The betting shop manager who made millions from FOBTs
The article below is reproduced with the kind permission of Chris Pitt at BOS magazine. I met Steve Frater some years ago when he showed me round the Hounslow West shop he mentions here (I was working for the Tote at the time), but I didn’t realise we shared other links – I too worked for the brash new upcomers City Tote, moving from Ladbrokes wages of £12.50 a week to £20 a week at CT.
What struck me about the article was Steve’s ‘feet-on-the-ground’ attitude, right to this day; none of the Billy Big Balls business-speak or bragging. The other factor this piece highlights, for me, at least, is the importance of having a maverick in a company, someone who sees the big picture long before others and is willing to fight a case for it. And credit to the bosses, like Bob Green, who encouraged such an attitude.
I’m reading a kind of potted psychology book just now. One chapter is entitled ‘Every company needs an Asshole’. Assholes are the guys who won’t shut up when they see something could be done better. They’re the ones who won’t accept ‘we’ve always done it this way’ admonitions. ‘Maverick’ is a more PC term for such people but I know what the author means – they are assholes to those who don’t want the cozy status quo upset.
All organisations could be doing with a maverick, racing in particular. If you’re lucky enough to come across one working for you, look after him or her, because mavericks get pissed off pretty quick from banging against cobwebbed doors and they move on to eventually benefit the more enlightened.
End of rant!
Back to the article . . .I know some readers despise FOBTs. I don’t. I believe their damaging effects have been way overplayed, much like the Anti-Grand National brigade lay it on against that great race. Yes, there are horror tales from some addicts, but millions play them without any damage. Also, in my opinion they are crucial to the future of racing in the UK – profits from them are keeping a lot of betting shops open.
STEVE FRATER LEANS back in a comfortable settee in a comfortable room within SG House, in the West London suburb of Feltham. It’s a big, modern-day building, synonymous with big, modern-day achievement.
As co-founder of the first fixed odds betting terminal supplier The Global Draw, in just eight years he oversaw his company grow from a garage in Osterley, near Hounslow, in 1998 to its sale to Scientific Games Corporation for a reported £104m in 2006.
In October last year, he became executive chairman for SG Gaming, an amalgamation of The Global Draw, machines supplier Games Media and content provider Barcrest, all wholly owned subsidiaries of Scientific Games Corporation. The merger saw SG Gaming bring together over 700 employees spread across a dozen nations.
It’s all a far cry from his first day’s work in a betting shop, which left him ruing his decision to leave a cosy office job in the City.
Steve was born in the North London borough of Islington in 1952 but his family moved when he was 11 to a flat in the Highbury area, one minute from the Arsenal ground, thus explaining his lifelong support of the Gunners.
On leaving school he got a job in the City with a publication that produced daily movements and statistics on stocks and shares.
“I did it because I liked maths but it was boring, sitting in an office, looking at figures,” he recalls.
“I had an aunt who worked in the payroll department of Ron Nagle, a turf accountant in North London. They’d just merged with a company called City Tote. Their head office was based in Finsbury Park, two minutes from where I lived. She told me they were looking for trainee managers.
“I was earning £8 a week, whereas trainee managers were getting £20 a week, a big jump. So I went for an interview and got the job. That was in 1972. I was 20.
“The first shop they sent me to was in Harringay. They told me I didn’t need to be there until one o’clock and, as it was my first day, the manager would just let me watch.
“I got there at one o’clock and the shop was packed. The manager said that one of the staff had gone off sick and I’d have to help him out on the tills, so they threw me in at the deep end. I remember coming out at the end of that first day thinking ‘this isn’t for me. I’ve made a mistake. I’ve given up a nice, quiet office in the City to work in betting shops where everyone’s shouting and swearing at you.’
“The next shop they sent me to was much quieter and I settled in. Shortly after that, City Tote and the Nagles sold out to Mecca and the whole group became Mecca Bookmakers.
“A year later I was managing shops all around where I lived. Then I got married and moved down to Ilford, so I began working in that area.”
He slowly progressed up the managerial ladder, working at several Mecca shops, before a vacancy for an assistant claims manager arose at the head office in Finsbury Park.
“I used to play football for Mecca Bookmakers’ football team. The claims manager at that time, a guy named Ernie Oliver, was also the manager of the football team. They had about 200 applicants but because I was in the football team I think I had a bit of an advantage and I got the job.
“Bob Green and all the senior Mecca people were based in that office. I must have done a good job because, after six months, Ernie went off to do something different and they promoted me to claims manager, which was great. In the space of two years I’d gone from a middle grade betting shop manager to working in the head office with the likes of Bob Green.
“In those days, if you had a bet query or a complaint, you had to write in and most ended up going to The Sporting Life Green Seal Service who used to rule on claims. I thought that was ridiculous.
“I went to see Bob Green and said ‘we are spending a fortune refurbishing our shops and yet if people have a complaint in one of them, they can’t speak to anyone.’ I suggested introducing a freephone helpline to give customers an instant response. Bob was all for it but everyone else I spoke to thought I was mad, that we’d have a thousand calls a day with everyone trying to cheat us.
