would you bet on it?
In this thesis the concept of the betting exchange, a new phenomenon in the world of sports betting, will be analyzed. Unlike traditional forms of betting, in which a bettor places a bet with a bookmaker, the betting exchange allows bettors to place and offer bets directly to each other. The betting exchange, and especially market-leader Betfair, has become increasingly popular in recent years, and has grown to be an important competitor to the bookmaker.
First in this thesis, the strengths and weaknesses of the betting exchange are identified, as well as its future opportunities and threats. The analysis shows the betting exchange has a number of unique strengths, like for example the ability to offer better odds to customers. Nevertheless, although the analysis showed several interesting future growth opportunities, the position of the betting exchange is threatened by factors it has little control over, mainly of a legislative nature.
Next, the betting exchanges are reviewed on an individual basis, with regards to the service they are offering to their customers. Market-leader Betfair has managed to develop a service far superior to those of its main competitors, although it charges its users a relatively high rate of commission. Many smaller betting exchanges seem to lag behind offering customers very little the competition isn’t already offering much better.
Following this analysis, the betting exchanges are compared based on liquidity, which a betting exchange will need to be attractive to potential customers. The results of a study are presented with regards to the liquidity available at several major betting exchanges. Payout to customers from betting exchanges is compared to payout from a sample of bookmakers to determine whether betting exchanges are currently successfully competing with the online bookmaker in this respect. The study shows that, although a majority of betting exchanges mostly succeed in offering better odds than the online bookmaker, they do not always succeed.
Chapter 1: Introduction ... 1
History...1
Research question & methodology ... 2
Chapter 2: The bookmaker and the betting exchange: How do they operate?7 The bookmaker... 7
The betting exchange ... 9
Chapter 3: The betting exchange: a SWOT-analysis of the sector ... 13
Strengths ... 14
Weaknesses ...17
Opportunities ... 19
Threats... 23
Summary... 29
Chapter 4: The betting exchange: An individual analysis ... 31
Summary... 38
Chapter 5: The betting exchange: Research ... 41
Availability of market... 43
Volume of market... 46
Average overround ...48
Summary... 52
Recommendations for future research ... 52
Chapter 6: The future of the betting exchange: Recommendations ... 55
Betfair... 55
The other betting exchanges ... 56
Acknowledgements ...60
Literature ... 61
Appendix 1: Social responsible gambling ... 67
Appendix 2: Research: Availability of markets ... 69
Appendix 3: Research: Volume of market ... 72
Chapter 1: Introduction
HistoryThe phenomenon of betting is as old as mankind itself. The Romans, for example, were known for having race-tracks spread out the country, the Circus Maximus in Rome being its prime example. According to several authors heavy betting took place at these race-tracks. Amongst them, Harris (1972) describes the spectators of a race as being “already in a fury of anxiety about their bets”. Harris adds that although “The Greek gambled, the Romans gambled still more”. Also, Volberg (1999) says archaeological and historical evidence indicates gambling took place in many ancient civilizations, including the Egyptians, Chinese, Japanese, Hindus, Persian, Hebrews and Huns. In the Middle Ages gambling appears to have been widespread throughout Europe and Middle Asia and was even introduced in the United States by British colonists (Ozan Ates, 2004; Dunstan, 1997). Gambling in these days was mostly restricted to participation in all kinds of lotteries. These lotteries were, especially in European countries, increasingly subjected to regulations and, in some countries, even prohibited.
Betting on modern sports probably originated in the 17th century in the United Kingdom, but became increasingly popular as a result of the rise of professional sports (Ozan Ates, 2004). For example, when in the United States professional baseball began to gain popularity in the late 1800’s, so did betting on the sport.1 Also, the process of placing bets became more and more formalized as professional bookmakers started emerging(Chinn, 1991). A bookmaker is a person or organization that takes bets from bettors on all different kinds of events on all possible outcomes. Depending upon results, the bookmaker may pay out winnings based on, usually, previously agreed odds.2
In 1960 the Betting and Gaming Act legalized almost all forms of betting in Great-Britain, which led to the opening by bookmakers of betting shops all over the country. J. Philip Jones estimated in 1973 that about 75 percent of the whole British population indulged in some regular form of betting. However, in many other countries around the world, including the United States, most forms of betting remained illegal. Most of these country-specific laws are still in place today, although
they are increasingly hard to enforce, not only due to the increasing globalization of the economy, but also to the spectacular rise of the Internet.
The Internet has opened up enormous potential for bookmakers. While betting shops are only able to reach a regional audience, a website on the Internet can be accessed by customers all over the world. In the meanwhile, the success of the internet also made new innovations possible. One of the most important innovations in the betting-industry has, without any doubt, been the betting exchange. The betting exchange allows bettors to bet with other bettors worldwide, without the involvement of a bookmaker, and thus creating a fundamentally different business model.
One of the first, and by far most successful, betting exchange is named Betfair (http://www.betfair.com). Betfair was launched in June 2000 by Andrew Black, a professional gambler, and Ed Wray, former Vice-President of JP Morgan. The company has grown astronomically to become the largest online betting company in the United Kingdom, and managed a turnover of more then 50 million British Pounds a week in the end of 2004 (Davies e.a., 2005). Betfair has been widely recognized as one of the more successful entrepreneurial innovations of recent times, being awarded the British Ernst & Young Emerging Entrepreneur of the Year-award in 2002.3 Also, in 2003 Betfair won the British Queen’s Award for Enterprise, in the category Innovation.4
Following the footsteps of Betfair dozens of new entrepreneurial online betting exchanges have seen the light, especially of a Scandinavian (for example http://www.betsson.com), British (for example http://www.betdaq.com), and American origin (for example http://www.matchbook.com). Like Betfair, most are founded by entrepreneurs who, with a small set-up, try to profit from the growing popularity of the betting exchange all over the world. This has led to intensive competition between not only the exchanges themselves, but also between the exchanges and the traditional bookmakers, whose market shares are under pressure because of the betting exchanges.
Research question & methodology
This thesis will focus on the betting exchange and will analyze the market situation the different exchanges are currently facing in the rapidly changing gambling
industry. By analyzing the strengths and weaknesses of the concept of the betting exchange, as well as analyzing individual betting exchanges, recommendations can be made how long term competitiveness and survival can be ensured.
