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If the part time market maker is not paying PC and is making profits he is just a baby version of the big time market maker. Why does betfair benefit from having 100 small time MMs as opposed to 1 big time one?
It doesnt. They get no PC from the 100 small time ones who take the same out of the system. The reality is there are not 100 small time MMs and that is why the markets have less and less liquidity. |
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^^Why does betfair benefit from having 100 small time MMs as opposed to 1 big time one?
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it doesn't benefit though, does it? the best case scenario here is someone else fills the gap and pays the same in charges as the PC payer was paying before they were driven away.
so the downside for BF is: *they lose the new player's/players' one-time PC allowance as revenue *they lose the business from recreational punters in the interim between the old market maker going and the new MM(s) recreating the status quo ante *they risk the market dying before it recovers the upside is... what? as I said in an earlier post, the only upside is if the higher rate payer pays up and carries on. |
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...actually, it's potentially quite a bit worse than that. because of course, if the gap in the market allows former losers to become winners, BF loses not only their PC allowance, but the headroom on top of that from their previous behaviour - which may be far more than £1000.
there's an irony to this, too. if the higher rate payer who's been chased off were to try and covertly take over a losing account and replicate what they'd been doing before, BF would come down on him like a ton of bricks. but if the original losing account holder managed to figure out how to do it for themselves, they'd be fine with it. yet the net financial outcome for BF is exactly the same. it's just which third party has the money that changes. in fact the first scenario is actually better, because at least then they get the benefits of liquidity and efficiency recovering immediately. |
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What happens if the replacement market makers are not quite as good as the experienced old pros they replace?
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the market doesn't recover as efficiently as it would have done and liquidity suffers.
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Where are all these replacement market makers? They don't exist.
There are areas of market failure that still need to be addressed but beyond that the markets should be left to run free. The more efficient the prices become the harder it is for anyone to win and the more Betfair will make as they clip the ticket as money changes hands. The more liquidity that is encouraged the more efficient the markets will become. By discouraging liquidity they are actually making it easier for people to win smaller amounts of money which will further reduce liquidity. Liquidity encourages market efficiency. Compare the forex markets with small traded companies. |
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Liquidity may well dip...but that is just a number in the corner of the screen. It means little.
What matters is revenues and profits. If the replacement market makers are not has good :- - cash withdrawals drop - churn increases - and long term commissions increase |
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So your solution to make the market more efficient is to remove the sharpest gamblers from the markets?
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or, if they're not as good, overrounds are higher, churn decreases, some business moves elsewhere, withdrawals increase as funds are moved elsewhere.
I think it's hard to make a case that BF benefits from less efficient markets, tbh. |
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No my solution to making BF more profitable is to remove the big winners from the customer base.
BF benefits from efficient overall markets provided by a multitude of not so efficient individuals. |
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I would personally love that but it would be commercial suicide
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http://www.markxdavies.com/2013/05/14/for-sale-bidders-welcome/
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When prices per market are more efficient, this has the effect of making it more difficult for *all* bettors to profit (efficient markets = less available value). This creates more churn (more profit for BF). On the other hand, less liquid, bigger spread markets don't attract much churn because people don't want to wait x hours to get matched at what they deem a "reasonable" price (if they manage to get matched at all).
The perfect exchange "Ecosystem": Greater liquidity = tighter spreads = greater market efficiency = greater churn = greater profits for the exchange. When imbalance is created in the above, the whole "ecosystem" suffers! I.e., removing/impeding the liquidity providers (big winners) and the churn reduces relatively which means less efficient spreads, less... etc., you get the idea. The risk here is when the big winners are not replaced quickly enough, this causes a downward spiral! Using BF as a case study, this is what appears to be happening! |
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tbh I think not much more than a handful of individuals or operations keep this place afloat. There simply aren't that many small liquidity providers around anymore
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Interesting link that john23... one of the sub links points to this page:
http://www.markxdavies.com/2013/04/20/fantasy-betfair/ Check out the comments: bigdipper says @Mark Davies: in a sense you’ve answered the easiest part of all the long-winded things I said about pricing and the PC for Betfair (all of which you would have understood, much better than someone who works for a conventional bookmaker or other company). Will you bite the bullet on the difficult strategy question? Would you abolish the PC? April 22, 2013, 9:45 am MD says @bigdipper Yes, I would. There are better solutions, as you point out; and what it raises it revenue, I think it loses a great deal of in stakeholder goodwill. April 22, 2013, 10:32 pm |
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The crux of the problem for the exchange is that it appears someone with the final say wants to go down the sportsbook route.
Paddy Power grow as a fun recreational bookmaker that now makes most of its profits online. Its worth billions of Euros. You cannot blame some shareholders for wanting Betfair to became like that with the man at the helm to do it. Betfair was not set up to be that kind of company. If you read the start of Koch's 'The Star Principle' its obvious why he thought Betfair was a great company to invest in - and it wasnt to become a recreational sportsbook. |
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Seen it all now. A race at Wincanton just went off with less than 180k matched with a 3.68 favourite.
