Monday, 10 August 2009

Betfair Q & A

Betfair hosted a Q and A earlier today, and there were some interesting exchanges concerning the Premium Charge. The 60 weeks in profit qualifier is going away, only to be replaced by a lifetime period instead was perhaps the most interesting news. I included a couple of rather amusing questions/replies at the end. The Elliot Short question was a classic!

Have you any plans to make changes to the Premium charge?

Yes. It’s been nearly a year since we announced the charge, and we’ve recently completed a review to confirm that the outcomes matched our predictions, and to see if there are changes that we believe would be an improvement. Overall we’re happy with the way the charge has worked. It’s affected slightly fewer customers than we originally projected, considerably fewer than 2,000 of our 650,000 active accounts, but principally it’s affected the customers we expected to incur it.

Based on feedback we are planning to make some changes:

1. The current charge considers only customers who’ve demonstrated consistent profitability over the long-term, currently defined as 60 weeks. In conversations our customers have told us that they’re concerned this isn’t long enough, and that they’re worried about the possibility of incurring the charge during an extended successful streak. We’ve therefore decided to reduce the number of customers affected by the charge, and the amount we collect, by increasing the time period over which a customer would have to exhibit highly consistent profitability from the current 60 weeks to the entire lifetime of each customer’s account.

2. We chose to assign the commission we collect at the settlement of each market equally between those who win and those who lose, to focus the charge more on those who are incredibly consistent winners and to reduce the charge for big risk-taking winners. We chose to use the actual rate that we collect commission at the settlement of each market, rather than a fixed approximation, because we concluded it would be preferable to be accurate. Feedback from customers has been consistent that they consider transparency and certainty to be more important, so we’ll therefore simplify the charge by valuing the contribution of all markets in which customers lose at 3%, regardless of the actual average commission rate.

3. We included transaction and data request charges in the calculation of what customers have paid, reducing the charge collected. Customers have told us that they believe this is incorrect, that those charges exist to discourage excessive use of the site, and that there is the perception that those customers who run robotic strategies that use our facilities intensively are being treated unreasonably favourably. We’ve agreed and we’ll be removing transaction and data request charges from the calculation. The number of customers affected by this is negligible.

We expect those changes to be implemented in October this year, and we’ll communicate the precise details to affected customers nearer the time.
Do you accept that the Premium charge has caused a lot of very bad feeling from a group of some of your oldest customers?
Yes, we’re very aware that any increase in pricing is going to be unpopular. You’re correct to observe that the change we made typically affects customers who have been with us for some time - people don’t just come across Betfair for the first time and instantly adopt highly profitable strategies that minimise commission; they refine and optimise their strategies over time. It’s a change we felt was necessary to address a fundamental weakness of the simple commission on net winnings per market model, and there simply is no easy way to impose that kind of change on a group of customers who’ve become very accustomed to getting a lot more from Betfair than Betfair gets from them. Getting the message across about why the change was necessary is difficult, particularly as we’re not going to discuss the detail of our customers’ activities in the media. It’s our belief that those are issues between us and our customers, and we’re happy to have those conversations at any time. Betfair’s senior management team are more accessible than the management of any other betting operator: we’ve met with customers at our offices who wanted to discuss this, we done calls with customers for whom our offices aren’t conveniently located, and we speak to customers regularly at sporting events throughout the year. We’re hopeful that over time customers will have those conversations with us. While we don’t expect people to be happy about a price increase, we’re confident that in time it will be apparent that the biggest beneficiaries of the increased investment we’re making as a result are our winning customers.
Shouldn't the premium rate charge be restricted to accounts that win above a certain level of money?
No, we don’t believe that it should be. A threshold for the charge would be seized upon by those who have long lobbied for a category of exchange customers to be taxed and licensed, however inaccurately, as a viable definition for ‘business’ activity.
I am a premium charge payer on a regular basis when I have a winning week I am premium charged when I have a losing week like two of the last three it's just a losing week. Are there any plans for a rebate system for when I lose which only seems fair if I pay extra when I win?
There are no plans to introduce a rebate system for losing weeks. By definition accounts that incur the charge have demonstrated very consistent profitability over the long-term, so apart from making fraud trivial, any rebate would just result in a greater charge as soon as normal profitability is resumed.
Why can't you just take 5% commission from all winning bets and forget the premium rate charge?
Assuming people continued to bet in exactly the same way as now, that would have the effect of increasing Betfair’s revenues by about 50%, affecting several hundred thousand customers. I don’t think it would be particularly well received. The only customers who would benefit from such a change would be the customers who currently pay the premium charge, and they are already the group of customers who pay the least in comparison to what they win.
I have been following the methods outlined by Elliot Short in the News Of The World article some weeks back, and am still struggling to make my first million.

Could you please advise on where I may be going wrong.

Thanks in advance.

The News of the World printed a retraction of the relevant article, following a posting we made highlighting some significant inaccuracies in the story. That suggests that following the ‘system’ outlined might not be the route to riches….
Since I joined Betfair, my account is showing a deficit of more than £80,000, which includes £33,000 I’ve paid in commission. Only now am I beginning to reduce that deficit. 

Can you assure me that as I continue to reduce my losses, I won’t be hit with the Premium Charge until such times as my account is showing a profit?

If and when I am in profit, I will be only too pleased to pay the Premium Charge.

I’m pleased to hear that you’ve refined your betting strategy and found a way to win on Betfair. As mentioned in the answer to an earlier question, we’ll be making some changes to the way the charge is calculated in October. The change that’s particularly relevant for you is that we’ll change the definition of long-term from the current 60 weeks to the entire lifetime of your account. Not only will you need to be in lifetime profit to even be considered for the charge at all, but you’ll have to get to a point where the commission you’ve generated is less than 20% of your gross profit. That’s much harder than it sounds, and only a very small percentage of winning accounts win at that rate.

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