The main research question of this thesis will be:
“To what extent do betting exchanges presently succeed in competing with the ‘traditional bookmaker’, and, taking into account their strength, weaknesses, future threats and future opportunities, what kind of measures should individual betting exchange take in the future to ensure their long term survival in this sector?”
This research question will be divided into several sub-questions.
Before answering the main research question, it is important to have a clear understanding of how both the “traditional” bookmaker and the betting exchange operate. By making use of existing literature and screenshots from both an online bookmaker and a betting exchange in chapter 2 the following sub-question will be answered:
Question 1a:
How does a “traditional” bookmaker operate? Question 1b:
How does a betting-exchange operate, and what are its main differences and similarities to the traditional bookmaker?
In the next sub-question the betting exchanges will be analyzed from a “sector point-of-view”. Therefore, in chapter 3 strengths and weaknesses of the concept of the betting exchange will be identified, as well as current opportunities and threats, which are relevant for the entire betting exchange sector. To answer the next sub-question a literary study will be performed, including academic literature, as well as recent articles in media worldwide.
Question 2a:
Question 2b:
What are the strengths and weaknesses of the betting exchanges and what are its possible future opportunities and threats?
After analyzing the betting exchange from a “sector-perspective”, the following sub-question will compare the major betting exchanges to each other on an individual basis, to search for differences and similarities between the different betting exchanges. By comparing the websites of several prominent betting exchanges on a number of characteristics in chapter 4 the following sub-question will be answered: Question 3a:
Which characteristics can be used to categorize betting exchanges amongst themselves?
Question 3b:
In what categories can all the different betting exchanges that exist worldwide be divided?
The previous sub-question compared the betting exchanges individually on a number of observable characteristics, but did not include any research regarding the important topic of liquidity. The next sub-question will focus on whether betting exchanges are currently attracting a sufficient amount of liquidity to successfully compete with the traditional bookmaker in terms of payout to customers. A study has been undertaken, which is based on trading data derived from betting exchanges and bookmakers during four different sporting events. The results of this study will be presented in chapter 5 to answer the following sub-question:
Question 4a:
Question 4b:
What kind of liquidity and payout-ratio do the different betting exchanges offer to their customers and how does this relate amongst each other?
Question 4c:
Which betting exchanges have and which betting exchanges have not already succeeded in successfully competing with the “traditional” bookmaker, based on payout-ratio, and which characteristics can explain this difference?
The previous sub-questions have helped create some insight in the situation betting exchanges are currently facing, on both a sector level, as well as an individual level. In the last sub-question (chapter 6) the answers to the previous sub-questions will be combined to make recommendations which should help ensure the long-term survival of individual betting exchanges.
Question 5:
Chapter 2: The bookmaker and the betting exchange:
How do they operate?
The bookmaker
Before the invention of the betting exchange, those who wanted to place a bet, other then amongst friends, needed to resort to a bookmaker. As Drapkin and Forsyth (1987) put it: “the bookmaker’s function is to act as a intermediary between groups of punters holding different opinions […] and wishing to support their opinions with their money”. According to Pitt, Watson and Shapiro (2005) bookmakers
traditionally offer two different types of betting: the system of the pari-mutuel totalizator, also known as pool betting, and the system of fixed odds.
Pool betting is a form of betting in which the payout on winning bets is unknown to the bettor until the event has taken place. The payout on winning bets is dependent on the ratio between the number and stakes of winning bets and the number and stakes of losing bets, after a percentage of the total sum of money wagered has been taken by the bookmaker. Pool betting is offered by bookmakers usually only in horse racing and greyhound racing.
Fixed odds are more commonly used in sports betting. Every bet is honoured by the bookmaker at the odds that are valid at that time. Therefore, if the odds on a particular selection are later reduced or increased by the bookmaker, this will have no effect on the expected payout of already placed bets.
Figure 1 shows a screenshot of fixed odds betting on the Dutch Soccer Eredivisie with Malta-based on-line bookmaker Interwetten. For example, if a bettor would decide to place a bet on Den Haag, in the match between Den Haag and NAC Breda, he would do so against odds of 2.10.5 This means if the bettor would stake € 10,00 on this outcome, the bookmaker would return € 21,00 if the selection wins. So, the bettor would in this case make a profit of € 11,00. If the selection loses, the bettor would lose his original stake of € 10,00.
In a “fair” book, all of the probabilities derived from the odds on a certain event should lead up to one (Drapkin and Forsyth, 1987).6 However, in reality this will never be the case. For example, in the previously mentioned match between Den Haag and NAC Breda, probabilities on the three possible outcomes add up to 1,13. The bookmaker makes money by making sure the odds for a match offered to the customer correspond to a probability that is higher than the actual probability of a certain outcome really happening. By dividing one by the sum of probabilities, the “overround”, and consequently the bookmakers’ margin, can be calculated. The overround reflects the percentage of the original amount of money staked a bettor would be returned if he would place relatively equal bets on every possible outcome. In a fair book, overround would equal one, and bookmakers’ margin would equal zero. In the example of the match between Den Haag and NAC Breda overround amounts to 0,883 and bookmakers’ margin equals 0,117.7
The bookmaker will try to take even bets on all possible outcomes, and will adjust its odds if its customers heavily favour one of the outcomes, to make other outcomes more attractive. If unsuccessful, unlike in pool-betting, it is very well possible the bookmaker will actually lose money on one certain event. However, as long as the bookmaker does not on a regular basis misjudge the probabilities of a certain outcome happening, the overround book will be guaranteed to make the bookmaker money in the long term (Pitt e.a., 2005).
5 Figure 1 shows three odds for every soccer match. When betting on the home team to win, the odds
for outcome 1 must be selected, when betting on a draw, the odds for outcome X must be selected, when betting on the away team to win, the odds for outcome 2 must be selected.
6 The relation between odds and probability can be calculated by making use of the following formula:
Probability = 1 / Odds. For example, an odd of 2.10 corresponds with a probability of 47,6%.
