BETFAIR, the controversial online betting exchange, is exploring a potential £700m stock-market float that would land its two co-founders fortunes of more than £100m each and create windfalls for dozens more shareholders.

The company, chaired by former BP and Railtrack boss Sir Robert Horton, has appointed NM Rothschild, the investment bank, to advise on its strategic options, including a flotation, sale or refinancing. A float is believed to be the preferred option, but a definitive timetable has yet to be established.

Last week, in a sign that the business is being prepared for a float, Betfair bolstered its board with the appointment of Yahoo! executive Fru Hazlitt as a non-executive director.

A sale or float at £700m would hand instant windfalls of more than £100m each to Betfair’s co-founders Andrew Black, a former City trader, and Edward Wray, a one-time investment banker. They each own about 15% of the business, founded only five years ago. An exit would also make several hundred thousand pounds for a string of individual Betfair investors. Among those in line for payouts if the company completes a float or sale are Josh Hannah and Vince Monical, who sold their Flutter.com business to Betfair in 2001.

Betfair has been one of Britain’s greatest dotcom success stories and has captured an estimated 90% of the UK betting-exchange market. It had revenues last year of £66.7m and made pre-tax profits of £13.3m.

Exchanges work differently from traditional bookmakers. They do not take bets, but match up people wanting to gamble on a particular sporting event, such as a horse race. Acting as middlemen, they cut out the need to go to a regular bookmaker.

Betfair then takes a commission as a fee for the match-up facility. The service has allowed punters to get more generous odds than they would be given by a regular bookie.

Black came up with the idea for the business while working as a computer programmer at GCHQ in the late 1990s. He set out with Wray, to persuade friends and other small investors to back the venture.

But Betfair has attracted strong criticism from traditional bookmakers, who argue that betting exchanges make it easier for horse races to be fixed because they allow punters, in effect, to back horses to lose.

Betfair’s rise to prominence has coincided with the stellar growth of the gambling industry, which is now worth an estimated £8 billion in Britain.

That growth has prompted a rash of companies to attempt to float on the London stock market. Two of the latest to try to go public are VIP Management Services, one of the world’s top 20 online gambling groups, and Event Data Correlation (EDC).

VIP is understood to be in early-stage talks about reversing into Leisure & Gaming, an AIM-quoted cash shell. Separately, Global Gaming Technologies, an AIM-quoted cash shell, is to buy EDC for about £15m. EDC has developed software that monitors betting exchanges in real time, identifies price discrepancies and then undertakes trades.