“We introduced a customer helpline. We were the only company to do that and we promoted it in our adverts. It quickly grew from just me to a team of three or four and it became an industry standard. We always had a great reputation for dealing with our customers.
“In 1986 Grand Metropolitan, who owned Mecca, bought William Hill. At the time it seemed likely they would move their head office to Leeds. If they’d done so, I’d have left. But at the last minute they decided to move to Wood Green and stay in London.
“After Bob Green left Mecca/William Hill for the US to take on a racecourse venture in Philadelphia, John Brown took over in charge of the betting shops. He liked our customer relations department and retained it.
“I then began to become involved in the operational side. I got quite interested in that because it gave me an insight into how with some innovation you could make a real difference to the performance of betting shops.
“By the early 1990s I was working for Barry Puttock, a Mecca guy who, as part of Mecca’s international expansion, had been in South Africa. While out there he’d met an Austrian named Walter Grubmuller. They looked at doing business together but didn’t, but they kept in touch.
“One day Barry came into the office and said that Walter wanted to set up large betting shops in Vienna and needed someone to talk to about it. He asked if I’d be interested and arranged for me to go and see him.
“It was October and our son, Dean, was due to be born in December. I’d originally planned the week off on holiday to spend time buying baby furniture and stuff for the bedroom. But my wife said ‘You go to Vienna. You never know.’
“Walter met me at Vienna airport and I spent a week with him. We hit it off immediately. He was very similar to Bob Green, entrepreneurial, and I really liked him. He was one of those guys that made things happen. He was a co-founder of Novamatic and he’d made his money through gaming machines but he liked betting shops. Interestingly his betting shops all had a gaming machine area.
“We kept in touch, and then he suggested we went into betting shops together over here. However, I’d got a reasonable job, I liked what I did, and I didn’t want to go back to being a betting shop manager, even if it was working for Walter.
“When AWPs were allowed in betting shops in 1996, he saw that as his opportunity and persuaded me to go into business with him. Just by chance I knew someone who was selling a betting shop in Hounslow. It was a great shop so Walter and I agreed to buy it. I was still working for William Hill so we put a manager in, put the machines in. Then the guy who’d sold us that shop came back with another shop for sale, in Queensbury (near Wembley), so we bought that too.
“In the end I left William Hill and became a partner in the two betting shops.
“We traded as Admiral. We’d got the name from Novamatic. Admiral was one of their machine brands. I liked the name and Walter talked the owner of Novamatic into letting us use it. Novamatic’s slogan was ‘Admiral: Games of the World’. I adapted it to ‘Admiral: World of Betting’.
“Around that time we’d been to a Betting Shop Show and seen a company called Lottery King trying to promote a keno game for betting shops. That was also the time when betting shops were suffering from the competition of the (recently introduced) National Lottery, and they were just bringing in 49s, which was a live draw twice a day, as a competitive product.
“Every October we used to go to Dubai with our families. Walter had a house there at the time. This particular year I’d gone first with my family; Walter came out a couple of days later. I met him off the plane. As he came through the airport gate he said ‘I’ve got an idea; it’s going to make us rich’. In the car from the airport to the house he told me his idea of having a gaming machine with a central screen in the shop. Instead of having a twice daily draw, we could have a game every thirty minutes.
“At that time you couldn’t have a random number generator in the betting shop; it had to be from a remote location. We went to see Barry Stapeley at SIS. He came up with the idea of having a random number generator based at premises in Bedford and they could beam it to your betting shop, and that’s a remote event.
“We put it in our shop in Hounslow and it did okay, but Walter still wasn’t satisfied. He believed if we could do an automated draw every half an hour, we could do it every five minutes, or every one minute. We got QC’s advice then started to develop the concept.
“Then we came up with the idea of making it every second, as the principle was the same. That’s what led to what became known as fixed odds betting terminals.
“The concept didn’t start as a FOBT. It was about finding an alternative lottery product. The idea was to produce an automated numbers draw in our shops. It developed through the concept of taking the regulations and pushing the boundaries to the limit.
“We’d built up our chain from two to five shops, then in 1998 we found a shop in Hounslow West. We decided to gut it, build it like a cinema and put in a whole bank of terminals, about a dozen. The front part was for the terminals; the back part was the betting shop. It had tiered flip-up seating as well with two giant projector screens.
“It was a massive shop, different to any other betting shop in the country and there is nothing like it even now. It was so big, people would get lost in there. Within a month of opening, business was phenomenal.
“Tax on turnover at that time was 6.75 per cent; our lottery game had a hold of about 10 per cent.
“Within a couple of months the MDs of the big firms were coming in to see what we were doing, as well as the casinos and the arcade people.
“Then there was a swell of activity from the arcade, casino and bingo people claiming it was illegal, whereas the bookmakers were asking ‘can we try this in our shops?’