7 In the example mentioned, payout on every possible outcome will be the same by staking € 10,00 on
Markets managed by bookmakers have traditionally been the playground for academic research, especially regarding market efficiency. Sauer (1998) finds standard definitions for market efficiency are generally satisfied, but also admits he has found “some empirical regularities that are inconsistent with generic notions of efficiency”. Also, other authors (among others Golec & Tamarkin, 2003; Simmons, Forrest & Curran, 2003; Woodland & Woodland, 2001) find bookmakers do not offer totally efficient markets, and in several sports home / away or favourite / long shot biases have been found. However, these biases were, because of bookmakers’ margin, never big enough to provide long term profitable betting strategies for the bettor. The betting exchange
The business model of the betting exchange is radically different to the business model of the bookmaker. A betting exchange allows users not only to place bets on any sporting (or other) event, but also allows users to offer bets to other users, thereby in effect taking the role of the bookmaker. Similar to the model of a stock exchange, the user can buy (“back”) or sell (“lay”) bets at the price (odds) he or she wants. Only if the offer is matched by another user, the bet has “action”. Pool betting is not possible while betting with a betting exchange, every bet is placed against fixed odds. In other words, if a bet is matched, the payout of that bet is fixed, regardless of future odds movements.
The business model of the betting exchange is based on charging a commission on winnings to its customers, typically between one and five percent. Therefore, the betting exchange will make money regardless of the outcome of an event.
Figure 2 shows a screenshot of a betting market at the British betting exchange Betfair, for the same Dutch Eredivisie soccer-match that was shown earlier in this chapter. For example, if a bettor would decide to place a bet on Den Haag, in the match between Den Haag and NAC Breda, he would be able to “back” against odds of 2.16. This means if the bettor would stake € 10,00 on this outcome, a stake of € 21,60, minus the commission charged by Betfair, would be returned if the selection wins.8 So, the bettor would in this case make a profit of € 11,02, after being charged € 0,58 in commission.9 If the selection loses, the bettor would lose the original stake of € 10,00 and would pay no commission.
The bettor could also decide he is not happy with the odds that are offered at that time. He could place his own offer, for example to back Den Haag against odds of 2.18. If his offer is later accepted by another user, the bet stands against the requested odds.
Unlike betting with a bookmaker, a user of a betting exchange also has the possibility to stake money on a certain team not to win. For example, if a bettor would decide to place a bet against Den Haag, in the match between Den Haag and NAC Breda, he would be able to “lay” at odds of 2.18. If the bettor would lay € 10,00 on Den Haag not to win and proves to be right, he can keep this amount as profit, minus the commission charged by Betfair.10 So, the bettor would in this case make a profit of € 9,50, after being charged € 0,50 in commission. However, if the selection loses, the user would have to pay out on the original stake of € 10,00 against odds of 2.18, and will therefore lose € 11,80.
Since the betting exchange is a relatively new phenomenon, academic research into economic aspects of the betting exchange is still in its infancy. However, some recent studies have shed some more light. Tetlock (2003) finds different signs of inefficiency in wagering markets on American betting exchange Tradesports. Like in markets managed by bookmakers, evidence of biases were found, for example the
8 The amount of money the bettor on a betting exchange can stake at a certain odd, is dependent on the
amount of money offered at that time by other users. As shown in Figure 2, in the match between Den Haag and NAC Breda the bettor can stake a maximum of € 49,00 at an odd of 2.16. If the bettor would like to place a larger bet, he has two options: he can place the rest of his bet at odds of 2.14 or even lower. He can also place his entire bet at 2.16, and wait if the remainder of his bet will be accepted by other users at a later time.
9 The profit in this example is based on the assumption the user is charged a commission on winnings
of 5%. The percentage of commission a user of Betfair has to pay is dependent on the weekly turnover of the player.
10 In this case the selection will be a winner if Den Haag will not win. In other words, a draw or a win
bias of overreaction to news. Smith, Paton and Vaughan Williams (2006) show in their study the existence of a favourite - long shot bias at the betting exchange, but they argue this bias is in fact demonstrably lower than in more traditional betting markets. In other words, prices offered through the betting exchange are found by them to be more efficient than prices offered by the bookmaker.
Ozgit (2005) has also investigated the concept of the betting exchange, but from a “return-to-customer” point of view. He finds betting exchange Betfair is, even after commissions, offering significantly higher returns to customers in comparison to two British bookmakers. However, these findings are admittedly based on a dataset with a limited scope.11 Therefore, Ozgit notes that “future work should definitely focus on other markets”.
11 The study of Ozgit is based on a dataset consisting of odds of strictly NBA-Basketball matches,
Chapter 3: The betting exchange: a SWOT-analysis of
the sector
To be able to make future recommendations to a strategy betting exchanges should adopt to ensure their long term survival in the betting sector, it is important to first analyze the situation they are currently facing. Thompson III and Strickland, Jr. (2001) suggest using a “SWOT-analysis”, to determine whether a firm’s business position (or in this case, a sector’s business position) is fundamentally healthy or unhealthy. A SWOT-analysis can be used to measure a sector’s resource Strengths and Weaknesses, as well as its Opportunities and Threats.
Schermerhorn (2001) notes it’s important to realize every strength and weakness should be viewed relative to the competition. To be able to do this, the competition of the betting exchange must be defined. The most important competitor is the online bookmaker, that, like the betting exchange, mainly operates through the internet.
The SWOT-analysis has been performed by doing a literature study, including both academic studies and recent news-articles, about gambling in general and the betting exchange in particular. The results of the SWOT-analysis of the betting exchange is shown below. Every strength, weakness, opportunity and threat will be explained in the following pages.
Figure 3: SWOT-analysis of the betting exchange Weaknesses: - Effects of Metcalfe’s Law; - Bettors’ aversion to risk Strengths:
- Better odds;
- Less operational risk; - Lower transaction costs;
- Increase of market completeness; - Winning customers welcome;
Threats:
- More restrictive betting legislation (United States);
- Political lobby by bookmakers (UK);
- “Discount” bookmakers; - New entry from bookmakers; - Match fixing;
- Increase of gambling addiction; Opportunities:
- Less restrictive betting legislation (Europe);
- New markets (Asia / Australia); - Technological progress;
- Expansion to related sectors; - Migration of technology to
Strengths
- Better odds / Higher average pay-out to customers
Most authors agree the most important strength of the betting exchange is they offer customers better odds than the online bookmaker. Jones e.a. (2004) writes about the betting exchange “the odds on offer are generally much more competitive”. Griffiths (2005) confirms this statement, “they [the betting exchanges] provide excellent value for the gambler. There is no […] bookmakers’ mark-up on odds”. Betting exchanges themselves regularly claim they offer customers up to twenty percent better odds than the online bookmaker.12 A study by Ozgit (2005) which compares the returns of Betfair to the return of two bookmakers, already mentioned in the previous chapter, also showed higher returns. In addition, Betfair itself offers its customers a tool on its website which compares the odds available on Betfair with the average odds offered by bookmakers.13 Almost all of the odds offered by Betfair seem to be higher at first glance. However, Betfair only takes the odds of a maximum of four (British) bookmakers into account to compare their own odds with. Also, whether the claim of better odds will actually hold up for every betting exchange will be the subject of a study, presented in chapter 5 of this thesis.
