Have a read of my '08 May 13 09:36' post to get an idea of what a more efficient market does for the exchange users and owners.

Frog - I fully understand the benefits of efficient markets to BF.

You run BF - Do you want to see -

- efficient markets all run by a single operator (who, as in your example, gets his prices right every time)?

OR

- efficient markets run by a multitude of not so efficient individuals (who as a group get the overall prices right...but as individuals all make a few mistakes along the way)?

Once we have established that ...we can then move onto how you would move your exchange closer to the optimum business model?  _

Betfair as operator is not willing to take the risk offering attractive prices. They cannot do it. On roulette they are happy to offer a 2.7% margin. On horses and sports they are not because of the asymmetric information they face against punters.

So in order to have the superior prices on here the risk is moved out to the players. Some better than others. But as my example shows a market maker offering good prices for a tiny relative profit generates a lot of business on the other side.

To get a few big players requires next to no marketing budget. To get your hundreds of little players requires the £100m a year marketing fees.

Knowing that people can and do make money on here is what attracts the little players. It is one of the key things that makes Betfair different and it is why up until 2008 the network effect of Betfair was so big.

The idea of having an efficient market from lots of small players is fine. But it costs a lot more to operate. One guy putting up £5,000,000 in bets a day matched against 1m people betting 5 pounds each is easier to manage than 2 million people matching £5 each against each other. Less account management/less withdrawl costs etc etc.

You don't see a stock market with a limit order book where they ban institutions and only allow small private customers. If you did you would find massive liquidity gaps. The best prices would not be on offer. This is what is slowly happening on Betfair because of the Premium Charge.

Going with the sportsbook concept is very short-termist. It has every chance of boosting profits and allowing the current management to parachute out of Betfair with huge bonuses. But it will have its limits. It will be just anyother sportsbook offer punters bad value.

In the mean time if Betfair dont want the exchange anymore maybe they will sell off that part of the business or maybe Koch and his crew will start up a rival. The exchange model needs tweaking so that it always offers the best prices. If they can do that eventually it will kill off the recreational sportsbooks.

It will be just anyother sportsbook offer punters bad value.


Spot on, and I can't see how even BF can't see that!?
If they want to be a bookie, then join a very long queue, in which they will not be anywhere near the top of that ladder.

vs. being THE betting exchange.

Much of a decision???

To clarify, they're not aiming for the sportsbook to be a market leader.

I think the PC is a much greater issue than the sportsbook.

It is getting worse.An earlier race  at louisiana down US
was matched to something like £260 the whole race.
About 2005 there was over £150,000 matched at GLD a small bullring track.
The speads used to be wafer thin.Now it would be possible to drive
a double decker bus through the speads hence £260 matched.The they want up to 60%
from that IF you are able to win,which is becoming harder and harder .
I would say after expenses,about 75% of the time it is better to be on the purple.
About 6 months to a year ago it was something like 40%.
So there is good news there and bad new here.

If you include inrunning the figures are:

year    average per race
2005    £347,612
2006    £538,544
2007    £533,030
2008    £606,995
2009    £692,950
2010    £635,965
2011    £668,416
2012    £614,261
2013    £591,401

Was growing at an average of 19% a year until may 2009.

Without the PC could the figures have been more like this.....

year    average per race
2005    £347,612
2006    £413,658
2007    £492,253
2008    £585,781
2009    £697,080
2010    £829,525
2011    £987,135
2012    £1,174,691
2013    £1,397,882

yes, rate of growth has to slow at some point. but if you have the best prices and the most flexible product, it shouldn't stop at 12% of market share.

people trot out the line that most punters aren't "sophisticated" or "price sensitive", but that's really just an excuse for failure and a confused business model. you wouldn't accept that in any other line of business.

if you were selling (the usual) apples cheaper than everyone else and your market share stalled at 12%, you just would not accept one of your underlings shrugging and saying "88% of apple eaters don't care about price or quality and that's just the way it is."

the problem BF has created for itself is that it's gone from being the dominant leader in a new field to being a collection of businesses with conflicting interests. so any promotional strategy they decide on that promotes their natural advantages undermines their other business.

and how have they tried to square that circle? by running "best price!" adverts that refer to the exchange as a means of promoting a totally different product.

other people have said on here that it makes sense for them to offer a sportsbook. well, maybe it does. but unless they decide from the get go that it should be subsidiary to the exchange it's doomed to destroy their clarity of vision.

which would be the market leading cutting edge exchange making 90m than a messy jumble making 110m and it should be the 90m one considering:

One is more likely to hold its position than the other going forward

One is likely to require less capital than the other and its ROI on that capital that is more important than actual profit.  If you can't get an adequate ROI then you should return cash to shareholders.   

Margins and sensitivity analysis also extremely important.

all the good stuff lately's been done by third parties (hello the geek)

FFS! don't tell him that, his ego is big enough as it is. 

Just lost over -£700 in last week plus minus £100 expenses plus minus £340 hedging yet betfair still charge me over £127 today.
Seriously thinking of leaving this greedy company and its PC tax.

I think its a case of moving what can be moved away.