“Ladbrokes were the first, led by John O’Reilly and Terry Leon but their interest died when Alan Ross was appointed MD. Then Coral tried it, a 10 to 20-shop trial initially but when Coral made Phil Horne head of machines that’s when the Coral relationship really started as he really believed there was a chance of making it work.”
A deal was struck with Coral to increase the number of shops to 200 but nine months into the contract, The Global Draw was struggling to make their share work, as Steve recalls.
“We were trying to find ways of boosting our income. It was about this time that bookmakers were trying to convince the government to change from a turnover tax to a gross profit tax. I discussed it with Walter and we agreed that if it went to a gross profit tax we could develop roulette and put it on the machines. The gross profit tax was accepted and within a few weeks we’d put roulette on all the machines in our own shops, then we rolled it out to the Coral shops.
“From the day we put in roulette, it just went like that,” he says, pointing upwards, through the roof and towards the stars. “When the other bookmakers saw what we and Coral were doing, everybody wanted them.
“Coral went from 200 shops to 400 to 800; we put machines in the Tote, Stanley, Jennings, Betfred and Hills. It snowballed; we expanded from having just a few technicians but we couldn’t keep up with the installation pace.
“Remember that the original idea of all this was that we would have a product in our shops that would give us an advantage over the other bookmakers. When we designed it we never intended it to go anywhere other than in the Admiral shops.
“We’d started Admiral in 1996 and had built that up to around 14 shops in North West London by the end of 2000. In 1999 we’d bought the group of four Krullind shops in Ipswich from Bert Hatcher, a real entrepreneur.
“In 2000 when the business really started to take off, I said to Walter ‘we can’t run our betting shops and compete with our own customers’ so we sold the London shops to Ladbrokes and kept the Krullind shops in Ipswich, which by then had grown from four to seven shops.
“Ladbrokes subsequently made an offer for the shops in Ipswich. It was at the peak of the betting shop market and they made us an offer we couldn’t refuse, so we sold the shops and from that point we were no longer into betting shops.
“Our original office was the kitchen of Walter’s house in Osterley. When we’d had the first machines in our shops we’d converted the dining room into a test room and used the double garage to store the machines.
“Then we found a warehouse but even before we’d moved in we’d got too big for it. We moved to Boston Business Park but outgrew that warehouse and had to take a second one. When we outgrew those we bought a building in Green Lane and converted it, but we eventually outgrew that. Finally we came here to Feltham.
“By 2006 Walter and I had got to the stage where we needed to do something. We were highly profitable but there was no end game and no real business plan. We recruited a guy to help us called Jeff Nash, who I’d met by chance and we talked about me buying the company with a VC to release equity and I’d run it.”
It was around that time that New York-based Scientific Games were looking to gain a foothold in the UK. The Corporation’s chairman and chief executive officer Lorne Weil came to London, met with Steve and Walter and offered to buy the business.
“The deal was that we would stay for three years, Walter as a consultant and me running it. Walter did leave after the three years but I stayed on,” says Steve.
In addition to purchasing The Global Draw, Scientific Games Corporation also acquired Games Media in 2006 and added Barcrest to their portfolio in 2011. Then, in October 2012, Scientific Games combined those three subsidiaries into a single entity, SG Gaming.
“SG Gaming has tied us into the parent company and put everything under one brand,” Steve explains. “We wanted all the staff to feel they’re part of one company, and we want our customers to see us as one company.”
And Phil Horne, who had placed his belief in the machines when working for Coral, is now SG Gaming’s managing director.
As the co-inventor of a product originally designed to counter the effect of the National Lottery, Steve could be excused for thinking that he’d ended up winning the Lottery without even buying a ticket. But he puts it down to circumstances and acknowledges his good fortune in meeting those people who have influenced his career.
“I’ve been lucky to work with three great innovators in Bob Green, Walter Grubmuller and now Lorne Weil. I met Bob again last year for the first time in twenty years and still have great admiration for him. Lorne treats me great and helps shapes my thinking, and in Walter, my greatest influence, I found someone that’s like a brother to me.”
He cites Walter’s understanding of gaming machines and natural desire to think big – as in the name he came up with for the company, The Global Draw – coupled with his own understanding of betting shops as the reason for their combined success.
“But,” he adds swiftly, “I’ve also been incredibly lucky. You think back to all those things that change your life. However much you want to complement yourself and think how bright you are, you need a lot of luck.
“If Mecca had moved to Leeds when they bought William Hill, I’d have left. If my wife had not insisted that I go to Vienna I’d never have met Walter. If the tax hadn’t changed, the machines wouldn’t have been as successful. If I’d stayed at William Hill and played safe rather than going into partnership with Walter…”
He doesn’t finish the sentence. He doesn’t need to.
“One of the things that’s given me the most personal satisfaction is that we’ve been able to create this company from nothing and it’s stayed ahead of the game all the time. And some of the people that were with me on day one in the betting shops are still here now.
“The great satisfaction I get is that all those people have come through it and Global Draw has changed their lives for the good also. We’ve stayed ahead of the game.”