- Less operational risk
A fundamental advantage of the business model of the betting exchange to the business model of the bookmaker is the fact the exchange (normally) is not a party in any of the betting-transactions that take place at the exchange. Therefore, according to Davies e.a. (2005) “Betfair has no interest in the outcome of any event it makes available”. Unlike the bookmaker, the betting exchange typically does not take any trading position and consequently makes money regardless of the outcome of the event. Laffey (2005) writes “in facilitating betting as a neutral intermediary the website [of the betting exchange] does not take on the risk function of the bookmaker and generates revenue by taking a commission from the winner”. As long as bettors
12 The claim of “up to 20% better odds” is made regularly by different betting exchanges. A few
examples can be found at: http://www.betbull.com/UI/Default.aspx,
https://secure.betonbet.com/portal/default.aspx?Redirect=1, http://www.betfairpromo.com, http://help.mybet.com/index.php?id=%2Fen%2Fbettingexchange,
https://www.tradesports.com/bet/bet.jsp.
make use of an exchange, bettors will pay commission to that exchange, and the exchange is guaranteed to earn a steady flow of income.
- Lower transaction cost
Davies e.a. (2005) argue an important strength of the betting exchange consists of the fact the betting exchange considerably reduces transaction costs in comparison to the bookmaker. In economic literature Dahlman (1979) identifies three different types of transaction costs: search and information costs, bargaining and decision costs, and policing and enforcement costs.14 In analyzing the role of the betting exchange in reducing transaction costs, the focus should be on search and information costs. According to Dahlman, this factor only exists as a consequence of “imperfect information about the existence and location of trading opportunities or about the quality or other characteristics of items available for trade”. In sports betting traditional bookmakers also incur search and information costs. According to Davies e.a. “traditional bookmakers need to be well informed (studying horse racing and sporting events carefully) in order to make odds, and need to monitor market changes constantly in order to avoid being taken advantage of, or of being over-exposed”.
Unlike a bookmaker, the task of the betting exchange does not include actively monitoring a certain market. Markets for sporting events need to be created, and, when the event has taken place, settled according to the result, but that is where the responsibilities of the betting exchange end. The betting exchange does not need to hire a specialist to determine the odds on the probabilities of any of the parties winning, and adjust odds if necessary, but the betting exchange, as Davies e.a. writes “simply provides the platform”. The concept of the betting exchange can therefore significantly reduce search and information costs (and therefore also reduce transaction costs), in comparison to the traditional bookmaker.
- Increase of market completeness
The business model of the betting exchange allows its users to bet (back), but also to offer (lay) money, against whatever odds they like, at whatever time they like, on whatever event they like. Laffey (2005) writes “its [the betting exchange] main innovation was that it allowed users to set their own fixed odds against an outcome
14 Dahlman has based his study on the work of Coase (1937), who first introduced the concept of
[…] something which had previously been the preserve of bookmakers”. According to Davies e.a. (2005) “with a click of the mouse they [the bettor] can essentially do what Ladbrokes or William Hill [the bookmaker] does”. Also, the bettor has the opportunity to adjust his own betting position at a later time, for example buying or selling back his own bet at different odds, thereby possibly even securing a profit before the event he was betting on has even started. In short, the betting exchange has opened up a whole new range of betting strategies for the bettor, which were not possible while betting with a bookmaker. In economical terms, it is therefore safe to say betting exchanges have increased market completeness. A “complete market” is defined by Figlewski and Webb (1993) as “one in which, for each possible state of the world, an investor can create a strategy that has a positive pay-off in that state and zero in every other state”. Although Figlewski and Webb admit markets are “bound to remain far from complete”, they have found, while studying traditional financial markets, a higher level of market completeness tends to improve market efficiency. There is no reason why the same mechanism should not also apply to betting markets, which is also consistent with findings concerning a study about betting exchange market efficiency by Smith, Paton and Vaughan Williams (2006).
- Winning customers welcome
Laffey emphasizes, also in the betting exchange bettors might not always be able to bet the amount the money they want to stake. Not because the betting exchange will limit them, but because it is possible there is simply just not enough liquidity available at the betting exchange to match larger bets at the requested odds.
Weaknesses
- Effects of Metcalfe’s Law
Probably the most important potential weakness of a betting exchange is not having enough users (and liquidity) to be able to attract new users. According to Davies e.a. (2005) Metcalfe’s Law, a law related to the concept of network externalities, is an important factor to explain the success or failure of a certain betting exchange. Metcalfe’s Law predicts that network value is proportional to the size of the network, and that individual user’s utility is a linear function to network size (Swann, 2002). Applied to the case of the betting exchange, Metcalfe’s Law predicts that the more users a betting exchange has, the more offers will be made, and the bigger the chance will be that any individual player at that exchange will find a reasonable offer to his liking. As a result the chance that the user will join the exchange and start making offers for himself will also increase.
However, Metcalfe’s Law can also be applied the other way. In the start-up stages of a new betting exchange, the number of customers of that exchange will be limited, and as a result the number of offers will also be relatively small. Potential customers will for that reason be less inclined to join that specific exchange. The exchange should, because of the effects of Metcalfe’s Law, have a very hard time achieving a large enough scale to become profitable, especially when the competition has already been more successful in the past. As Mainelli and Dibb (2004) comment “liquidity, once established, is hard to shift”. For obvious reasons, a start-up bookmaker does not face any of these liquidity problems, because the bookmaker is by definition the only party making offers on its own betting platform, regardless of the number of customers.
told newspaper “The Guardian” in 2005 “it became immediately clear that to develop [it would be necessary] to seed the markets to create liquidity and attain a critical mass of clients to support the business model”. Seeding could indeed be a solution to creating more liquidity at a betting exchange, but needless to say it is also a financially very risky solution.
