(13) As Betfair’s co-founder Andrew Black told the newspaper Scotland on Sunday in 2005: “Geography is an absolute priority. The most notable example of this is the rescue package offered by Betfair, after British betting exchange Sporting Options had to cease operations. Fordham Journal of Corporate Financial Law, 12, 1183-1203.
Davies, M., Pitt, L., Shapiro, D., Watson, R. Traditionally, betting markets have been cleared by bookmakers, who accept (or not) the m88 เข้าไม่ได้ bets on a certain event. (2004) writes about the betting exchange “the odds on offer are generally much more competitive.” Griffiths (2005) confirms this statement, “they [the betting exchanges] provide excellent value for the gambler. (2002). For example, some betting exchanges have, in cooperation with mobile phone companies, recently started offering customers the possibility to bet by making use of their mobile phone. (2005). (8) Betting companies have argued that in many cases national legislation is in contradiction to policy of the European Union (EU) regarding free movement of services, as well as the goal of the EU to create one single European market.
Matchbook Y N Limited selection of
major world sports; focus
Griffiths, M. Koning is a professor in the Department of Economics Econometrics. (2006). Smart money is on black. They advised the government to start considering bettors that lay a bet at a betting exchange as a bookmaker and therefore to subject them to the same rules. To make matters worse, some betting exchanges (e.g., Sporting Options and Play121) have had to file for bankruptcy in recent years, while others (e.g., Back2Bet and The Soccer Exchange) have vanished, taking the funds of customers with them.
 University of Groningen
At about the same time as the business model of the betting exchange was introduced, another new, less radically different, business model was born. The economics of wagering markets. The company is focusing its efforts on offering a wide selection of North American sports, an area in which Betfair has never been particularly strong. (2003, October 18). To the dismay of the bookmakers’ lobby, at that time the British government decided to ignore the advice of the commission, because of practical problems implementing the proposed measures. This is why Mainelli and Dibb estimate it’s “extremely likely” traditional bookmakers will in the future open their own betting exchange. Any other betting company is restricted from offering betting services to the citizens of that country, and risks legal action if the company does not comply with national regulations. The Iowa Electronic Markets have been successful in predicting outcomes of American presidential elections and are more accurate than ‘regular’ polls (Stix, 2008). Internet gambling: Issues, concerns and recommendations. Strickland III, A. It’s therefore essential for the betting exchanges to gain the trust of the bettors. (2008). (2007). (9) The European Commission seems to have taken these complaints seriously and has recently been investigating national gambling legislation in no less than nine different EU member states. Betfair.com: Five technology forces revolutionize worldwide wagering. itself, it hasn’t stopped the possibility to bet with betting exchanges on sporting events taking place on American soil. Mainelli and Dibb (2004) have noted “existing competitors all have business models and value propositions similar to Betfair” and therefore conclude “it’s hard to see why they [these betting exchanges] should succeed in the future when their efforts to date have largely fallen short.”
IBetX 1.0% – 3.0% N Y Y N. For this reason Mansion decided to terminate its exchange business altogether in October 2007. The bookie puzzle: Auction versus dealer markets in online sports betting. (2006) the popularity of gambling through the internet is becoming more and more of an issue for concern regarding problematic gambling behavior. However, it’s a different story for a customer that manages to ‘beat’ the bookmaker by actually making a profit in the long term. The betting exchange, for obvious reasons, does not much care whether a customer actually wins or loses; the more money any customer bets, the better. (2002). (4)
Figure 3 shows odds offered by betting exchanges are indeed most of the time, but not always, higher than odds offered by bookmakers. Most bookmakers will soon limit their maximum stakes for this particular kind of customer and he will therefore typically only be able to bet small amounts. Economica, 73(292), 673-689.
Pitt, L., Watson, R., Shapiro, D. According to Laffey (2005) “Betfair have stated that for some events they have matched up to ten times more in-play than beforehand, showing the appeal of this product.”
Betting exchanges may well be the future of sports betting, and this may well be the reason why we are observing how certain states such as France are banning betting exchanges in moves that can be against EU Law.
For more information on this issue and the possibility of signing a petition that will be presented to the European authorities for pushing in favour of the liberalisation of the market, please have a look at www.right2bet.net.
In Figure 3 the measured payout is shown during the biggest of the four events that were part of this study, the World Championships Soccer of 2006 in Germany. Retrieved August 26, 2007, from http://www.sportingbetplc.com/90
(24) Source: http://www.casinoonline.co.uk/articles/ us-presidential-elections-race-gambling
Figure 1: Screenshot from http://www.betfair.com, 24-08-2007 15:00h.
It seems likely, due to reasons of liquidity, the future will only have room for a very limited number of betting exchanges. (2002). When markets beat the polls. 7.
Musumeci, J., Peterson, M. However, these offerings are generally not as well developed as the offering for European sports, with markets being characterized by below-average liquidity. In the final minutes before the event starts, a bettor would have been better off betting with any of the six betting exchanges.
MyBet 5.0% Y Y Y N
Ruud H. (2005),”Betfair has no interest in the outcome of any event it makes available.” Unlike the bookmaker, the betting exchange typically does not take any trading position and consequently makes money regardless of the outcome of the event. For that reason some agencies start operating their own future predicting betting market to be able to more accurately predict a certain future event. Griffiths also suggests the concept of electronic money will likely not be perceived to have the same value as real cash, which could cause the bettor to risk more money than he would have done in the offline world.
Smith, M. (2004), while a betting exchange allows bettors to bet against a certain outcome, “unscrupulous horse racing trainers and jockeys, for example, could lay their horse to lose, […] securing winnings for themselves.”
According to an article by Griffiths et al. The propensity to bet in the United States amounted to 1.0%, in the United Kingdom to 0.9% and in the rest of Europe to ‘only’ 0.4%.
