Bigger perspectives of future Betfair

Today, BF are probably extracting around 40% of all liquidity in the exchange - This come without taking any exposure and risk, without any insights to sport, setting lines etc.
Yes, in theory they could have 100% of all available liquidity without running an expensive exchange. This yields much bigger profits (as already seen) – even taking increased exposure and winning player recognition and player restriction into consideration.
However, closing the exchange would leave other competitors with a new opportunity to take the market position as the dominant sports betting exchange. And the world needs free exchanges!

In the short run Betfair would lose:
-    Profits from a side-market of solely “winning players” banned from bookies
-    Profits from bookies seeking reduction in exposure

But most importantly in the long run – all future profits.

It’s a mystery to me, why Betfair haven’t thrown away its 5% winning commission system long time ago. The premium charge is logical and inevitable as long Betfair stands as an active monopolist. But consider a flat 0% commission rate with premium charges on winning players? Forced by arbitrageurs and odds comparison sites, this will lead all sports betting liquidity to the exchange. The only challenge would be improving the exchange with a simple intuitive interface closely related to current standards of bookmaker skins.
In my opinion, Betfair faces one optimal strategy. Why take

In my opinion, Betfair faces one optimal strategy. Why take

In my opinion, Betfair faces one optimal strategy. Why take

Sorry - the limit of letters is not working for me..

Why take 100% liquidity from a few 100k players now, when you can have 40% (in premium charges more or less depending on competition state) of all future sports betting liquidity? If they act shortsighted, someone else will happily prove their decision wrong. Betfair will just become a regular bookmaker, sharing the same faith of all bookmakers: Having huge spendings on marketing, fighting expensive arbitrageurs (representing winning players from exchanges) and gradually lose market share

Please share, if I’m missing something?

Instead let’s be a bit naïve, and take the (very) optimistic glasses on… Paddy might see this as an opportunity to reach the right side of future bookmaking. Both companies are strong in aggressive brand marketing. And the combined force of two frontrunners in the industry could shake the present state of bookmaking today. It still sounds way too easy marketing the world’s biggest sports betting exchange with obvious catches as: Best odds guaranteed (Why not implement BF SP-prices and price comparisons to all sports?), and: the only place where winners actually ARE welcome (remember, no commission, PC for long term winners – winners serve as efficient and needed market makers)

And finally, in regard of future legislation: Some might consider exchanges as risky involvements in a conservative gambling industry with attention to future tax obligations. I have an opposite view: Why are traditional bookmakers in a modern time age still allowed to differentiate among loosing and winning customers? When did society give up on fair and equal customer treatment? Somehow, the sports betting industry has managed to avoid the public radar of economically and socially fair business ethics – in deep contrast to all other industries of this size! Without the ability to discriminate among customers, almost all bookies would be gone by today. And that IS the long term state. After all, odds are nothing more than short-term financial assets. And like all other financial assets they ONLY belong to efficient and transparent trading exchanges. Its just a matter of time.

Looking forward to hear your thoughts about this!

Nice to see a post that's not just negative sensationalism, no matter how much suspicion and fear professional exchange users feel for the merger.

I agree that the new company will have a great opportunity to push the exchange. They've already stated they'll keep the 2 brands separate. Somewhat naively, I'm hoping Betfair will be the exchange and PP will be the sportsbook. I can't see why PP would want to merge with the world's only proper exchange without that exchange being a significant part of the new business.

How they link the two is fundamental to how the exchange will operate. I hope they keep the markets as free as possible from interference. I'd imagine they'll have to slim the exchange down to the most liquid markets - there's no point in keeping the dead side markets or the main markets for fishing, poker, chess etc.

If, as many have suggested, they start banning winning accounts or dominating the exchange with their own liquidity, they run the serious risk of a competitor coming along. The exchange model will always have customers, whether it's the large and/or successful bettors who can't get on with bookmakers, or from the bookies hedging.

Judging by the majority of the most vocal forum users, I may be being a touch optimistic, but I do think there's a very good chance of a highly liquid exchange continuing in one form or another. Whether that's here or elsewhere, only time will tell.

Thanks for your reply!

Banning winning players or cutting API access makes no sense to me. Winning players take exposure and provides valuable market making. If Paddy Power Betfair should choose this route, its more clever to increase current premium charges. Again, this comes at the price of tearing the brand apart and opens the door for new exchanges taking market share.

There are 2 kinds of businesses. Margin businesses, which aim for the largest profit margin, and volume businesses, which aim for the largest volume of transactions - think Amazon. On the internet, barriers to entry are low, which is why we see so many online bookies. Any business which achieves a market leading position needs to become a volume business to prevent new market entrants stealing their market share. Again, think Amazon, which makes peanuts in profit, but is unassailable because of its sheer size.

AceV makes a very valid point that BF needs to go for greater volume and the way to do that is by cutting commissions to take market share from other online bookies, before someone comes along and does it to them. Currently they have only about 5% to 10% market share in their main markets. I don't see why they couldn't get 50% market share on price (ie reduced commission) alone.

However, I think (and I know about these things) that they could well have blown their chance to go for much bigger volumes with the new site, because it appears to me to be not able to handle the volume of transactions and data requests the old site could, and this will be very difficult to fix.