Who's taking the risk ?

Trialling a new method of calculating PC.

Some of you have mentioned this.  I took part.  You don't pay any more or less, they just increase your commission rate to take into a/c PC you should be paying.  At the end of the three month trial period they said there would be a very small make-up as the commission rate wouldn't calculate it perfectly.

My "make-up" was the equivalent of 30% of my annual income on here!!!  After some investigation, they realised there was some further miscalculation but the make-up was still 25% of my annual income.  I took no further part in the trial.

If they keep the PC then making it monthly and introducing a personal allowance seem obvious amendments.

- Overseeing regional reviews of current pricing strategy looking for areas of opportunity.

Seeing whether they can screw the Californians for 10%?

The ethos of the company is wrong. It shd have a completely simple pricing structure, the same for all, like it had in 2001-7. Instead they employed more people and made everything endlessly complicated, with pinching more in one place meaning they lost liquidity and coverage and custom in another.

Interest to read what Mark Davies (part of the Betfair founder management team and head of PR when the PC came in) has written on his blog on this:

Take the premium charge, for example. Someone mailed to ask me about it yesterday, and pointed out that I was quoted, when we introduced it, as saying that it was needed, because without it the cost of acquisition was not matched by the lifetime value of a customer: too much of the money taken from a customer who would then churn away went directly into the pocket of a small number of other clients. I said then that any business that got to where we were would have to introduce the same thing, because otherwise the revenue gained didn’t match the cost of acquiring the customer, which was an obvious road to the poorhouse.

All that was true. But what my comments, and our strategy, probably didn’t take fully into account was why the cost of acquisition (which was so much lower than other gambling businesses) was rising (or why the network effects were diminishing); or the fact that a consequent drop in the number of advocates meant in turn that the cost of acquisition would go up at the same time as liquidity went down – creating a spiral which was going the wrong way. Replacing the lost revenue means increasing the tax on the people who are making the money, which in turn means more of them fall away, and the cycle continues. Observers of the broader economy will recognise the pattern.

You can read his who article on the proposed takeover at:

http://www.markxdavies.com/

They are using metrics, like profit or implied profit per customer, that are badly suited to 1) gaming per se, and 2) further, the presence of chance in actual measured returns.

The standard business thinking when a customer yields a loss re the cost of acquisition, or of offering the products the customer buys, is to migrate them onto higher-margin products. Obviously this will not work with price-sensitive customers, although bf are trying it by pushing as many people as they can manage onto the sportsbook.

They have also failed to place an implied monetary value on the presence of liquidity on the site as essential for holding into price-takers. Say a bettor comes onto a specialist market just wanting 10 quid on. The market is tumbleweed. They get the bet on at 3.65. Sooner or later the customer will be lost to bf.

It's a strange phenomenon whereby punters will gladly spend their money with a traditional bookmaker rather than a punter/punter betting exchange.

BF seem to want to move into fixed odds traditional bookmaking because they think they'll make more money, maybe they're right, but it seems to me the concept of exchange betting has far greater potential, it has to be the future of betting, so the question is why are they so poor at selling it to the masses?

Are punters really that price insensitive that they would rather bet with pp wh lad sj 365 etc, than get a better price at an exchange? The only reason I can think of for that is that the exchange may not have odds available, whereas bookies always will have. The casual punter wants to place his bet there and then, and the exchange misses out due to poor spreads or no spreads at all.

I think there's currently a huge opportunity for a decent betting exchange, but it would involve offering low commission rates to attract market makers and hence capture the casual punter (in their millions) from the bookies.

BF have tried huge advertising campaigns to capture those punters and failed to do so, is the next logical step to lower commission and attract market makers?

Or is it the case that no matter what, casual punters will always remain price insensitive, so even with tight spreads available on every BF market they would still use pp wh sj at a worse price?

I can only think of one similar business and that's undertaking. My father runs a funeral directors, but despite him charging 1k per funeral less than the local opposition, they are still as busy as he is. Very few clients even ask for a price.

But I still strongly believe that BF have the potential to attract 10 fold more customers than they currently do. A good betting exchange with busy tight spreads created by attracting market makers by offering low commission rates (plus other ideas) will take off and dominate the market like facebook has done, in the not too distant future IMO.

Johnny - In your example above say you make a massive loss servicing the customers. What's a fair way to split your losses with your partner. Surely your partner can't be making a profit if you're making a loss?

Betfair = Complicated. 

It's that (misguided) belief which prevents people from joining in.  Sure, markets yet to be seeded, lack of liquidity, etc all play a role, but the main reason people preventing people stick to the high street bookies is they've heard of Betfair and it's laying/backing and assume it's complicated or have actually opened an account but given up as for some reason it seems a little difficult.