(27) Source: http://www.businessworld.ie/livenews.htm?a=1613598
WorldBet- Y N Selection of major world
Exchange sports; selection of major
Betfair 2.0% – 5.0% Y Y Y N
Betbull (*) Y N Selection of major world
sports; wide selection of
major and minor soccer
BetonBet 1.5% – 3.0% N N Y N
(6) Exchange offers its customers the possibility of live-betting;
(17) Source: http://www.betfaircorporate.com/pdf/2006_10_16_casino.pdf
In this paper the SWOT-analysis of the betting exchange has been performed by doing a literature study, including both academic studies and recent news articles about gambling in general and the betting exchange in particular. Laffey (2005) writes “in facilitating betting as a neutral intermediary the website [of the betting exchange] does not take on the risk function of the bookmaker and generates revenue by taking a commission from the winner.” As long as bettors make use of an exchange, bettors will pay commission to that exchange, and the exchange is guaranteed to earn a steady flow of income.
In many European countries it is only possible to bet on sports through a state-owned subsidiary. He is currently self-employed and betting on sports professionally.
BetonBet Y Y Limited selection of
major world sports;
selection of major and
minor soccer leagues;
To overcome the effects of Metcalfe’s Law new betting exchanges often try to ‘seed’ their own markets; in other words, to start making attractive offers themselves (and in the process sacrificing the previously mentioned strength of less operational risk). European Management Journal, 23(5), 533-541.
Sauer, R. Pinnacle, as well as a number of Asian-based bookmakers with a similar business model, and can best be described as a ‘discount-bookmaker’ since the company has managed to offer extremely competitive odds on almost every sport. Betfair, as well as other exchanges, have addressed this issue by making a promise to customers all funds will be held in so called ring-fenced subsidiaries, to prevent the company funding itself by customers’ deposits (Hoare, 2002). A gambler’s broker. Another betting exchange, Matchbook, does appear to have been successful in creating a unique selling point. Markets for sporting events need to be created, and, when the event has taken place, settled according to the result, but that is where the responsibilities of the betting exchange end. Jones et al. In combination with a commission rate of the standard five percent, these exchanges are in effect offering customers very little (if not nothing) Betfair is not already offering with much better liquidity. Internet gambling: An overview of psychosocial impacts. Therefore they claim only they should be obliged to acquire a license and pay taxes on their winnings, not their customers.
Matched: EUR 206,072 Refresh
Copyright 2009 Gale, Cengage Learning. Retrieved January 11, 2003, from http://cjonline.com/stories/110103/bus_betting.shtml
[FIGURE 3 OMITTED]
The internet itself, the channel through which the betting exchange operates, has worldwide already become an accepted factor in the daily life of many people. Retrieved March 25, 2004, from http://www.publications.parliament.uk/
Many innovations are focused on trying to simulate the environment of the old-fashioned brick-and-mortar betting shop, which to many was (and still is) a social meeting point, but also offered live television coverage of many sporting events. Harpenden, UK: High Stakes.
Jones, P., Hillier, D., Turner, D., Comfort, D. New York: McGraw-Hill
Unlike a bookmaker, the task of the betting exchange does not include actively monitoring a certain market. Only in the last couple of years several big betting scandals have been discovered, reaching up to the very highest level of professional sports, for example, in horse-racing, soccer, and recently possible match-fixing in tennis. The Unlawfull Internet Gambling Enforcement Act has effectively created a protected market for Matchbook. UNLV Gaming Research Review Journal, 10(1), pp 27-39.
Institut Suisse de droit compare. customers. (16)
Laffey, D. Science News, 164(16), 251-253.
The EU has repeatedly stated it does allow member states to restrict the access of sports betting operators on a national level, but only to maintain public order (e.g., to prevent fraud), to protect consumers (e.g., to prevent gambling addiction), and to ensure maintenance of the social order. This can be explained by the fact that a bet placed with a bookmaker, in almost every country in the world, is very hard to enforce by the bettor. Recently betting companies, both betting exchanges and bookmakers, have filed complaints with the European Commission to overturn these national laws. However, the internet has also created many new possibilities for other, related innovations, like the invention of the betting exchange. (7)
(**) Reduced commission is part of a promotional launching campaign;
IBetX Y N Limited selection of
major world sports;
Also, there’s an increasing interest of polling and news agencies in the exchange-technology. Some betting exchanges have tried creating a unique selling point by trying to be different with regards to, for example, the percentage of commission charged on winnings. presidential elections of 2008 neither presidential candidate showed an interest in repealing the Act, and in November 2008 the Federal Reserve Board and Department of the Treasury announced the release of a final joint rule, forcing U.S. The Journal of Finance, 48(2), 761-777.
Political lobby by bookmakers (UK)
Selections: (3) Lay 99.1%
(31) Source: http://en.wikipedia.org/wiki/Bet_exchange
(5) Exchange is currently accepting customers from the United States;
BetandGame 4.25% N N Y N
(10) Press announcements from the EC about this topic can be found at: http://europa.eu/rapid/
(7) Source: http://networks.silicon.com/webwatch/ 0,39024667,39125945,00.htm
(19) Source: http://www.law.duke.edu/journals/dltr/articles/ 2003dltr0016.html
While, as already mentioned, Figure 3 only shows the results of one of the four studied sporting events, other events showed roughly identical findings. New Betfair CEO keen to expand business areas. American betting exchange Betbug had already decided to cease operations in February of that same year, while TradeBetX ceased operations in November 2008.
Betfair Y Y Wide selection of major
and minor world sports;
wide selection of major
and minor soccer leagues;
Betsson Y Y Selection of major world
sports, as well as minor
European sports; major
and minor soccer leagues;
Betdaq Y N Selection of major world
sports; wide selection of
major and minor soccer
However, as sports betting in general will grow worldwide, it is likely the number of incidents of match fixing will also increase. (2004, December). J. Information Economics and Policy, 14(3), 417-429.
Nevertheless, it’s important to emphasize while the Act has blocked a large part of gambling-related financial transactions in the U.S. Betting exchange chief loses 1,1m[pounds sterling]. In the current market it seems Betfair has grown to such a scale there’s hardly any serious competition the company needs to take into consideration. For example, in the United Kingdom, seen by many as one of the most liberal countries in the world with regards to betting, a bet is not legally enforceable (and therefore often referred to as a ‘gentleman’s agreement’). The functional form of network effects. (6) In analyzing the role of the betting exchange in reducing transaction costs, the focus should be on search and information costs.
