospices, universities and students from disadvantaged backgrounds, as well as various international causes.

Bet365 has pumped well over £100 million into Stoke City football club since Peter Coates repurchased it in 2006 (he had sold it to an Icelandic consortium in 1999). The club lost £22 million last year alone.

Civic leaders in Stoke cite numerous other ways in which the Coates family has quietly helped the city: paying for the statue of the novelist Arnold Bennett outside the Potteries Museum; refurbishing the changing rooms of local sports clubs; supporting Stoke’s bid to become UK City of Culture in 2021; financing a cockpit simulator to stand alongside the Spitfire commemorating that iconic plane’s native-born designer, Reginald Mitchell.

“You could consider the Coates family to be the new Wedgwoods or Doultons of Stoke-on-Trent,” said Martin Tideswell, editor of The Sentinel newspaper. “The vast majority of people in Stoke and North Staffordshire regard them with admiration, and are very grateful that they’re around and being philanthropic in their outlook… They’re interested in anything which improves the lives of local people, and that’s enormously to their credit.”

It is a measure of the esteem in which the family is held locally that the city council recently named a street after Leonard Coates, the First World War hero. Beyond North Staffordshire, however, that admiration soon begins to fade.

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In 2005 Tony Blair’s Labour government introduced a gambling act that transformed the British betting industry. In doing so, the government denied it had been influenced by donations from the gambling industry. Among the most prominent donors was Peter Coates. He and his companies had given £305,000 to the Labour party over the eight years since 1997.

The new legislation essentially decreed that betting should be treated like any other entertainment industry. It allowed online betting companies to market and advertise themselves, imposed no limits on stakes or winnings, and permitted betting with credit cards. It enabled the industry to flourish and become a world-beater, employing more than 100,000 people in this country, but at a steep human price.

UK policy options: How the rest of the world regulates gambling

  • Australian adults lost more on gambling than adults in any other country in 2014 (an estimated $1,130 or £687). Since 2001, online poker and in-play sports betting have been banned, but loopholes were closed only in 2016. There is a complex code of practice covering when TV betting adverts can be aired.
  • Betting exchanges such as Betfair have been banned in France since 2009. The government taxes both land-based and online gambling wagers (winnings are tax-free in the UK).
  • The US Supreme Court lifted a federal ban on sports gambling in March last year. Even before the decision, the illegal market for sports wagers was worth about $150 billion (or £104 billion) a year. Nevada allowed sports betting long before the ruling, but now several other states have followed. Utah won’t. Gambling is constitutionally illegal in Utah. Online gambling can bring six months in jail.
  • German gambling laws have been confusing since a 2008 treaty banning all online betting (except horse racing) was ruled incompatible with EU law two years later. A second treaty allowed online sports betting services, but limited the number of licences. But no licences were issued after a ruling from the European Court of Justice. Because the state of Schleswig-Holstein hadn’t signed up to the treaty, it issued sports betting licences, then signed up to the treaty after a change of government. Schleswig-Holstein has a quasi-licensing regime until a federal framework is developed. Hesse is now also considering leaving the treaty.

Britain now has roughly 400,000 problem gamblers, according to the Gambling Commission, with another two million people deemed to be “at risk”. Some 55,000 11 to 16-year-olds are also problem gamblers – a figure one regulator described to me as “extraordinary” and “frightening”.

Online betting companies have also colonised football, the national sport. Their advertisements appear in an estimated 95 per cent of commercial breaks during televised matches, and accounted for 17 per cent of all the advertisements screened during last summer’s World Cup. They sponsor the shirts of 26 of the 44 Premier League and Championship clubs, whose games are broadcast around the world. Their electronic ads circle the pitches at many grounds. The net effect is to “normalise” betting or, as the regulator put it, to make the young in particular think that “you have to gamble to be one of the crowd”.

The industry’s defenders argue that, while the number of problem gamblers is significant, just 0.8 per cent of all Britain’s gamblers get into financial trouble. They insist that companies like bet365 provide an entirely legitimate, well-regulated form of enjoyment to millions of ordinary people. “People have always bet on sporting events, and always will. If you make it illegal it will still happen,” says one, who added that unregulated cowboy companies from overseas would fill the vacuum.

They also contend that online betting companies like bet365 are as concerned as anyone else about problem gambling, and are seeking to combat it. “It’s one of those areas where we can do better and will do better,” says Clive Hawkswood, chief executive of the Remote Gambling Association (RGA). “We’re not monsters,” another senior industry official protests.

“You could consider the Coates family to be the new Wedgwoods or Doultons of Stoke-on-Trent. The vast majority of people in Stoke and North Staffordshire regard them with admiration, and are very grateful that they’re around”

According to its annual report, for example, bet365 is developing a sophisticated Early Risk Detection System to spot tell-tale signs that gamblers may be getting into trouble and, if necessary, to warn or exclude them. Customers registering on bet365’s website are invited to impose limits on the size and frequency of their deposits, and to request “reality checks” that alert them if they have stayed online too long. They can opt to exclude themselves from the site. The company has pledged to give £868,000 to GambleAware, a charity that seeks to reduce gambling’s harmful effects through research, education and treatment, this financial year. John Coates also chairs the RGA, whose member companies recently agreed to stop advertising during live sports broadcasts.