- Bettors’ aversion to risk
After identifying a number of important strengths of the betting exchange in the first part of this chapter, especially the important strength of better odds, it raises an important question as to why bookmakers, despite the arrival of the betting exchange, continue to be profitable. Ozgit (2005) defines the fact “bookies attract a lot of betting although better returns are available elsewhere” as “the bookie puzzle”. A solution to the bookie puzzle could very well be bettors’ aversion to risk. In the betting industry the success of a bookmaker has always been dependent on its ability to build a reliable “track-record”. This can be explained by the fact that a bet placed with a bookmaker, in almost every country in the world, is very hard to enforce by the bettor. For example, in the United Kingdom, seen by many as one of the most liberal countries in the world with regards to betting, a bet is not legally enforceable (and therefore often referred to as a “gentleman’s agreement”). As Pitt e.a. (2004) puts it, “even with a valid betting slip, the bookmaker is not obliged to honour a winning bet”. Mainelli and Dibb (2004) conclude that in the absence of legal enforceability, the concept of trust is essential in the betting industry.
Since the betting exchanges have not been around for long, unlike some of the online bookmakers who have a long history of offline bookmaking behind them, the possibilities for building a decent track-record have been limited. To make matters worse, some betting exchanges (for example Sporting Options and Play121) have had to file for bankruptcy in recent years, while others (for example Back2Bet and The Soccer Exchange) have vanished from the face of the earth, taking the funds of customers with them.
marks regarding the reliability of a betting exchange, he might very well prefer to keep on betting with the bookmaker he has been betting for years, despite lower odds, but less perceived risk with regards to bettors’ funds. It’s therefore essential for the betting exchanges to gain the trust of the bettors. Betfair has addressed this issue by making a promise to customers all funds will be held in so called “ring-fenced” subsidiaries, to prevent the company funding itself by customers’ deposits (Hoare, 2002). Also, in some cases of bankruptcies, other betting exchanges have stepped up to help victimized customers. The most notable example of this being the rescue package offered by Betfair, after British betting exchange Sporting Options had to cease operations.15
As the concept of the betting exchange will become more widely known in the coming years, it is likely bettors’ aversion to risk will become less of an issue, although it remains to be seen to what extent betting exchanges will actually be able to earn the trust of even the most risk-aversive bettor.
Opportunities
- Less restrictive legislation (Europe)
In many European countries it is only possible to bet on sports through a state-owned subsidiary. Any other betting company is restricted from offering betting services to the citizens of that country, and risks legal action if the company does not comply to national regulations. Recently betting companies, both betting exchanges and bookmakers, have filed complaints with the European Commission to overturn these national laws.16 Betting companies have argued that in many cases national legislation is in contradiction to policy of the European Union (EU) regarding free movement of services, as well as the goal of the EU to create one single European market.
The EU has repeatedly stated it does allow member states to restrict the access of sports betting operators on a national level, but only to maintain the public order (for example: to prevent fraud), to protect the consumer (for example: to prevent gambling addiction) and to ensure the maintenance of the social order. However, any measures taken by member states must be necessary, proportionate and non-discriminatory. According to a study ordered by the European Commission and
15 http://networks.silicon.com/webwatch/0,39024667,39125945,00.htm.
published in 2006, members states which restrict sports betting must have a “desire to bring about a genuine diminution of gambling opportunities”.
Betting companies complain this desire from national governments is severely lacking, as state betting operators often even encourage gambling by making use of aggressive advertising campaigns.17 The European Commission seems to have taken these complaints seriously and announced it has asked for information from member states to start an investigation into national gambling legislation in Denmark, Finland, Germany, Hungary, Italy, the Netherlands, Sweden (4th of April 2006), France and Austria (12th of October 2006).18 Although the European Commission is quick to emphasize in press releases this investigation as such has no implications for the liberalization of the sports betting market, it does seem to be a small step in that direction.
The liberalization of the European betting market would offer a great growth opportunity for the entire betting industry, including the betting exchanges. To underline the potential, according to the previously mentioned study ordered by the European Commission, in 2003 the gross gaming revenues, the winnings of the operator minus payments of prizes, in European member states reached a level of approximately € 51.500 million (compared to € 60.700 million in the USA), of which 17,2% was generated in activities related to sports betting.
- New markets (Asia / Australia)
Whereas online betting companies have previously targeted Europe and the United States as their primary sales region, Asia and, to a lesser extent, Australia, seem to have been overlooked up until recently. Especially Asia offers huge growth potential, if simply because of the enormous size (and growth) of the population. However, this is not the only reason. Asian and Australian bettors also seem to be betting more money per person. According to Mark Blandford, founder of online-bookmaker Sportingbet, the average bet size from their Australian and Asian customers in 2003 reached up to an impressive ₤ 226 per bet. In comparison, the average bet size of European and American customers over the same year amounts to “only” ₤ 22 and $ 59 per bet respectively.19 These results are in line with findings of the OECD, The Economist Intelligence Unit and Merrill Lynch, who have performed research into
17 See also: http://www.eu-ba.org/legislation.html.
the propensity to gamble as a percentage of consumer spending in continents across the world. Australian bettors showed a tendency of betting up to 5,5% of consumer spending, while Asian bettors were inclined to bet 1,8%. These findings differ significantly from the rest of the world. The propensity to bet in the United States amounted to 1,0%, in the United Kingdom to 0,9% and in the rest of Europe to “only” 0,4%.
The demand for betting services in Asia and Australia has already been filled partially by the rise of (often unlicensed and illegal operating) local bookmakers, but also international online bookmakers are starting to find their way towards the Far East. However, the region is pretty much unexplored territory for betting exchanges. A first move was made by Betfair, which managed to acquire a license to enter the strictly regulated Australian betting market in the beginning of 2006, but this will no doubt not be the last investment by betting exchanges in this region.20 As Betfair’s co-founder Andrew Black told the newspaper “Scotland on Sunday” in 2005 “Geography is an absolute priority. It’s a land grab right now”.
