Friday 20 February 2009

Mr. Optimist

Recent postings on the Betfair forum suggest that changes to the Premium Charge could be on the way. No details on that, but during the discussion, a Betfair employee commented in all seriousness that Betfair is not a monopoly and is in competition with the high street bookies.

This seems to me to be a disingenuous statement at best. Betfair is in competition with other exchanges, and is a de facto monopoly. I believe they handle approximately 90% of exchange betting, although I honestly can’t remember where I saw this figure. It certainly sounds about right to me.

They are certainly not in competition with the likes of Ladbrokes, Hills etc. These are traditional bookies who do not want winners. They want customers who, let’s be blunt here, are clueless about value and just want to have a bet. Social gamblers you might call them. As soon as someone starts winning, their business is declined. This happened to me in the early 80s when I had a credit account with Ladbrokes closed after I had won the enormous amount of something like £200.

Betfair are an exchange and shouldn’t care who wins or who loses. They take their commission regardless. Their basic business model is that for every £100 lost by Mr. Loser, they pocket £5 (or so), and Mr. Winner pockets £95. For this model to be sustainable, it obviously requires a steady supply of Mr. Losers.

How do Betfair ensure a steady supply of Mr. Losers? Not that easily apparently. With no high street presence, Betfair’s customers are by definition going to be more sophisticated. They need to be somewhat computer savvy for a start. It doesn’t take any effort to walk into Ladbrokes, pull out £20, and make a bet, but if you want to do the same on Betfair, there are rather more hurdles to overcome first. The typical Betfair customer is not the same as your typical high street bookie customer.

Perhaps at this point we should rename Mr. Loser to Mr. Optimist. (He will become Mr. Loser or Mr. Winner later). No one takes the effort to open and fund an account with Betfair expecting to be a loser. Where did Mr. Optimist come from? I would suggest that while many are recruited as a result of advertising in the media, a fair number sign up as a result of hearing from Mr. Winner about the exciting possibilities Betfair offers. I would further suggest that this source has been somewhat reduced of late, since Mr. Winner is now paying a 20% tax, and for any non-trading bets, he is now sadly better off at the bookies.

One can’t help but wonder if the business model here is flawed. It’s one thing to have customers wander into a bookie week after week throwing their money away, deluding themselves that the occasional win means they are slightly ahead overall, but it is quite another to get a customer to keep transferring funds from his/her bank account when the true (losing) record of their betting history is readily apparent.

Mr. Winner, Mr. Loser and Mr. Optimist are made up names. Any similarity to real people, living or dead, is strictly coincidence. No such persons were harmed in the making of this blog entry.


Scott said...

The exchange is only part of the Betfair conglomerate... they are competing with Ladbrokes and BWin, with their casinos, poker rooms etc. There is no other exchange to compete with and the margins in it are just too small for corporation getting greedier by the day! They are chasing the mug punter - just look at that hideous Arcade... and there is worse to come....

Cassini said...

True - I was writing from a sports betting perspective. I tend to forget about that other crap to be honest!

Scott said...

as we all should because that's what it deserves :)

Anonymous said...

One of my buddies just lost over 6 figures on BF, mainly on the casino I believe. His next court appearance is in a couple of weeks at which point the case will probabably be transferred to Crown Court. Unfortunately he was not playing with his own money. An easy mistake to make. Stay well away from the casino. You have been warned.

Anonymous said...

There's no reason why Mr. Winner shouldn't still talk of Betfair in a positive light. The way I see it, before I paid a guarunteed 4.5/4.6% commission to Betfair if I won on a market; now I pay 20% on winnings unless I happen to lose (which I invariably do all too often - although that was covered in a different blog entry) in which case I have some of that 20% reduced. Yes, it is annoying to not know exactly how much you're paying, but some of the comments made on the Betfair Forum are simply a case of the fat man with a spoon in his hand asking 'who ate all the pie?'.


Mark Iverson said...


I think you've missed the point that you continue to pay the 4.5-4.6% commission charge as well!

I'm sorry, but the way I see it, anyone who defends the Premium Charge is either a Betfair employee or slightly deluded.

All the best,


afropunk said...

Also it is worth noting that bookies are flexible in their restrictions, and do review accounts periodically. By having a number of accounts with multiple bookmakers you can effectively rotate between them to ensure you always have a bookie. The premium charges are final and kind of defeat the point in knowing what price you are getting, as you don't really know. One things for sure if you are a winner, the 20% better prices are now 25% reduced when taking into account premium charges and commission - so in actual fact winning punters are getting 95% as opposed to 100% you would get with the bookie! Its all backwards as the bookie is actully offering a better price for winning backing punters!