In 2003 the CEO of Betfair, Stephen Hill, told British magazine New Media Age in an interview he doesn’t see Betfair as a gaming company, but mainly as a “internet technology company.” Hill announced in the interview he plans to take Betfair “into entirely new areas of business.” He emphasized the technology that is needed to run a betting exchange, could be used for several other internet concepts that are completely unrelated to gambling; for example, an online auction site.
Hoare, S. An example of an expansion into sports betting-related products is the offering of live-betting. Musumeci and Peterson calculated that a bettor betting on an event with two equally probable outcomes would need to win 52.4% of his bets to break even with a typical bookmaker, while a winning rate of “only” 51.2% would suffice to break even while betting with Pinnacle. Figure 5 of this paper shows a majority of betting exchanges appear to be focusing their offering on soccer, which also happens to already be one of the strongest and best developed sports on offer at Betfair. A. (29)
Increase of market completeness
(22) Source: http://www.antiguawto.com/index.html
United Kingdom Parliament. A remarkable finding is that it seems there is very little difference between the betting exchanges in terms of commission charged to customers and product offering. In fact, some sports derive their very existence from the popularity of its associated betting market (e.g., horse racing). The problem of externality. In the past prediction markets have proved to predict future events better than traditional opinion polls. The managing director of the company told The Guardian in 2005 “it became immediately clear that to develop [it would be necessary] to seed the markets to create liquidity and attain a critical mass of clients to support the business model.” Seeding could indeed be a solution to creating more liquidity at a betting exchange, but needless to say it is also a financially very risky solution. (3) Whether this claim is accurate has been the subject of our own study, which took place in 2006. Betting on the exchanges: Changing customer relationships in the sports betting market in the UK. (2)
(6) Dahlman has based his study on the work of Coase (1937), who first introduced the concept of transaction costs.
David Hood, a spokesman for leading British bookmaker William Hill, commented on this issue in 2003 in the International Herald, “if I stand […] outside a betting shop and offer to lay a bet which you take, I am breaking the law, because I am not a licensed bookmaker,” but “if we both boot up laptops in the street and strike the bet using a betting exchange, I am not breaking the law? What is the difference?” Betting exchanges have defended themselves by claiming not the bettor, but the exchanges themselves are in fact acting as a bookmaker, because they are the ones who collect the deposits and pay out the winnings. In economic literature Dahlman (1979) identifies three different types of transaction costs: search and information costs, bargaining and decision costs, and policing and enforcement costs. However, beside there being no guarantee the British government in the future will not again attempt to tackle these practical problems, it remains unknown how other countries in the world will decide and possibly impose restrictions regarding this subject.
Betmate (*) 2.0% – 3.0% Y Y N N
Live-betting Y N Limited selection of
major world sports;
Expansion to related sectors
Betting exchanges are also expanding into other gambling products, completely unrelated to sports betting. In 1998, online bookmaker Pinnacle Sports was founded, a company that operates from the Netherlands Antilles. Figure 4 shows the home-countries of 21 of the major betting exchanges.
Winitoo 4.0% N N Y N
The success of Betfair has left other betting exchanges fighting for tiny marketshares. (2005, January 7). Clearly, the passing of the Gambling Enforcement Act has had big consequences for the entire gambling industry, including the betting exchanges.
The business model of the betting exchange allows its users to bet (back), but also to offer (lay) money, against whatever odds they like, at whatever time they like, on whatever event they like. (2005) argue an important strength of the betting exchange consists of the fact the betting exchange considerably reduces transaction costs in comparison to the bookmaker. According to a study ordered by the European Commission and published in 2006, members states that restrict sports betting must have a “desire to bring about a genuine diminution of gambling opportunities.”
New entry from bookmakers
Betdaq 2.0% – 5.0% N Y N N
Man Utd v Tottenham
New Media Age. Betfair has therefore decided to take matters into its own hands. (2003). The payout offered by betting exchanges was revised for the commission on winnings betting exchanges charge their customers, which is necessary to be able to make a fair comparison.
Since the betting exchanges have not been around for long, unlike some of the online bookmakers who have a long history of offline bookmaking behind them, the possibilities for building a decent track record have been limited. According to Musumeci and Peterson (2004), who performed a study on betting on American football with two possible outcomes, most (American) bookmakers tend to offer their customers payout books of 0.955 in these markets. According to Mark Blandford, founder of online-bookmaker Sportingbet, the average bet size of their Australian and Asian customers in 2003 reached an impressive 226 per bet. sports, also Betfair, and other betting exchanges, are still accepting bets on, for example, NBA basketball, NFL football, and MLB baseball placed by their non-U.S. This would obviously pose an important threat to the most important strength of the betting exchange: offering better odds than the bookmaker.
Increase of gambling addiction
A British parliamentary commission investigated this issue in 2004 and overthrew the argument of the betting exchanges in their report. (24,25)
TradeBetX / Y N Selection of major world
Tradesports sports; focus on North-
(closed per American sports;
(11) Source: http://www.eubusiness.com/Competition/1182952802.06/
[FIGURE 4 OMITTED]
Most authors agree the most important strength of the betting exchange is they offer customers better odds than the online bookmaker. (2006). America’s bad bet: How the unlawful Internet Gambling Enforcement Act of 2006 will hurt the house. Counterparty risk seems to be non-negligible and bettors take that into account. The most important arguments made by Griffiths include the fact the internet makes gambling much more convenient than betting in the casino (the bettor does not even have to leave the comfort of his own home), the much higher event frequency of gambling opportunities on the internet, and the asocial and anonymous character of internet gambling. A few examples can be found at: http://www.betbull.com/UI/Default.aspx, https://secure.betonbet.com/portal/default.aspx?Redirect=1, and http://www.betfairpromo.com
A fundamental advantage of the business model of the betting exchange to the business model of the bookmaker is the fact the exchange (normally) is not a party in any of the betting transactions that take place on their website. The liberalization of the European betting market would offer a great growth opportunity for the entire betting industry, including the betting exchanges. The prices offered by Matchbook may not reflect all information that is available globally.