But the industry’s critics remain deeply sceptical. They believe that such measures are mere window-dressing designed to pre-empt legislative restrictions on the betting industry’s enormously lucrative business. “Every single penny they spend on ‘social responsibility’ is just a nod to the regulators to say ‘we’re trying our best. We wouldn’t take advantage of vulnerable people blah blah blah,’” says a professional gambler who requested anonymity.

They believe that the companies garner so much information about their customers that they could intervene far earlier to stop them getting into financial difficulties, and that their donations to treatment charities like GambleAware – roughly £8 million in total last year – are derisory compared to their enormous profits.

They say that stopping advertisements during live television sports broadcasts sounds good, but television commercials now account for a tiny fraction of the betting industry’s advertising and marketing expenditure. Of the £1.5 billion the industry spent promoting itself in the UK in 2017 just £234 million was spent on television, and £747 million on online marketing, according to Regulus Partners. The agreement was “a trivial move that makes them looks socially responsible”, says James Orford, a psychology professor at Birmingham University who runs the website Gambling Watch UK.

“Every single penny they spend on ‘social responsibility’ is just a nod to the regulators to say ‘we’re trying our best. We wouldn’t take advantage of vulnerable people blah blah blah’”

Bet365 is generally seen as one of the more responsible online betting companies, its targeting of China notwithstanding, and has never been found in breach of the Gambling Commission’s licensing conditions. “Relatively speaking, they’re one of the good guys,” says Marc Etches, GambleAware’s chief executive.

The company is nonetheless operating in a highly competitive industry, and behaves accordingly. Indeed it excels at separating its customers from their money. Its website may urge customers to gamble responsibly, but it then bombards them with promotions and inducements designed to suck them in – “Get up to £100 in bet credits”, “£1,000,000 slots give-away”, “Welcome package: Step into our world for up to £120 in bonuses”.

“Bet365 is so big it can afford to be incredibly aggressive in offering good offers and loss leaders that other companies would not be able to get away with,” the professional gambler says. “It’s been very aggressive in order to get a stranglehold on the market.”

Bet365 is a prolific advertiser, using the jovial cockney actor Ray Winstone to tell television viewers: “We’re the world’s favourite online gambling company.” Its commercials, like those of most other betting companies, portray sports betting as normal, harmless fun and minimise the risks. Dr Orford calls such advertisements “misleading” and “deceptive” because “you’re encouraged to think you have a good chance of winning whereas you’re almost certain to lose”. They are also aimed, he suspects, at susceptible young males.

A former employee told me bet365 profiles its customers so it can target them accordingly and – in common with other betting companies – effectively closes the accounts of frequent winners by severely limiting the maximum stakes they can place.

It has also developed one of the slickest websites and mobile phone apps. “It’s the best in the world. It’s the most sophisticated,” the former employee says of the website. “That’s because they’re a private company, and instead of paying shareholders they’ve pushed all their money into development.”

Bet365 regularly promotes new forms of betting like “cash back” and “bet builder”. It live streams 160,000 sports events a year. It offers odds on so many events – and such a constant and bewildering array of them – that sport seems more of a means to an end than something to be enjoyed in its own right. Etches says it is legitimate to ask: “Is betting now taking away our love of the game?… Do people now feel they can’t enjoy their sport without having a bet?”

“Technically speaking they’re streets ahead,” the former employee says, and he gives Denise Coates the credit: “She rules the place completely. What she says goes. She’s a genius, there’s no doubt about it. She really puts a lot of emphasis on the design and usability of the website. She has to approve every change personally, and she really knows what she’s talking about. It has to be redone until it’s perfect. She probably is a bit of an ogre.”

Bet365’s very name invokes the non-stop betting that it offers. “Can you imagine a drinks company called Drink24/7?” asks Dr Orford. “The forms of gambling now are much quicker, much more intense, much more addictive than ten or 20 years ago. There are fewer and fewer opportunities to stand back and take a breather and consider whether you should be carrying on.”

That is particularly true of the in-play betting that bet365 pioneered. “It is difficult to say whether or not in-play betting causes gambling problems, because the causes of problem gambling are myriad and complex, and because people who experience gambling problems bet on many forms, not just in-play,” says Alex Russell, an expert on the psychology of gambling at Australia’s Central Queensland University. “But in-play betting is strongly associated with problem gambling, and the high speed of in-play betting, which can be similar to that of gaming machines, certainly doesn’t help problem gambling.”

Bet365 does nothing illegal. It abides by the Gambling Commission’s licensing conditions and code of conduct. It offers a service sanctioned by the state. But whether its business practices are moral or ethical, and whether the legislative framework in which it operates is sufficiently robust, is a moot point. Gambling’s victims emphatically say no.

“They’re preying on the vulnerable, the young, anyone, making it look attractive, making it look fun,” says Ian, a spokesman for Gamblers Anonymous who declined to give his surname. “It may be a little bit of fun when you first start but once you cross the line and become addicted, believe me, it’s no more fun. That’s why people take their lives. That’s why marriages end in divorce courts. That’s why people end up in prison.” Ian’s own lifelong addiction to gambling destroyed two marriages and landed him in prison five times.

Liz Ritchie believes the industry sets out to produce an addictive product that “infects [the young] with a disease that will probably last a lifetime or may kill you. I can’t think of a physical disease that we would allow that to happen.” Gambling will prove “the epidemic of the next generation”, she predicts.

It is certainly a far more controversial product than ceramics. What odds, I wonder, on Stoke having a Museum of OnLine Betting beside its Potteries Museum in 50 years’ time?

Top picture: Getty Images