Wednesday 29 June 2011

Winners Welcome - Close The Door After You

I've cautioned many times in this blog, usually on the subject of giving up a job and going pro, that in the world of betting exchanges, the rules can change fast.

Doubtless, every Betfair user and reader of this blog, is aware of the latest news concerning the Premium Charge.

From 18th July 2011 Betfair will be making some changes to the Premium Charge. The current Premium Charge mechanism will remain in place but higher rates may now apply to a small number of customers (less than 0.1% of annual active customers).

Full details of the changes can now be found on the Betfair Charges page under the About Us section of the website. However, the changes can be summarised as follows:

• Customers will only be subject to Premium Charges at higher rates if they satisfy all of the following conditions:

o Lifetime net profits (amounts won less the amounts lost, on all exchange markets, less all commission paid and Premium Charges debited) exceed £250,000

o Lifetime commission generated less than 40% of lifetime gross profits

o Bet in more than 1,000 markets
Rumours have abounded for some time about this, and I guess there's no smoke without fire.

The third condition is just silly - 1,000 markets is nothing for anyone who is close to £250,000. My total is approaching 15,000 markets, in a little over 7 years on here.

The second condition is similarly not even close - my lifetime commission percentage is 6.985%, which is some way under the required 40% needed to avoid this new fee. This puts me in the 50% charge band. Anything under 5% is 60%, anything over 10% is 40%, and in between is 50%.

Many people seem to be taking comfort in the fact that the bar is currently set at £250,000, and while that may seem a lot to new customers, for anyone full-time or even successful as a part-timer, that figure isn't as big as it sounds. Many join Betfair for fun, and happily have fun losing slowly, but there are a lot of people for whom making decent money is an achievable dream. Clearly Betfair haven't introduced this latest twist to catch a handful of players, and while they say it is 0.1% of active customers, given how many customers they have, that's a lot of successful people. It's also likely that this is a bar that will come down at some point in the future, to £100,000 or even £50,000. Why not? If they find they can get away with it.

Since its introduction in September 2008, I have paid nearly £23k in Premium Charges. I'm not happy about it of course, but Betfair is a de facto monopoly, whatever they may argue, and while occasionally BETDAQ or WBX has a spark of life, Betfair is still, for now at least, by far the market leader. Yes, I could always walk away from it, but while 80% isn't as good as 95%, it's still better than the meagre percent available elsewhere. It also had a positive impact in that I expanded my horizons a little. Since the inception of the PC, my average net monthly profits are actually up 86%.

There was a comment on the forum to the effect that anyone paying 60% must be cheating, and while some of those might be horse-racing insiders, someone put it well when they replied that
people who are very efficient and specialise and lose on very few markets will be on 60% too
Perhaps some of us are too efficient for our own good. One of the problems as I see it is that by moving the goal posts after seven plus years on here, the accumulated numbers are now counting against me. Had these rules been in place from day one, the need to have lots of losers to accompany your winners would have been clear, but as a trader specialising in certain sports, it's not unusual to go several days without taking a loss. But Betfair don't allow you to start again. To increase that 6.985% to over 10% would be easy if you are just starting out, but it'll take some doing after seven years of efficiency and specialisation.

Betfair might say they welcome winners, but they are making it mighty hard to believe that. For everyone affected, they will need to decide what to do. What is certain is that many people will whine about it, including many whom it will never affect, but how many take action and walk away, either to another site, or to another job, remains to be seen. For people like myself, it comes down to how much my time is worth. 50% of something is still more than 100% of nothing, and I actually enjoy the mental challenge of trading. It's a challenging hobby rather than a stressful job, and it's strange how a four figure win that I would have been ecstatic about six years ago is now just a number on a spreadsheet. Losses are annoying, (the avoidable ones especially), but not the end of the world. In fact now, a loss is viewed as something of a bonus!

My hours trading aren't exclusive either - I often work my real job at the same time, or attend to other business, as many sports don't need constant attention, and it's often (not always) better to distract myself anyway.

The Racing Post has an article on this subject, and on the Betfair Forum, the recent thread I highlighted a while back from Dr J has been updated with his views:
It's also worth remembering that conditions could change very easily and very quickly. What if Betfair raise their commission levels, or change the threshold at which the PC applies?

I knew I shouldn't have tempted fate like that...

As I've mentioned above, I've never been asked to pay a penny in PC. However, the new rules rules means that if I'm lucky enough to hit the £250k mark (at current rates this would happen in one year's time), I'll be charged at 40%.

This isn't a whinge. I don't expect anyone to feel sorry for a gambler who's made a quarter mill. However, it does exemplify why Betfair are wrong to pursue this policy, and it demonstrates how they'll forfeit both business and liquidity.

As the moment, for every £1 I make in profit, I generate 27p in commission for Befair. From next year, Betfair will demand I generate 40p and dip into my account to make up the shortfall. As I result, I'll either switch to an alternative exchange (I don't know how practical that is in terms of liquidity) or quit laying altogether. Either way, Betfair will lose both my comission and my contribution to seeding and sustaining the racing markets.

What's worse for Betfair, because I know what's coming, I've made an immediate decision to slow down my betting and focus more on other things in life. The radically higher charges are too big a deterrent to me. I'll be having more non-punting days and will be happy to creep up the £250k threshold at a much slower rate. This is bad for Betfair's business too.

Some people refer to the PC as a tax, but I would be much more sympathetic to the charge if it was being directed towards building new schools and hospitals. The fact that it's going to the shareholders and board members of an off-shore company only reinforces my decision.

Presumably, other punters will, like me, see their PC charges rise from 0% to 40% simply because an arbitrary threshold has been reached. I'd be amazed if anyone in this situation continues to bet in the same way. It would be like laying at 9-2 where you previously laying at 7-2 (sorry if the maths is imperfect there, but the principle is what's important). Betfair has enhanced my life considerably over the last decade and I feel saddened that it's taking a decision that effectively closes my account.

1 comment:

Dan said...

Could you explain the maths behind the premium charge, and your premium charge reduction strategy, for dunces like me please? Thanks