And many people are price insensitive.  They've picked a (soon to be) winner so faffing over odds of 6-1 or 7-1 doesn't really matter as it's still going to be a nice win.

I have already said I paid 60% pc even when only winning peanuts in comparison to people who don't pay that figure.

Having tried to make ago of it, I have now zero balance at betfair.

But the interesting thing is I now make more profit from a combination of betting with the other exchange and bookmakers.  Even more interesting for me is I do this by only backing, no laying or cashing out like I used to in the past.

With the other exchange offering 3%, I find this approach profitable.  Also by using oddschecker and best betting website I can back into 100% markets, sometimes over broke markets by using a range of betting accounts.

Ok if you are a trader you may need betfair, but if you are not then the betting market is full of opportunities that offer better prices after commission is taken into account.

I once was a betfair groupie, but no more.

hazel, you need to invest in a network of placers and bookie accnts.

Price-taking as a strategy makes diminishing returns as the books get wise to you. A year ago in one Mountains shop I was regularly getting over a thousand over the counter a day; now I am flagged as a 'PTL customer' and restricted by exactly the same manager to 10 pounds.

delibrately *

Nice post.  Management need to open their eyes and fast. 

Betdack are slowly on the charge and doing away with the PC will stifle the opposition immediately as people will stream back to BF - it's a total no-brainer.

Of course they can only see the short term profit - trouble is if they don't move soon it might be too late.

"With regards to the premium charge, the only relevant factors are the profits a customer wins in the long-term and the commission he generates in the process."

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This to me is the nub of the question, and if it actually reflects management thinking (rather than being a conveniently brief brush off) it's something of a depressing insight into a shallow understanding of the way the business works.

They understand that there is such a thing as a customer acquisition cost, but they seemingly don't get different equally profitable users' activity has radically different impacts on customer acquisition and retention.

Some users are effectively part of their advertising, whilst others (hooverers, trap bettors, to a lesser extent sharp price takers) are undermining their advertising. Yet they're happy to ignore that for the sake of falsely simplifying the problem and charge them the same.

That said, I think there's a lot of wishful thinking and people talking their book in this thread. One thing that's not going to happen and wouldn't work is BF saying "we're sorry, we got it wrong" and scrapping the whole thing.

Betfair fixed odds will lay me a bet to take out a max of £50, I think that tells you all you need to know about their supposed crack team of traders.

yes p2p is fantastic -  but will we be allowed to play it in future ?

The Apple cut is the max amount someone pays I assume. Betfair is totally different. Those who have made over £250k in 13 years pay a min of 40% to Betfair. But most people pay an awful lot more than that through normal commission and most people lose money.

On Betfair the equation is:

Winning punter profits + betfair revenue = losing punters losses.

Its the percentage of losing punters losses that go to winning punters that Betfair got out of their pram about.

But how much worth have Betfair given to the fact that the best prices and liquidity is provided by their customers? Without allowing winning punters to profit liquidity has started to drop thus the attraction of the exchange has dropped thus losing punters losses will drop.

The exchange model is in a downward spiral. Betfair are diluting the brand with the most horrific sportsbook in the history of the internet that would appeal only to the most price insensitive punter on the web. The complete opposite to what Betfair grew on.

Betfair grew because of having the best prices,being able to get on and being able to lay. This brought the position punters to get liquidity started. Traders then arrived to take their cut in return for oiling the wheels. We all loved it and told our friends and they joined. 

If the unique model had not provided the best prices to some depth Betfair would never have got off the ground. The platform was provided by Betfair but the market risk was taken by punters. Yet Betfair see no value in the market risk punters are taking.

Betfair fail to see that a smaller percentage of bigger cake is better than a larger percentage of a smaller cake.

There are lots of smaller markets, which recreational punters seem to demand, that do not work well at all unless some professional players take an interest in them. PC40 discourages professional players from getting involved with smaller markets.

The sportsbook falls well short of filling the void. It was introduced with the promise of "guaranteed execution in less liquid markets". Guaranteed execution is pointless to most people if the overround is 130-140% (not unusual for markets like correct score etc).

I think johnny's seething mass is a bit optimistic, frankly.

it's not the recreational punters driving 100.2% in play MO books, and the markets that are left to them tend not to offer best value unless you're after a bulk order of tumbleweed.

the problem with that model is you create a constant, churning problem for yourself. the good prices that attract recreational punters are being supplied by a class of users that you're continually disincentivising. so you're relying on them being replaced by new users moving into their vacated spot to maintain the quality of your offer.

and if that does happen, you actually only make the same profit from these new users that you would have made from the last lot if you'd carried on charging them at the previous rate.

this is why any charging model that's blind to the effect of users' activity on the ongoing attractiveness of the exchange is essentially flawed. and that, for all their many other failings, is what the purple have recognised with their makers/takers distinction.