As can be seen in Figure 5 most betting exchanges are privately held and do not disclose financial information. (2005, January 9). Retrieved October 4, 2006, from http://220.127.116.11/NewOrleans/Papers/5701876.pdf
Live-betting 5.00% N N Y N
Figure 2: SWOT-analysis of the betting exchange
(29) Source: http://news.bbc.co.uk/sport2/low/football/europe/ 5215260.stm
(16) For example: http://livevideo.betfair.com/
Nevertheless, Matchbook seems to be an exception. (2005, Fall). Betting exchanges that are successful in finding niches around Betfair, for example, by charging significantly lower commission to make up for the loss of liquidity, or focusing on different sports altogether, seem to have a better long term possibilities for survival.
COPYRIGHT 2009 Fitness Information Technology Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
(12) Source: http://www.themanufacturer.com/britishindustry/ content_page.html?article_id=146
Man Utd 1.59 1.6 1.61
806 [euro] 11320 [euro] 6816 [euro]
Tottenham 734 7.6 7.8
91 [euro] 232 [euro] 599 [euro]
The Draw 4.4 4.5 4.6
680 [euro] 501 [euro] 1227 [euro]
(7) Exchange offers its customers a complete one-stop betting portal,
consisting of at least a casino and a poker platform;
Less operational risk
More restrictive betting legislation (USA)
New markets (Asia/Australia)
Dey, E. By offering customers a one-stop shop for all of their gambling needs, exchanges hope to profit from the growth in other gambling sectors; for example, the enormous growth of online poker. Potential customers will for that reason be less inclined to join that specific exchange. Moore’s Law, an observation that dictates that the speed of microprocessors, at a constant cost, doubles every 18 to 24 months, predicts this trend will continue in the future. However, any measures taken by member states must be necessary, proportionate, and non-discriminatory. Economists explore betting markets as prediction tools. Aiding betting. Centre for the Study of Financial Innovation, London.
(5) The results of the complete study is available upon request.
Less restrictive legislation (Europe)
(1) Source: http://www.ey.com/global/content.nsf/UK/EOY_-_Awards_Recipients
Selections: (3) 100.4% Back
Phillips, T. In the betting industry the success of a bookmaker has always been dependent on its ability to build a reliable track record. Journal of Law and Economics, 22(1), 141-162.
EHorseX 1.75% – 5.0% N N Y Y
A SWOT-analysis, which identifies the Strengths, Weaknesses, Opportunities, and Threats, is an often-used tool of situation analysis, and can be used to determine whether a firm’s business position (or in this case, a sector’s business position) is fundamentally healthy or unhealthy (Thompson III Strickland, Jr., 2001).
Currently, only three betting exchanges, Matchbook, EHorseX, and Intrade, still accept American customers, but will constantly need to keep thinking of (legitimate) ways to being able to accept deposits and process withdrawals from and to American customers. Youth Gambling International Newsletter.
Wood, G. Study of gambling services in the internal market of the European Union. Similar to the model of a stock exchange, the user can buy (‘back’) or sell (‘lay’) bets at the price (‘odds’) he or she wants. The odds were taken from the Match Winner-market, with three possible outcomes: home win, draw, and away win. (2004). European Management Journal, 23(3), 351-359.
Intrade Y N Selection of non-sports
political, financial and
Dahlman, C. writes “simply provides the platform.” The concept of the betting exchange can therefore significantly reduce search and information costs (and therefore also reduce total transaction costs), in comparison to the traditional bookmaker.
In October 2006 President Bush signed a law, called the Unlawful Internet Gambling Enforcement Act, which makes it illegal for American-based banks, credit card companies, and online payment systems to process payment to online gaming companies. While some betting exchanges, including Betfair, did not accept American customers even before the Act was introduced because of unclear legislation, others, like Mansion, had to turn down a large part of their clientele because of the Act. As Davies et al. Different forms of betting markets are discussed extensively by Sauer (1998) and Buchdahl (2003).
(2) Source: http://www.queensawards.org.uk
(28) Source: http://news.bbc.co.uk/sport1/hi/other_sports/horse_racing/ 3616748.stm
(2) Exchange is (part of) a publicly traded company, and/or is
disclosing full financial information, and therefore giving
customers insight into its financial “track-record”;
Like many online bookmakers, more and more betting exchanges are investing in broadening their product offering with other gambling products. Scientific American, 298(3), 38-45.
–Better odds –Effects of Metcalfe’s Law
–Less operational risk –Bettors’ aversion to risk
–Lower transaction costs
–Increase of market completeness
–Winning customers welcome
Recently, a new type of betting market has appeared, where punters bet directly with each other (peer-to-peer betting). Of course, if every bettor that has ever laid a bet at a betting exchange would be obliged to follow these same regulations, this would pose a very serious threat to the business model of the betting exchange.
After identifying a number of important strengths of the betting exchange in the first part of this section, especially the important strength of better odds, it raises an important question as to why online bookmakers continue to be profitable, despite the arrival of the betting exchange. A first move was made by Betfair, which managed to acquire a license to enter the strictly regulated Australian betting market in the beginning of 2006. All rights reserved.
Intrade $0.00 – 0.15 / N N Y Y
The suspicion of match fixing is of course particularly damaging to the public image of the betting exchange. (30,31) The company has obviously benefited greatly from its first mover advantage, and has since its founding never allowed any threat to its leading position. To underline the potential, according to the previously mentioned study ordered by the European Commission, in 2003 the gross gaming revenues, the winnings of the operator minus payments of prizes, in European member states reached a level of approximately 51.500 million (compared to 60.700 million in the USA), of which 17.2% was generated in activities related to sports betting.