- Technological progress
The internet itself, the channel through which the betting exchange operates, has worldwide already become an accepted factor in the daily life of many people. However, the internet has also created many new possibilities for other, related innovations, like the invention of the betting exchange. Moore’s Law, an observation which dictates that the speed of microprocessors, at a constant cost, doubles every eighteen to twenty-four months, predict this trend will continue in the future. As Davies e.a. (2005) write “experts today generally agree that Moore’s Law will continue to govern the industry for another fifteen years, at least”. As processing power continues to grow, new innovations will be made possible. Therefore, both bookmakers and betting exchanges, are continuously looking for new possibilities to improve their service. For example, some betting exchanges have, in cooperation with mobile phone companies, recently started offering customers the possibility to bet by making use of their mobile phone.21
Many innovations are focused on trying to simulate the environment of the old-fashioned “brick-and-mortar” betting shop, which to many was a social meeting
20 http://www.betfaircorporate.com/pdf/australia_licence.pdf.
point, but also offered live television coverage of many sporting events. Therefore, betting exchanges are searching for ways to encourage the customer to interact with other customers during the betting process, for example through internet forums.22 Also, betting exchange Betfair has recently started an experiment offering customers free live-stream coverage of football and tennis matches through its website.23
These enhancements are mostly still in its infancy, but do open up opportunities for the future. Through cooperation with third parties, who are responsible for the development of the applications, and an improvement of available technologies, it will be possible for betting exchanges to significantly improve the “betting experience” of the customer.
- Expansion to related sectors
Like many online bookmakers, more and more betting exchanges are investing in broadening their product offering with other gambling products. An example of recent expansion into sports betting related products is the offering of live-betting. In live-betting it is possible for bettors to not only place their bets at the exchange before a game starts, but also during the game as the match is being played. According to Laffey (2005) “Betfair have stated that for some events they have matched up to ten times more in-play than beforehand, showing the appeal of this product”.
Betting exchanges are also expanding into other gambling products, completely unrelated to sports betting. By offering customers a “one stop shop” for all of their gambling needs, exchanges hope to profit from the growth in other gambling sectors, for example the enormous growth of online poker.24 For that reason some betting exchanges have already started offering their customers the possibility to play poker, blackjack and casino through their own website. Betfair writes in its annual review of 2006 “These unique exchange-enabled products offer further opportunities for customers and reinforce our reputation for innovation”. By expanding the offering to customers, the betting exchange hopes to not only increase the total number of customers, but also to increase the spendings per customer.
22 For example: http://forum.betfair.com/. 23 For example: http://livevideo.betfair.com/.
- Migration of technology to unrelated sectors
In 2003 the CEO of Betfair, Stephen Hill, told British magazine New Media Age in an interview he doesn’t see Betfair as a gaming company, but mainly as a “internet technology company”. Hill announced in the interview he plans to take Betfair “into entirely new areas of business”. He emphasized the technology which is needed to run a betting exchange, could be used for several other internet concepts that are completely unrelated to gambling, for example an online auction site.
Also, there’s an increasing interest of polling and news agencies in the exchange-technology. In the past prediction markets have proved to predict future events better than traditional opinion polls. According to an article published in the magazine Science News in 2003, an academic project called “the Iowa Electronic Markets” for more than a decade has managed to predict the outcome of the American presidential elections more accurately than 75% of the polls. For that reason more and more agencies start operating their own future predicting market to be able to more accurately predict a certain future event. For example, the Dutch daily newspaper “De Volkskrant” recently started an exchange, by using technology of American news-exchange Newsfutures.com, to predict the outcome of the Dutch elections of 2006.25 Users of the market are free to trade virtual stakes in political parties with small sums of money to predict which party will win the elections. If their estimate proves to be right, they receive a (small) payout. The prices at which the parties are “traded”, gives “De Volkskrant” up-to-date information about how successful the different parties are campaigning before the elections. Newsfutures.com is an online exchange that specializes in offering news events instead of sporting events, but in almost all other aspects completely resembles a sports betting exchange.
Threats
- More restrictive betting legislation (USA)
In October 2006 American President Bush signed a law, called the Unlawful Internet Gambling Enforcement Act, which makes it illegal for American based banks, credit card companies and online payment systems to process payment to online gaming companies.26 While betting through the internet, like in so many countries around the world, has always been a “grey area” in American law, and rules on gambling vary
25 This exchange can be found at https://devolkskrant.newsfutures.com.
greatly from state to state, the American betting industry has shown enormous growth in the last couple of years. Because the Gambling Enforcement Act, which came as a big surprise to the betting industry, makes it almost impossible for bettors to deposit or withdraw winnings from their betting accounts, industry experts believe the Act could mean the end of most of the off-shore online American betting industry.27 Not unexpectedly share-prices of publicly traded betting companies lost up to 70% of their value following the news of the Act.28
Although betting exchanges are still a relatively uncommon phenomenon in the United States, a few particular betting exchanges had already build a solid American customer base. Some of these betting exchanges, for example British exchange IBetX, that accepted American bettors before the Act was signed, have now decided to stop accepting American customers altogether, and will therefore likely lose a big part of their customer base. Whether these exchanges can cope with the revenue losses they will incur because of the Act remains to be seen. Other exchanges, including Mansion.com, have announced they will still allow Americans, but will, before the Act comes into full effect, have to think of a (legitimate) way to still be able to accept deposits and process withdrawals from and to American customers. A third group of exchanges, which includes Betfair, have, even before the Act was signed, always refused American citizens because of unclear legislation. For these companies short term effects are obviously far less serious, although also for these companies a very large potential growth market has been taken away.
Clearly, the passing of the Gambling Enforcement Act will have big consequences for the entire gambling industry, including the betting exchanges. However, since the Act was signed very recently and it is still unclear how aggressively the Act will be enforced, it is too early to be able to make an exact estimate of the scope of this threat.
- Political lobby by bookmakers (UK)
The rise of the betting exchanges has not gone unnoticed by their main competitors, the bookmakers. Many of these bookmakers claim that bettors that “lay” a bet at a betting exchange are in effect taking the role of the bookmaker, and therefore should be subjected to the same regulations as the bookmaker. In the United Kingdom
27 http://www.law.duke.edu/journals/dltr/articles/2003dltr0016.html.
bookmakers need to apply for a (costly) license to operate legally, and also pay fifteen percent tax on their winnings. Of course, if every bettor that has ever laid a bet at a betting exchange would be obliged to follow these same regulations, this would pose a very serious threat to the business model of the betting exchange.
David Hood, a spokesman for leading British bookmaker William Hill, commented on this issue in 2003 in the International Herald, “if I stand […] outside a betting shop and offer to lay a bet which you take, I am breaking the law, because I am not a licensed bookmaker,", but "if we both boot up laptops in the street and strike the bet using a betting exchange, I am not breaking the law? What is the difference?". Betting exchanges have defended themselves by claiming not the bettor, but the exchanges themselves are in fact acting as a bookmaker, because they are the ones who collect the deposits and pay the winnings. Therefore they claim only they should be obliged to acquire a license and pay taxes on their winnings and not their customers.