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Johnny The Guesser 14 May 13 16:30 Joined: 15 Apr 02 | Topic/replies: 441 | Blogger: Johnny The Guesser's blog
No my solution to making BF more profitable is to remove the big winners from the customer base. BF benefits from efficient overall markets provided by a multitude of not so efficient individuals. ------------ I just don't think that's a) logically right or b) practically likely. essentially, you can reduce the problem to this: there's a container into which water is poured at the top. at the bottom there are two holes, marked "me" and "everyone else". (in addition, all the time the water is in the container it generates more water, which immediately goes to the hole marked "me". also, the container costs money to maintain.) how do I get as much water to come out of the hole marked "me" as possible relative to the money spent on maintenance? what the question isn't is: how do I make sure as high a percentage as possible comes out of the hole marked "me" relative to the other hole. |
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Frog,the 180k figure is meaningless...what is important to BF is the outstanding position of each punter on the market?
viva el p - It is vitally important to consider the time frame over which you are asking the question? Are BF looking to maximise their commission on just the next market, or the next week ,month, year,or 10 years? What would eventually happen to the long term flow of water if the "me" hole was made 25% smaller but the "everyone else" hole shrank by 75%? What would happen to the water in the tank if both holes were made 3x as big? |
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Guesser, the totals matched figures correlate heavily with Betfair revenues.
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I have no idea. Only insiders would know that.
A few ping pong trades would soon get the matched figures soaring with little net result to anybody. |
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Thats daft. The more money traded means more liquidity. More liquidity means the markets are more attractive to everyone. Are you seriously trying to say in a like for like market £180k traded could be as good for all stakeholders as £1.8m traded?
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Yes I am.
BF are more interested in the oustanding position of each punter in the market rather than the meaningless matched figure in the corner. I back 20k at 2.00...and lay 20k at 2.00 30 secs later ...so what? BF are better off with the guy who has his 50 quid on at 2.00 and then watches the race. |
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Clueless - self-matching won't show for starters.
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and what brings him here, rather than somewhere else?
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john23, in the JTG case , everything would show as matched.
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If you match yourself it won't show - if he's talking about matching 20k's worth of backs and lays in and active market his comments are even more laughable.
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I think most of what JTG is saying on here is laughable, but I don't he was talking about self matching here.
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no, there's some truth to it. say punter a and b match at 2.0, then decide to get out of their positions and match again at the same price. it generates no commission, but shows as 10s of thousands matched.
it's just, what he's also arguing doesn't follow from it, imo. |
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A market maker turns over £250k on an over/under 2.5 market.
2 questions: 1) How much has Betfair made in commission from the people on the other side of his bets? 2) How attractive would this market have been with wider spreads, less money at each tick, and a much smaller total matched amount, (the result of him not being there)? Even if most of that money is just trading back and forth, it keeps the market tight, with money everywhere. |
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"how do I get as much water to come out of the hole marked "me" as possible relative to the money spent on maintenance?
what the question isn't is: how do I make sure as high a percentage as possible comes out of the hole marked "me" relative to the other hole." viva el presidente, that is brilliant. |
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10 years ago i was thinking that betfair will rule the world with tight markets and real live tvs in running on phones and bets made on tracks via betfair even on every tvs with red button linked to betfair exchange that how powerfull it can becomes
but sadly pc killed the betfair dream |
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pc is only a reality because the markets aren't actually tight.
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Something of anything is always going to better than all of nothing. Imo
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BUT THE WAY BETUNFAIR ARE GOING,THEY WILL GET NOTHING OF NOTHING
INSTEAD OF A LITTLE OF EVERYTHING. |
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Everyone plays a part, whether they are sticking money up and hoping to get out at a better price, whether they are sticking money up as an offer and leaving it as such or they are taking an offer off someone else. Everybody is dependent on one another. When one side fails so it brings down the other side.
Clear at the outset this was a limited time game. 2 immediately obvious things being that markets would get more efficient on here and that getting on with bookies would get harder. Realisation dawns that not all markets should be tackled the same way and that best advantage is not achieved by market making in some markets, but to sit and exploit the market in said markets. The number of shrewd people increases, the ability to offset liabilities with bookies disappears and some markets have difficulty forming, because people aren't making enough money doing it, or any money at it, and market making isn't fun for long. Arbing money in the markets is lost to boot. People stop betting on it so much as the liquidity isn't there. As you can't limit punters on here, you end up limiting offers and stakes to the masses. Less people bet on it so much as the liquidity isn't there. Premium charges come in, more people stop putting offers up and so even less punters end up betting on it. It's a problem that starts with one market but will over time catch more and more markets. It's a downward spiral and at the heart of it is the problem of providing the liquidity. Prices and liquidity only get offered on the big events, where there is more well known information, more outlets to copy from, and where the number of shrewdies relative to the less informed and casual pound doesn't break the market. |
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Horse racing liquidity is declining because it's time consuming and subjective to analyse, general interest in the sport is declining, and at the same time the number of shrewd horse racing punters has never been higher and also the associated charges have never been higher. For small meetings I just think its going to be a downward spiral.
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I forget the name of the famous Japanese media mogul who introduced baseball to the country, in order to drive his newspaper circulation figures higher. Likewise, the bookmakers and exchanges are missing a trick by not investing in a sport which would be a reasonable betting medium. A new sport could be created from scratch. It wouldn't actually be a very difficult thing to do.
There are two business models in bookmaking - old school where you hire a team of traders to set prices for you, then restrict winners/stakes/prices etc, or the exchange model, where you get your customers to price it up, but in effect "pay" the winners for their time in pricing it up. I suspect that the number of really really big winners, or at least the scale of their winnings (way out of proportion to hiring a team of traders), is something which hurts Betfair's profits. |