Better odds/higher average pay-out to customers
WorldBet- 0.9% – 5.0% N Y Y N
Stix, G. It also shows, however, that the betting exchange is very dependent on customers providing liquidity to succeed, since due to the effects of Metcalfe’s Law a lack of liquidity will make it almost impossible for an exchange to attract new customers, and therefore to survive.
(21) Source: http://.www.online-gambling-insider.com/online-gambling/ ogi-Barney-Frank’sOnline-Gambling-Bill-Gathers-Momentum-07-24-07.html
(32) Source: http://quote.bloomberg.com/apps/news?pid=nifea sid=a8Y11XQeIcyY
Name Commission (2) (3) (4) (5)
(**) Commission is calculated including both trading fee and expiry
MatchMyWager 1.5% – 4.0% N N Y N
Swann, G. Because the Gambling Enforcement Act, that came as a big surprise to the betting industry, makes it almost impossible for bettors to deposit or withdraw winnings from their betting accounts, industry experts believe the Act could mean the end of most of the off-shore online American betting industry. In comparison, the average bet size of European and American customers over the same year amounts to ‘only’ 22 and $59 per bet respectively. Issues like competitiveness and survival of betting exchanges are addressed. (2004). According to Jones et al. European Commission.
There have been attempts by American congressmen to repeal the Act, as well as an effort by the country of Antigua and Barbuda to make the United States change its laws by filing an official complaint to the World Trade Organization (WTO). As a consequence of the competitive odds Pinnacle is offering, Musumeci and Peterson conclude “Pinnacle’s margins are smaller.” These smaller profit margins are responsible for the fact the discount-bookmaker is, like a typical betting exchange, very dependent on volume to survive and therefore needs to attract not only a large amount of customers, but also attract professional bettors, who will typically shop around to find the best odds available for a certain event. Product offering
Firstly, the sector-analysis is performed by making use of a SWOT. (1998). The exchange should, because of the effects of Metcalfe’s Law, have a very hard time achieving a scale large enough to become profitable, especially when the competition has already been more successful in the past. In live-betting it is possible for bettors to not only place their bets at the exchange before a game starts, but also during the game as the match is being played. Market efficiency in person-to-person betting. Applied to the case of the betting exchange, Metcalfe’s Law predicts that the more users a betting exchange has, the more offers will be made, and the bigger the chance will be that any individual player at that exchange will find a reasonable offer to his liking. (2006). The betting exchange does not need to hire a specialist to determine the odds on the probabilities of any of the parties winning, and adjust odds if necessary, but the betting exchange, as Davies et al. (2004). Strategic management (12th ed.). Also, betting exchange Intrade has focused exclusively on offering its customers prediction markets on current events.
The rise of the betting exchanges has not gone unnoticed by their main competitors, the bookmakers. Koning  and Bart van Velzen
Redbet 4.0% Y N Y N
Bart van Velzen obtained a master’s degree in economics from the University of Groningen in 2007. Recently though, both online bookmakers and sports governing bodies have claimed the rise of the betting exchange has made it easier for bettors to profit from insider trading. (2003, September 29). (11)
Secondly, the betting exchanges are also analyzed on an individual basis. In the earlier intervals, when the match is still a relatively long time away from kicking off, payout varies from betting exchange to betting exchange and in some cases is below maximum, and even below average payout offered by bookmakers. NMA Magazine.
Winitoo N N Very limited selection of
major world sports;
selection of major soccer
leagues and regional soccer;
Figlewski, S., Webb, G. However, bookmakers have not yet challenged the betting exchanges ‘heads on.’ The future might be different though. 2004 Financial Management Association International Annual Meeting. (2003). The economist intelligence unit and Merrill Lynch, Sportingbet Annual Report. Draft gambling bill joint committee reports. (2005). The evolution of prices in the 21st Century American football betting market. A “complete market” is defined by Figlewski and Webb (1993) as “one in which, for each possible state of the world, an investor can create a strategy that has a positive pay-off in that state and zero in every other state.” Although Figlewski and Webb admit markets are “bound to remain far from complete”, they have found, while studying traditional financial markets, a higher level of market completeness tends to improve market efficiency. The tool of a SWOT-analysis is not new, of course, but this particular application is. (19) Not unexpectedly share-prices of publicly traded betting companies lost up to 70% of their value following the news of the Act. (21,22) Despite national and international concerns (e.g., Shaker, 2007), as well as a ruling by the WTO indicating the Act is in fact in violation of existing free trade agreements, it doesn’t seem likely the United States government will be taking action to overturn the Act soon. According to gambling-review website Bookmakersreview.com in August 2007 there were 31 different online betting exchanges in business. Options, short sales and market completeness. This prediction is confirmed by the relatively large number of betting exchanges that have closed in 2007 and 2008 (see Figure 5). Therefore, according to Davies et al. According to Davies et al. The Guardian.
Betbull (*) 2.5% – 5.0% Y Y N N
Betting companies complain this desire from national governments is clearly lacking, as state betting operators often even encourage gambling by making use of aggressive advertising campaigns. Laffey (2005) writes “this neutral position enables the P2P websites [the betting exchanges] to offer stakes only limited by market liquidity, and to promise not to ban successful punters, something bookmakers would reserve the right to do.” Laffey adds “[the betting exchanges] were drawing in the ‘high rollers’, those prepared to stake enormous sums, who bookmakers would often refuse to take bets from.” Of course, as Laffey emphasizes, also in the betting exchange bettors might not always be able to bet the amount of money they want to stake; not because the betting exchange will limit them, but because it is possible there is simply just not enough liquidity available at the betting exchange to match larger bets at the requested odds.
Probably the most important potential weakness of a betting exchange is not having enough users (and liquidity) to be able to attract new users. www.betfair.com: World wide wagering. (14)
Mansion N Y Limited selection of
(closed per major world sports;
October 2007) selection of major and
minor soccer leagues;
Since the beginning of sports betting, there have been many examples of bettors trying to influence sporting events to secure a favorable outcome. Also, in some cases of bankruptcies, other betting exchanges have stepped up to help victimized customers. […] Nobody will be able to beat Betfair unless the management makes a massive mistake.” (32)
Thompson, Jr., A. However, this is not the only reason. Experts agree, however, that Betfair is by far the biggest betting exchange in the world, having obtained a market share that is estimated to be around 90%. As a result the likelihood that the user will join the exchange and start making offers for himself will also increase.