A British parliamentary commission investigated this issue in 2004 and overthrew the argument of the betting exchanges in their report. They advised the government to start considering bettors that lay a bet at a betting exchange as a bookmaker and therefore to subject them to the same rules. To the dismay of the bookmakers’ lobby, at that time the British government decided to ignore the advice of the commission, because of practical problems implementing the proposed measures. According to Laffey (2005) there were problems of definition and also problems enforcing British legislation on the foreign users of the exchange. However, beside of there being no guarantee the British government in the future will not again attempt to tackle these practical problems, it remains unknown how other countries in the world will decide and possibly impose restrictions regarding this subject.
- “Discount” bookmakers
bookmakers tend to offer their customers overround books of 0,955 in these markets. Pinnacle manages to offer it customers overround books of 0,976. Musumeci and Peterson calculated that a bettor betting on an event with two equally probable outcomes would need to win 52,4% of his bets to break even with a typical bookmaker, while a winning rate of “only” 51,2% would suffice to break even while betting with Pinnacle. As a consequence of the competitive odds Pinnacle is offering, Musumeci and Peterson conclude “Pinnacle’s margins are smaller”. These smaller profit margins are responsible for the fact the discount-bookmaker is, like a typical betting exchange, very dependent on volume to survive and therefore needs to attract not only a large amount of customers, but also attract professional bettors, who will typically “shop around” to find the best odds available for a certain event. Like betting exchanges, Pinnacle (and also its incumbents) use the argument of better odds as its main selling point to attract new customers, advertising on their website with slogans like “We take on the high margin operators” and “Pinnacle is where the pros play”.29 In short, a betting exchange and a “discount” bookmaker have a lot in common, and are very much targeting the same kind of bettor, although both are operating in entirely different ways. Although a betting exchange can in theory offer an overround book of zero percent to its customers, commissions on winnings (especially if these commissions amount to as much as five percent) will make it likely the betting exchange in practice will not be able to offer better odds than the discount-bookmaker. This would obviously pose an important threat to the most important strength of the betting exchange: offering better odds than the traditional bookmaker.
- New entry from bookmakers
The previous two threats have shown traditional bookmakers have so far challenged the betting exchanges to both a legislative battle, and by developing a new business model focused on reducing overround. However, bookmakers have not yet challenged the betting exchanges “heads on”. The future might be different though. Mainelli and Dibb (2004) predict “a future with exchange(s) at the centre as mechanism for price formation”. As the concept of the betting exchange will become more and more familiar to the big public and will keep on growing in size at the expense of the bookmakers, it is not hard to imagine this will attract outside interest. This is why Mainelli and Dibb estimate it’s “extremely likely” traditional bookmakers will in the
near future open their own betting exchange. Mainelli and Dibb write “despite frequent attacks on the exchange model, traditional bookmakers would be commercially naïve, if they were not also looking into opening their own exchange”. Although in recent years there have been some attempts by bookmakers to start their own betting exchange, the biggest bookmakers have not yet made any moves in this direction.30
However, recently there has been talk of British bookmaker-giant Ladbrokes being interested in the take-over of betting exchange Betdaq.31 Also, according to Laffey (2005) there have been rumours regarding a possible launch of one or several new betting exchange(s), offering down to zero percent commission, by the “Big Three” , the three biggest British bookmakers William Hill, Coral and Ladbrokes. Mainelli and Dibb rate such a possible venture as “a formidable challenger” to in particular Betfair, if only because of its “established customer base, resources and marketing skills”. Of course, these are all speculations, but speculations Betfair should take very seriously.
- Match fixing
Since the beginning of sports betting, there have been many examples of bettors trying to influence sporting events to secure a favourable outcome. These practices have always been seen by sports governing bodies as a serious threat to the integrity of sports, but have also been very difficult to prove. Recently though, both online bookmakers and sports governing bodies have claimed the rise of the betting exchanges has made it easier for bettors to profit from insider trading. For example, Owen Byrne of the Jockey Club commented on this issue “there is a threat to the integrity of racing” (Stanley, 2003). As already mentioned earlier in this thesis, a betting exchange allows bettors to bet against a certain competitor, rather then just predicting the winner. According to Jones e.a. (2004) “unscrupulous horse racing trainers and jockeys, for example, could lay their horse to lose, […] securing winnings for themselves”.
This argument however has been heavily disputed in the press. For example, according to an article in the Economist in 2003, a bettor placing a bet at a betting exchange will first need to identify himself before signing up, while a bettor placing a
30 An example of a bookmaker which has opened its own betting exchange is American bookmaker
World Sports Exchange. The investment group behind WSEX, is also the founder of betting exchange Matchbook. See also:
http://www.sportsbookreview.com/Search/default.aspx?Search=WSEX&Area=Site&Submit=Home.
bet at a betting shop can do so without even mentioning his name. In case of an investigation it will therefore be much easier identifying a bettor who used the betting exchange, than identifying a bettor who made a bet with a (off-line) bookmaker. This will obviously take away much of the appeal of insider trading with a betting exchange. Also, a study by Smith, Paton and Vaughan Williams (2006) proved the amount of insider trading in a betting exchange is generally even lower than the amount of insider trading with a bookmaker. The authors emphasize they do not deny the existence of isolated cases of insider activity in the exchanges, but suggest these activities are definitely not widespread.
Nevertheless, the suspicion of match fixing is of course particularly damaging for the public image of the betting exchange. Betfair has therefore decided to take matters into its own hands. It writes in its annual review of 2006 “a series of ‘MoUs’ (Memorandum of Understanding) have been signed with sports bodies over the year”. These Memorandums, which Betfair has signed with among others, the Jockey Club (horse-racing), the ICC (cricket), the FIFA (soccer) and the ATP (tennis), include Betfair reporting suspicious betting patterns to the relevant sports governing bodies, thereby making an investigation into match fixing possible (which has already led to several suspensions and lawsuits).32 However, as sports betting will grow worldwide, it is likely the number of incidents of match fixing will also increase. Only in the last couple of years several big betting scandals have been discovered, reaching up to the very highest level of professional sports, for example in both the German Bundesliga (soccer) and the Italian Serie A (soccer).33
- Increase of gambling addiction
According to a recent article by Griffiths e.a. (2006) the popularity of gambling through the internet is becoming more and more of an issue for concern regarding problematic gambling behaviour. In an earlier publication Griffiths (2003) already pointed out why gambling through the internet could lead to a rise in gambling addiction. The most important arguments made by Griffiths include the fact the internet makes gambling much more convenient than betting in the casino (the bettor does not even have to leave the comfort of his own home), the much higher event frequency of gambling opportunities on the internet and the asocial and
anonymous character of internet gambling. Griffiths also suggests the concept of electronic money will likely not be perceived to have the same value as “real” cash, which could cause the bettor to risk more money than he would have done in the “off-line world”.
