Saturday, 16 March 2013

Betfair Evolution

June 2000:

PITY the poor, traditional bookmaker. His familiar world is rapidly falling apart. Generations of monopoly over enslaved punters have already met challenges from the Internet and tax-free offshore rivals. Now even the last bastion of bookmaking - the ability to set the odds - is being taken away. As from today, those who have longed to back the Derby favourite, King's Best, at 5-1 rather than 3-1, or to take the money of anyone foolish enough to think that England can win Euro 2000, can theoretically do so.
The opportunity comes courtesy of a revolutionary form of betting that banishes those irritating middlemen with their sheepskins, sleek limos and bulging satchels. The idea has been kept carefully under wraps for months but tonight, in Covent Garden, just in time for one of the headiest sports betting weekends of the year, it will be launched to a gathering of gamblers and celebrities. A company called Betfair, describing itself as a "sports betting exchange", essentially gives the punter a chance to decide his own odds.
Put simply, the mechanism is a website that provides a dynamic screen on which it will be possible to call up a variety of sports events, nominate a bet and await it being taken by some other anonymous gambler in cyberspace. Participation will be restricted to account holders, who will be required to deposit a sum of money that will either grow or shrink depending on their success rate. 
It is all the brainchild of Andrew Black, a sports-mad computer analyst, whose background includes being thrown out of university for failing exams and spending successive years as a professional gambler and a full-time bridge player. "I've worked in the city and I have always gambled on sport," Black explained. "It was an extension of both activities to come up with a trading system for sports betting."

Conventional bookmakers will view this as yet another threat to their once sacred territory and will bridle at their role in the launch today, when a mock funeral cortège for bookmakers is staged through the City's square mile. Leaflets will be distributed simultaneously outside Underground stations proclaiming "The bookie is dead" and bidding a sombre farewell to the turf accountant "who emptied punters' pockets, took shirts off their backs, never made a decent price and died with the birth of open-market betting".

Such audacity, from a marketing team that includes Mark Davies, the son of BBC sports commentator, Barry, will ensure irksome questions about the legality of a scheme that ignores betting conventions. It seems that betfair has already covered this problem, however, as Linklaters, the firm of solicitors, is a shareholder in the company. "They assure us that we don't need to pay betting tax because, effectively, we are brokers rather than bookmakers," Black said.

The new company will make its profits through commission on winning bets. It begins trading today on Epsom's big races and Euro 2000, but its parameters could spread in unusual directions. "As we don't need specialist odds-layers, we can offer any sporting event at all," Black said. "We will put up sumo wrestling if people want it, so long as we can authenticate the results."
No thanks
Betfair Sportsbook
Betfair Exchange
2013, and the wheel has turned almost full circle. As most of you will know, Betfair have introduced a traditional Sportsbook alongside it's Exchange site, and it would appear to offer nothing to anyone with half a brain. Prices are poor in comparison to, not only the Exchange, but also other books - three screenshots for the upcoming Manchester United v Reading game illustrate.

A post from frog2 sums up the current state of affairs:
I think its fair to say that the current fixed odds website is very very poor. It is characterised by terrible prices and terrible limits. It has joined the current fad of being a soft bookie - i.e. refusing bets to anyone who has a clue. In short it is a pathetic offering and if it was launched without the Betfair name it would not last five minutes.
Betfair is struggling to find its identity. In the early years it was all about 'winners welcome', 'sharp minds Betfair'. When they took over Flutter they stressed that the merged markets would mean more liquidity and thus higher limits for customers. They developed the technology to match more bets that than all the European exchanges put together.

Then what did they do? They started looking for soft targets. They branched out into games and poker. At the time it was all still person to person. I remember one of the founders telling me they were not being greedy and they were sticking to their p2p principles. Then came the casino. The p2p games were replaced by ones run by Betfair themselves. The cross-matcher came in - to this day I still don't know if it gets to beat the clock in-running to match bets.
This was still not enough. They have since walked further from the starting point. They introduced the Premium Charge. Uproar at 20%. But really this would only affect traders, cheats and extremely good position gamblers. Then it went up to 40% and 60%. Now 40% gets all good big players. Arbers - gone. Decent position gamblers who have a long term return of over 3% on stakes - gone or slowly moving. The consequences of the Premium Charge are huge.
Then there are the data charges and bet placement charges. Great in theory. But a 1000 bets an hour max? Try pricing up and adjusting books for 30 races or football matches a day (with all their secondary markets) with that. You cannot. So early markets are no more.
So what started as the perfect limit order book market has evolved into a monster. It has not been helped by the lack of regulation by Betfair itself. Instead of the Premium Charge why did they not look to level the playing field? Encourage people to leave offers up rather than take them with commission rebates. Get rid of obviously unfair markets like in-play horses until real time streams are available. Not allow connections to bet on here. The list is endless.
Betfair could have hired someone who has experience of running a real exchange to run the company. Prices and policies and new markets would have been completely different. Maybe LMAX would not have failed if this was the case. But we now have an out and out industry man at the helm hired out of another soft bookie. So what can we expect going forward?
I would have liked to have seen a lot more thought going into the sportsbook. There are some bookmakers that do actually take bets and offer sharp lines using a proper dealer market. If Betfair had gone down that route I could see the point of it. If they could have offered decent prices to a fixed amount to everyone and adjust the lines if they believe a sharp has just placed a bet they could have had a winning product. The UK is crying out for this. Surely a crack trading team is capable of building the software to do this.

A rubbish sportsbook is a bad fit for the exchange. They need a fair limit, decent price one. Lower margin yes but much much higher volume.

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