Mansion 0.0% – 1.0% N N Y N
(26) Source: http://www.pinnaclesports.com
(18) Source: http://www.usatoday.com/news/washington/ 2006-10-02-internet-gambling-usat_x.htm
In his article Griffiths made a list of recommendations for Internet gambling service providers to act ‘socially responsible,’ which have been for a large part picked up by both online bookmakers and betting exchanges. The analysis shows the betting exchange has a number of unique strengths over the “traditional” bookmaker, like, for example, the ability to offer better odds to customers. The results of the SWOT-analysis of the betting exchange are shown on page 44.
BetandGame N Y Limited selection of
(closed per major world sports;
According to Dahlman, this factor only exists as a consequence of “imperfect information about the existence and location of trading opportunities or about the quality or other characteristics of items available for trade.” In sports betting traditional bookmakers also incur search and information costs. Betting exchange Sporting Options even went bankrupt, partly because of the losses incurred in seeding its own markets. According to Davies et al. There is no reason why the same mechanism should not also apply to betting markets, which is also consistent with findings concerning a study about betting exchange market efficiency by Smith, Paton, and Vaughan Williams (2006).
(30) Source: http://www.smh.com.au/news/business/ betfair-out-to-conquer-the-world/2006/02/05/1139074110158.html
Redbet N Y Very limited selection
major world sports;
selection of major and
minor soccer leagues;
Betting exchanges themselves regularly claim they offer customers up to 20 percent better odds than the online bookmaker. Management Research News, 27(1/2), 95-103.
Name (6) (7)
Ruud H. It writes in its annual review of 2006 “a series of ‘MoUs’ (Memorandum of Understanding) have been signed with sports bodies over the year.” These Memorandums, which Betfair has signed with among others, the Jockey Club (horseracing), the ICC (cricket), the FIFA (soccer), and the ATP (tennis), include Betfair reporting suspicious betting patterns to the relevant sports governing bodies, thereby making an investigation into match fixing possible (which has already led to several suspensions and lawsuits). (1979). As Pitt et al. Betfair was launched in June 2000 by Andrew Black, a professional gambler, and Ed Wray, former vice-president of JP Morgan. Like betting exchanges, Pinnacle uses the argument of better odds as its main selling point to attract new customers, advertising on their website with slogans like “we take on the high margin operators” and “Pinnacle is where the pros play.” (26)
This paper investigates the situation betting exchanges are currently facing, both as a sector, as well as on an individual level.
For now, Australia and especially Asia are pretty much unexplored territory for betting exchanges. (5) Nevertheless, the study should, next to the study of Ozgit, be regarded as a pilot study. As a consequence, though, liquidity in this markt needs to be provided by American bettors. For example, Owen Byrne of the Jockey Club commented on this issue “there is a threat to the integrity of racing” (Stanley, 2003). Bettors’ aversion to risk
(14) For example: http://www.betbull.com/HelpCentre/help_centre.htm# mobile_site.htm
–Less restrictive betting –More restrictive betting
legislation (Europe) legislation (United States)
–New markets (Asia / Australia) –Political lobby by
–Technological progress –“Discount” bookmakers
–Expansion to related sectors –New entry from bookmakers
–Migration of technology to –Match fixing
unrelated sectors –Increase of gambling addiction
It is clear Betfair’s competitors will have to come up with something special to be able to survive in the long term. Entrepreneurship and innovation in the UK: Betting industry: The rise of person-to-person betting. (2001). Online betting exchanges: A brief overview. In the start-up stages of a new betting exchange, the number of customers may be limited, and as a result the number of offers will also be relatively small. The figure shows the payout offered by six different major betting exchanges (Betdaq, Betfair, BetonBet, Betsson, IbetX, Parbet, and TradeBetX), as well as the average payout offered on average by a sample of up to 72 different bookmakers (“Bookm. This has led to intensive competition between not only the exchanges themselves, but also between the exchanges and the traditional bookmakers, whose market shares are increasingly under pressure.
In this paper we provide a SWOT-analysis of betting exchanges. Ozgit (2005) calls the fact “bookies attract a lot of betting although better returns are available elsewhere” the ‘bookie puzzle.’ A solution to the bookie puzzle could very well be bettors’ aversion to risk. These markets are known as betting exchanges. Metcalfe’s Law predicts that network value is proportional to the size of the network, and that individual user’s utility is a linear function to network size (Swann, 2002). Scotland on Sunday, p. (28)
Supporterbet N N Selection of exclusively
Whereas online betting companies have previously targeted Europe and the United States as their primary sales region, Asia and, to a lesser extent, Australia, seem to have been overlooked up until recently. Furthermore, it is worrisome several very important opportunities and threats that were identified the betting exchange itself has little control over, since these are of a legislative nature, like, for example, the gambling laws in both the United States and the EU member states.
(*) Company operates as a “skin” of an established betting exchange;
After reviewing the business climate for the betting exchange sector as a sector, in the this section the major betting exchanges worldwide will be identified individually and compared on a number of characteristics. Mainelli and Dibb (2004) predict “a future with exchange(s) at the centre as mechanism for price formation.” As the concept of the betting exchange will become more and more familiar to the big public and will keep on growing in size at the expense of the bookmakers, it is not hard to imagine this will attract outside interest. As Martin Oelbermann, a director of German research-firm MECN, told press agency Bloomberg in 2005, “You can’t beat the first-mover advantage. Therefore, betting exchanges are searching for ways to encourage the customer to interact with other customers during the betting process, for example, through internet forums. Department of Economics, UCLA.
(9) Source: http://www.eu-ba.org/legislation.html
(8) For example: http://fairplayers.com/en/magazine/ hot_news_fairplayers_11.html.