For horses:

Use Betfair for trading and low margin laying
Use Other exchange for higher margin backing
Use bookies for morning prices where possible (a lot of hastle but worth it)

For soccer:

Use professional bookies for prematch bets
Use Betfair for inplay trading

I used to do all my betting on Betfair. 100%.

For Betfair to get 100% of the market it has to offer to best value for every bet.

SO:

1. PREMIUM CHARGE HAS TO GO.

2. Morning racing markets need to separate from 'last half hour market and inplay market' and settled independently. Market base rate needs to be 2% and the tick size needs to be bigger. A bigger tick size will encourage layers and backers to leave up and take bigger bets. E.g. if all bookies are 5/1 most of use cannot get on at 5/1 as we are restricted. Next odds up people can ask for 11/2. If money is available in size on here it will be taken. No bots in the way. Very small commission. Will appeal to all punters. Betfair will always have the best price. Market will form earlier reducing massive odds swings in last ten minutes.

3. Preplay soccer markets (and tennis etc) need to be separate from inplay market and settled indendently. Market base rate needs to be 1% to compete with the professional bookmakers. This should take 100% of the market from the professional bookmakers. Instead of £1m being matched for every EPL match before kickoff it should run into tens of millions.

The share price has fallen yet again today.Now lower than the price offered.Lol.

I disagree askari. I think they need to always be best price to get a decent market share.

The lower the cost of the early markets to trade the more accurate the prices will become. The more accurate the market the harder it is for anyone to win and thus befair get more of the money are it circulates.

Take horses now. All that is happening is Betfair is being used as a guide and the bookies are forming a market that no one is allowed to bet on because the prices are so wrong. But if the morning markets was (a) cheaper and (b) less ticks I believe it would develop faster and traders could not jump infront.

If you look at pre-play soccer. Betfair should be doing so much more business but the PC and commission means the big players use the bookies instead. They lay bets and offer good prices. But Betfair should be the only market for this. It should be more efficient than a bookie pricing up. If they charged 1% max commission instead of 5% they would earn five times less per bet. But I reckon they would get much more than 5 times the business. Through the globe hundreds of millions is staked every EPL game. Betfair should be attracting alot more of it.

Going back to your airline example. I agree to some extent. That why where Betfair has a monopoly on accurate prices (inplay) they can still charge more and get away with it. Thats fine because so much of the money is traded rather than outright bet.

Very unusual for Betfair to calculate PC incorrect, so I'm guessing you have made an error. Either forgot about a bet you had or getting confused by partially settled markets.
  Or you forgot about bets in the Aussie wallet.

The lower the cost of the early markets to trade the more accurate the prices will become. The more accurate the market the harder it is for anyone to win and thus befair get more of the money are it circulates.

Take horses now. All that is happening is Betfair is being used as a guide and the bookies are forming a market that no one is allowed to bet on because the prices are so wrong.

The problem for winning tissue-makers is that exchanges create a price-finding mechanism in which very little need be matched at out-of-line prices.

This isn't so much a problem to the company, so long as the people who wd bet in the mornings at a fine price get on with bf in the afternoons at best price. Let's take the opposite case--what is happening less and less often--that liquidity is there and that the price-insensitive or poor-pricing losers bet w/ bf's winners and lose. Eventually they wd drop out, leaving bf with the cost of replenishing them for their incumbent winners. I'd say bf wd rather these people bet later on at more of a settled equilibrium price, churning more and having their counterparties churn more.

I don't see the scope for an alignment of interests between the company and price-taking winners on the horses that you do.

And if I'm honest about my own betting, the value of the information I get from price movements on all but 40-50 days a year outweighs any inconvenience of not being able to get on in the mornings.

roache, as I said, it's easy to get confused if you have had bets settled in markets taht are still open. Also very easy to forget to check p&l for Aussie wallet.
  It could also be a time settlent confusion if you had markets settled around midnight sunday as the time they use for PC purpose isn't necessarrily midnight sunday.  I think it's 1 - 2 hours later even if you are based in the UK.

roache - also could be part settled markets being fully settled and charged, with the football season ending.

'I don't see the scope for an alignment of interests between the company and price-taking winners on the horses that you do.'

We are not just talking about price taking winners. There are plenty of people that want to bet on horses early but dont use Betfair. There are plenty of people that lose backing horses early that cannot get on because the bookies close their accounts. No serious punter can get BOG prices etc.

I think it is 3%-3.5% of the total traded is traded in the morning of a race on here. It is a tiny amount. I think it could be alot more. I am certain that people are willing to lay horses at the best prices available in the bookies and there are people that want to back them willing and pay a small commission. The problem is you put up a bet of any size (over about £20) and a robot jumps infront for £2. The market is falsely pushed to 100% to no money.

If they used the same tick size as the bookies...  3/1,10/3,7/2,4/1 etc and lowered commission on the market (seperate market no carry through to offset commission inplay or in the last hour hour) I am sure alot would be matched. Not everyone wants to back the same horses. Certainly more than is matched now would be matched. It is also likely to be real bets rather than traders. I dont see what BF has to lose because there is so little trade there now anyway.

Betfair is forgetting that it is an exchange. It is in its interested to get as much volume as possible and as much market share as possible. Every market it makes money.

So if you were betfair you would rather a 'recreational' player lost to another bookie betting at 10/11 than to another Betfair customer who offered evens?