Eddie, I worked out how to arb optimally to avoid PC (I think).

I'm on 3% commission, which means I pay 21.5% of GP to Betfair regardless of the ratio of commission paid to implied commission (that's not true for anyone on a higher or lower comm rate). Provided of course, I don't have a loss that takes me over 20% charges generated.

Now let's say I have an arb where I can back a selection at 2.00 with a bookie for £1,000, and lay on Betfair at 1.95.

My question is, what would the optimal stake be on Betfair? Obviously, the answer is not to stake in such a way that your profit is split so you make the same amount whatever happens, as you have a very strong preference to lose on Betfair. This means you'll be happy to give up some winnings if you lose on Betfair, and conversely, you'll need to win a lot more if you win on Betfair to cover PC.

I think I've done the math correctly, but the outcome is a bit counterintuitive.

It basically says that if I do a series of arbs (for the sake of simplicity they will either all win or all lose in this example) I will prefer a scenario where I lose £10,000 on Betfair and win £9,500 with the bookies to one where I win £10,000 on Betfair and lose £9,500 with the bookies and so I should skew my stakes accordingly.

Over a large series of arbs you may not need to worry about this too much, but if some arbs are much bigger in stake than others, it can make sense to find a way to stake optimally.

Investor

I'm wondering why there appear to be no "whales" on BF i.e. those punters with massive wealth who are prepared to punt huge amounts on games of chance in casinos or on sports where it is very hard to find an edge, and football has to rate in that category unless you have widespread contacts feeding you team news. VC clearly is making enough out of these folk to more or less run down his horse racing interests other than to the really big players. Laddies made I think £60m off these types the year before last.

I believe that they are put off for the reasons I and Feck have stated.

Eddie

I'm not sure whether the big bets you see, if you see them, in those markets are left standing or whether they are traded. If they are traded I wouldn't call the players "whales". Can you enlighten me?

As viva said, there surely are some huge bets taken. I don't know by who or what their paln is with those bets, but you are the one who said that there appear to be no whales on Betfair so I'd say you are the one who must enlighten us.

Ok if you are talking about horse racing as I know close to nothing about betting on horses on here, but I'm pretty sure you have plenty of "whales" on here betting on sports wheater it's football, tennis or any other with the liquidity required.

Sandown, obviously if someone wants to place a truly ridiculously large bet, they will be constricted by the liquidity available on Betfair.

As you may be aware Betfair did trial a 'high roller segment':

High Roller segment
During the first quarter of the year, Betfair ran a trial service with a small number of ‘‘High Roller’’
customers. The size and scale of the betting patterns of these customers is too large to be fully hedged
through the Betting Exchange and so Betfair has necessarily accepted proprietary risk on these bets.
The trial with High Roller customers proved to be profitable, but the volatility of returns from such
customers is such that Betfair has now decided not to proceed with this product offering for the
foreseeable future.
Revenue from the High Roller segment during the first quarter was approximately £25 million and
EBITDA was approximately £7 million. The results will be reported as a separate segment in FY11 and
have been excluded from Core Betfair revenue for the quarter stated above.
.
http://corporate.betfair.com/
investor-relations/~/media/Files/B/
Betfair/pdf/Betfair-Prospectus.PDF

Pay special attention to: The size and scale of the betting patterns of these customers is too large to be fully hedged. Which means they want a bet that is so large that there isn't enough cash in the exchange to accomodate them. This is part of the way Betfair is designed and this would still be the case under a tax on turnover system.

Betair's margins are much smaller than traditional exchanges, however their risk is zero. When a person/company is getting money risk free, seeking risk is less attractive.

So it's not the case that these whales are worried about commission and stuff like that (you get people betting £100k+ on the spin of a roulette wheel), they just want to be able to get their bets on. So if anything, Betfair needs more liquidity providers to accomodate these players (where I classify liquidity providers as people offering bets [at reasonable odds] for fun bettors to match).

interesting stuff The Investor.

it would be interesting to know what people class as high rollers/big bets. someone looking to get 100K on the football tonight could have done it pretty quickly and not sacrificed more than a tick or two.

http://2.bp.blogspot.com/-G77qhAHEsvs/TW2SuLu6SmI/AAAAAAAAA0o/sn4kQehT6xw/s1600/prf.png

The liquidity on the Spanish games recently has been amazing. I make more on these games than anything else.

Contrarian
Date Joined: 19 May 03
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When: 03 Mar 11 18:56
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The liquidity on the Spanish games recently has been amazing. I make more on these games than anything else.

Me too. Only with RM or Barcelona involved though. much less on other Spanish games.

I guess this buries every speculation of getting away with not paying the charge by using family and/or friends accounts as I would assume this guy probably opened accounts in persons names that isn't related to him and I also assume he somehow managed to use different ip-addresses.
  They get you just on betting patterns !

being a monopoly they can do it whatever they like

First the bad news: customers who love the Betfair website and want a stake in the company's future success will not be allowed to buy shares in the float.

Chief executive David Yu says they thought about allowing retail punters a slice of the pie but decided the “logistics” of such an operation made it not worth the hassle. So while large institutions will get to buy into the company, the rest of us will have to wait until the shares start trading before we can place our bets.
For a consumer-facing business, one that can reasonably claim to have shaken-up a tired industry in the public interest, this is a disappointing call.

Doubtless it would be expensive and fiddly to set aside shares specifically for small investors but not impossible. Google, another internet company with which Betfair would doubtless like to be compared, managed it with seeming ease, earning kudos along the way as an outfit willing to defy Wall Street in favour of the little man.

Betfair's decision suggests a slight lack of care for the customers that have made it the undoubted triumph it is.

In turn, this is how the company could be weakened. Asked what was to stop a rival — Ladbrokes, say — from hiring a bunch of computer whizzkids, devising copy-cat technology and launching a service called, let's say, GambleSmart, the Betfair bosses more or less replied: nothing at all.

They reckon that over the course of the past 10 years many such rival ventures have tried and failed to eat Betfair's lunch.

Yu told me: “We've seen about 50 exchanges come and go. Every single one of them copied the format. The brutal reality is that it is incredibly difficult to do.”

Perhaps. But one side effect of the float is that Betfair now has to make available a huge amount of information about itself that it could previously keep under wraps.

That information — including numbers about sales and profits — is likely to prove mouth-watering to wannabe competitors.

Somewhere in the mind of a net entrepreneur exists the company that will do to Betfair what Betfair did to traditional bookies.

The company is perfectly aware of this. Indeed, one purpose of the float, albeit of just 10% of the shares, is to give Betfair a currency to retain and attract talent. In an industry moving as quickly as this one, it may well need it.

In the meantime, where is the growth coming from?
The company was today flagging a move into online financial trading via an exchange platform called LMAX.

Punters will be able to take positions on financial markets via contracts for difference.

It might work, but this is already a well-populated field for the present size of the market.

A whole new customer base needs to appear for it to thrive.

Such gripes aside, Betfair has clearly been a huge success story. The future is harder to predict.

http://www.thisislondon.co.uk/standard-business/article-23880625-this-not-so-fair-float-might-come-back-to-haunt-betfair.do


21 Sep 2010

it's in BF's interest to propagate the idea that copying what they do is technically very hard. plainly that's not true.

what's difficult is to make it commercially viable in an environment where there's an established de facto monopoly.

ttt