A customer that bets with a bookmaker is not only restricted to the prices offered by the bookmaker, but also to the maximum stake that is accepted by the bookmaker. In economical terms, it is therefore safe to say betting exchanges have increased market completeness. Australian bettors showed a tendency of betting up to 5.5% of consumer spending, while Asian bettors were inclined to bet 1.8%. M. A, Paton, D., Vaughan Williams, L. Fixed odds sports betting. As Mainelli and Dibb (2004) comment “liquidity, once established, is hard to shift.” For obvious reasons, a start-up bookmaker does not face any of these liquidity problems, because the bookmaker is by definition the only party making offers on its own betting platform, regardless of the number of customers.
(4) Exchange is currently accepting customers from all nine
European member states, whose gambling policy is currently
under investigation by the European Commission;
Betsson 4.0% Y Y Y N
Lower transaction cost
Davies et al. There is no […] bookmakers’ mark-up on odds.” A study by Ozgit (2005) that compares the returns of Betfair to the return of two bookmakers also showed considerably higher returns, although the sample chosen by Ozgit in his study was admittedly limited.
Matchbook 2.0% N Y Y Y
(3) The claim of “up to 20% better odds” is made regularly by different betting exchanges. Many of these bookmakers claim that bettors that ‘lay’ a bet at a betting exchange are in effect taking the role of the bookmaker, and therefore should be subject to the same regulations as the bookmaker. Besides Matchbook, that specializes almost exclusively in offering markets in U.S. HIGH”). (23) During the U.S. Most authors doubt whether these exchanges will be able to take market-share from Betfair in the near future: Mainelli and Dibb (2004) point out that even if the competition of Betfair would succeed in offering better service or value, “the propositions needs to be a great deal better to compensate users for the loss of liquidity.”
(20) Source: http://www.bloomberg.com/apps/news?pid=20601087 sid=a6BTLrSohXn0
(25) Source: http://www.federalreserve.gov/newsevents/press/bcreg/ 20081112b.htm
Betcruise N Y Limited selection of
major world sports;
Klarreich, E. (2003, July 17). According to Laffey (2005) there were problems of definition and also problems enforcing British legislation on the foreign users of the exchange. (2003). Especially Asia offers huge growth potential, if simply because of the enormous size (and growth) of the population. (2005). Mainelli and Dibb write “despite frequent attacks on the exchange model, traditional bookmakers would be commercially naive, if they were not also looking into opening their own exchange.” Furthermore, there has been talk of British bookmaker-giant Ladbrokes being interested in the take-over of Irish betting exchange Betdaq.27 Also, according to Laffey (2005) there have been rumors regarding a possible launch of one or several new betting exchange(s), offering down to zero percent commission, by the ‘Big Three,’ the three biggest British bookmakers William Hill, Coral, and Ladbrokes. (15) Also, betting exchange Betfair has recently started an experiment offering customers free live-stream coverage of football and tennis matches through its website. Online exchange rocks sports betting. Communication of the Association for Information Systems, 15, 149-161.
(23) Source: http://www.gambling911.com/WTO-Antigua-Ruling-033007.html
Ozgit, A. To be able to make a definitive statement as to when to what extent the betting exchange offers better odds than the bookmaker, more research is needed.
Change: Express view | Full view
Following the footsteps of Betfair dozens of new entrepreneurial online betting exchanges have seen the light, especially of a Scandinavian (e.g., http://www.betsson. Odds were measured in terms of payout, a number that reflects the percentage of the original amount of money staked a bettor would be returned if he would place relatively equal bets on every possible outcome. However, the company decided to close down its betting exchange in October 2007. In an earlier publication Griffiths (2003) already pointed out why gambling through the internet could lead to a rise in gambling addiction. Laffey (2005) writes “its [the betting exchange] main innovation was that it allowed users to set their own fixed odds against an outcome […] something which had previously been the preserve of bookmakers.” According to Davies et al. Lawyer, 16(46), 18.
Betmate (*) Y Y Selection of major world
sports; wide selection of
major and minor soccer
The previous two threats have shown traditional bookmakers have so far challenged the betting exchanges to both a legislative battle, and by developing a new business model focused on increasing payout. Most of these exchanges are based in Europe, either in the United Kingdom or Ireland, or in tax-friendly locations like Gibraltar or Malta. Given the very dominant position of Betfair, it seems unlikely the much smaller betting exchanges copying Betfair’s business model will succeed, since it is impossible for them to match the liquidity Betfair’s customers are used to. (20)
(4) In 2007 betting exchange Parbet was renamed to MatchMyWager, before closing down in April 2008.
(1) Percentage of commission charged by exchange on net winnings;
Promotional offers not included;
Effects of Metcalfe’s Law
Griffiths, M., Parke, A., Wood, R., Parke, J. Betting on the future: Online gambling goes mainstream financial. AVG”), and the maximum payout offered by any of the bookmakers (“Bookm. By expanding the offering to customers, the betting exchange hopes to not only increase the total number of customers, but also to increase the spendings per customer.
Although the European Commission is quick to emphasize in press releases this investigation as such has no implications for the liberalization of the sports betting market, it does seem to be a small step in that direction. The International Herald Tribune Online.
Migration of technology to unrelated sectors
(15) For example: http://forum.betfair.com/
Man Utd 1.56 1.57 1.58
765 [euro] 17998 [euro] 4524 [euro]
Tottenham 6.8 7 7.2
419 [euro] 309 [euro] 108 [euro]
The Draw 4.1 4.2 4.3
291 [euro] 1012 [euro] 722 [euro]
TradeBetX / 4.0% N N Y Y
Supporterbet 3.0% – 5.0% N Y Y N
Betcruise 0% (**) N N N N
EHorseX N N Limited selection of
American sports; focus
on American horse-racing;
MatchMyWager Y Y Limited selection of
(closed per major world sports;
April 2008) selection of major and
minor soccer leagues;
Figure 5: Individual analysis of 20 major betting exchanges
(“Y” = “Yes”, “N” = “No”)
(3) Exchange claims to hold and manage customers’ funds in a
segregated account, to ensure customers’ funds remains separated
from company funds (if unclear, listed as “No”);
Winning customers welcome
In Figure 5 these betting exchanges have been compared on a number of important characteristics, with regards to commission charged on winnings, reliability, legal issues, and product offering.
Sports and betting have always been strongly connected. A notable example was the effort by Mansion, which cut commission on winnings to as little as 1%. J. Mainelli and Dibb rate such a possible venture as ‘a formidable challenger’ to in particular Betfair, if only because of its “established customer base, resources and marketing skills.”
Although betting exchanges are still a relatively uncommon phenomenon in the United States, a few particular betting exchanges had already built a solid American customer base. For example, the Dutch newspaper De Volkskrant started an exchange during the Dutch elections of 2006, by using technology of American exchange solutions supplier Newsfutures.com, to help predict which party would win the elections. In short, the betting exchange has opened up a whole new range of betting strategies for the bettor, which were not possible while betting with a bookmaker. Pinnacle manages to offer it customers payout books of 0.976. Therefore, it is difficult to make an accurate estimate as to the worldwide size of the betting exchange market. It’s a land grab right now.”
OECD. CyberPsychology Behavior, 6(6), 557-568.
Furthermore, the analysis showed a number of interesting future growth opportunities; for example, the possibility to expand the product offering with other gambling related products, but also identified a number of factors that seriously threaten the position of the betting exchange, like entry to the market by much larger online bookmakers. financial firms to establish and implement policies and procedures to prevent payments to gambling businesses. (2005) puts it,”even with a valid betting slip, the bookmaker is not obliged to honour a winning bet.” Mainelli and Dibb (2004) conclude that in the absence of legal enforceability, the concept of trust is essential in the betting industry.
MyBet N N Selection of major world
Stanley, B. However, as the match approaches, the payout offered by betting exchanges increases, while the payout offered by bookmakers remains more or less constant. (17) For that reason a number of betting exchanges have already started offering their customers the possibility to play poker, blackjack, and casino games through their own website. In the United Kingdom bookmakers need to apply for a (costly) license to operate legally, and also pay 15 percent tax on their winnings. (2005) “with a click of the mouse they [the bettor] can essentially do what Ladbrokes or William Hill [the bookmaker] does.” Also, the bettor has the opportunity to adjust his own betting position at a later time; for example, buying or selling back his own bet at different odds, thereby possibly even securing a profit before the event he was betting on has even started. (1993). (18) While betting through the internet, as in many countries, has always been a ‘grey area’ in American law, and rules on gambling vary greatly from state to state, the American betting industry has shown enormous growth in the last couple of years. (2005). Although a betting exchange can in theory offer a payout of 100 percent to its customers, commissions on winnings (especially if these commissions amount to as much as five percent) will make it likely the betting exchange in practice will not be able to offer better odds than the discount-bookmaker. It is likely this will remain to be the case for as long as American citizens are not allowed to bet using these betting exchanges.
Buchdahl, J. Journal of Economic Literature, 26, 2021-2064.
However, Metcalfe’s Law can also be applied the other way. In this study odds offered by a large sample of bookmakers were compared to odds offered by betting exchanges in different intervals during every fixture of four major sporting events in 2006 (World championships soccer, ice hockey and floorball, and the European u21 Championships soccer). com), British (e.g., http://www.wbx.com), and American (e.g., http://www.matchbook.com) origin. His research interests include competitive balance in sports, market efficiency, and applied econometrics applied to sports phenomena.
A betting exchange and a discount bookmaker have a lot in common, and are very much targeting the same kind of bettor, although both are operating in entirely different ways. The company has grown astronomically to become the largest online betting company in the United Kingdom, and has been widely recognized as one of the more successful entrepreneurial innovations of recent times, being awarded the British Ernst Young Emerging Entrepreneur of the Year Award in 2002.1 Also, in 2003 Betfair won the British Queen’s Award for Enterprise, in the category Innovation. (12) These results are in line with findings of the OECD, The Economist Intelligence Unit, and Merrill Lynch, who have performed research into the propensity to gamble as a percentage of consumer spending. If a bettor would question the reliability of a betting exchange, he might very well prefer to keep on betting with the bookmaker he has been betting for years, if that bookkeeper is perceived to have a lower counter-party risk. (10) While most of these investigations are still under way, some of the member states have already been threatened in 2007 by the European Commission they will have to face legal action before the European Court of Justice if they do not change their gambling laws in the very near future. Also, we compare the most important players in the market. We will argue that liquidity is a prime determinant of long-term success.
(13) Source: http://www.betfaircorporate.com/pdf/australia_licence.pdf
Mainelli, M., Dibb, S. These practices have always been seen by sports governing bodies as a serious threat to the integrity of sports, but have also been very difficult to prove. P. D. However, although the online betting industry is showing its willingness to fight the problem, gambling addiction not only poses an important threat to the image of the betting industry, but could also in the future remain the most important reason for national governments worldwide to restrict their citizens the possibility to gamble online.
One of the first, and by far most successful, betting exchange is named Betfair (http://www.betfair.com). Rather than trying to copy the Betfair business model, it also seems likely individual betting exchanges that will survive in the long term are the ones who will actually succeed in being different.
These kind of stories are obviously particularly bad for the image of the betting exchange and could induce risk averse behavior from bettors. “traditional bookmakers need to be well informed (studying horse racing and sporting events carefully) in order to make odds, and need to monitor market changes constantly in order to avoid being taken advantage of, or of being over-exposed.”
Griffiths, M. Only if the offer is matched by another user, the bet has ‘action.’ An example of a typical market is shown in Figure 1.
Shaker, P. Asian and Australian bettors also seem to be betting more money per person. These findings differ significantly from the rest of the world. (2005) Metcalfe’s Law, a law related to the concept of network externalities, is an important factor to explain the success or failure of a certain betting exchange. (2005) write, “experts today generally agree that Moore’s Law will continue to govern the industry for another fifteen years, at least.” As processing power continues to grow, new innovations will be made possible