Griffiths has made a list of recommendations for Internet gambling service providers to act “socially responsible”. The vast majority of these recommendations have been picked up by both bookmakers and betting exchanges. For example, the implementation of age checks, the possibility for customers to set their own betting limits, the need to confirm any placed bet to offer the customer the possibility to change his mind, the inclusion of reference to controlled gambling, and the inclusion of reference to helping agencies and help lines. However, although the online betting industry is showing its willingness to fight the problem, gambling addiction not only poses an important threat to the image of the betting industry, but could also in the future remain the most important reason for national governments worldwide to restrict their citizens the possibility to gamble online.
Summary
Reviewing the strengths and weaknesses of the betting exchange, it is clear the betting exchanges do have some unique strengths over the traditional bookmaker. Strengths like better odds, the possibility to request your own odds, and the fact even winning players are welcome will especially appeal to bigger, more professional bettors. Nevertheless, betting exchanges have not been around long enough to gain the complete trust of the bettor, which will be a turnoff to especially risk-averse recreational bettors. However, it is likely this problem will become less of an issue as the betting exchange will become a more familiar phenomenon in the betting industry.
The betting exchange also possesses some strengths regarding a reduction of transaction costs and a reduction of operational risk. However, an important weakness of the small betting exchanges is they will have a lot of trouble attracting new customers because of the negative effects of Metcalfe’s Law.
developments the exchanges have not much direct control over, but obviously will have to be taken into account when developing a strategy for the future.
Other opportunities, like the growth possibilities in Asia and Australia, as well as possibilities to diversify into other forms of gambling, look very promising and should be considered by the exchange. Also, some of the threats, for example the negative effects of match fixing and gambling addiction, become less of an issue when a policy is developed proactively how to deal with these problems.
Chapter 4: The betting exchange: An individual
analysis
After reviewing the business climate for the whole betting exchange sector in chapter 3, in chapter 4 betting exchanges will be analyzed on an individual basis. According to the website Bookmakersreview.com in November 2006 there were thirty-five different online betting exchanges in business.
Bookmakersreview.com is a website, founded by a group of insiders in the worldwide betting industry.34 The website operates as an independent “watchdog”, trying to protect bettors from unscrupulous betting companies operating without any licence or operating from unregulated countries. Bookmakersreview.com is also known to mediate in disputes between bettor and bookmaker and maintains a rating guide to help bettors choose a trustworthy bookmaker. The ratings in the rating guide are, based on, among others, financial aspects, jurisdiction, owners and management, years and size of operation, customer service, payouts and website security. 35 Also, feedback from customers of the bookmaker in question is taken into account. Bookmakersreview.com emphasizes, to protect its integrity and credibility, it will never accept any payments for reviewing online betting companies.
The analysis of individual betting exchanges in this chapter excludes betting exchanges that were rated by Bookmakersreview.com as below “Average”. Also, companies that merely operate as a “skin” of an established betting exchange and bear no responsibility with regards to customer relationships and the management of funds, were not taken into review. This leaves fourteen betting exchanges which will be compared on a number of characteristics.
In chapter 3 a number of strengths, weaknesses, opportunities and threats were identified for the entire betting exchange sector. To investigate which betting exchanges are currently successful in making effective use of the identified strengths, marginalizing the identified weaknesses, investing in the identified opportunities and reducing the effect of the identified threats, a selection has been made of criteria derived from the SWOT-analysis, which were fit for comparison from betting exchange to betting exchange.
Since only three out of fourteen exchanges are currently publicly disclosing financial results, a full-sector comparison derived from financial factors proved impossible. Also, since a majority of the factors identified in the SWOT-analysis can not be concretely measured (for example the way a certain betting exchange is arming itself against the threat of the “political lobby by bookmakers in the United Kingdom”), it was not possible to derive criteria from these factors.
Ultimately this elimination resulted in seven criteria, which were selected for this comparison, all of which are shown in figure 4 on the next page. Also, in the following pages all of these criteria will be reviewed. Beside these criteria, the betting exchanges were also compared based on the country they are operating from, the amount of commission they are currently charging their customers over their winnings and the rating they received from Bookmakersreview.com as of November 2006.
Weakness Opportunities Threats
Name Country (1) (2) (3) (4) (5) (6) (7) (8) (9)
Betbug.com Jersey (UK) 5,0%, max
$20
3 N N Y N N Y 4/2/7
Betdaq.com Ireland 2,0% - 5,0% 4 N N* N Y N N 5/2/6
Betfair.com United Kingdom 3,0% - 5,0% 4,5 Y Y Y Y Y N 8/2/3
BetonBet.com United Kingdom 1,5% - 3,0% 3+ N Y Y Y Y Y 3/2/8
Betsson.com Malta 4,0% 4- Y N* Y Y Y N 8/2/3
IBetX.com United Kingdom 1,0% - 3,0% 3 N N Y N N N 6/2/4
Mansion.com Gibraltar (UK) 0,0% - 0,5% 4 N N* Y N Y Y 4/2/7
Matchbook.com Antigua 2,0% 3+ N N Y Y N Y 3/2/8
MyBet.com Malta 5,0% 3+ N N* Y N N Y 5/2/6
Parbet.com Malta 1,5% - 4,0% 3 N N Y Y Y Y 5/2/6
Redbet.com United Kingdom 4,0% 3 Y N* Y N Y N 5/2/6
Spreadfair.com United Kingdom 3,0% - 5,0% 3 N N N N N N n.a.
Supporterbet.co m
United Kingdom 5,0% 3- N N Y N N N 3/2/8
TradeBetX.com Ireland differs 3 N N Y Y N** Y 3/2/8
(1) Commission charged by the exchange, as a percentage of winnings. Excluding temporary promotional offers;
(2) Rating of the exchange according to Bookmakersreview.com: a rating of three equals
“Average”, a rating of three-and-a-half equals “Adequate”, a rating of four equals “Good”, a rating of four-and-a-half equals “Excellent, a maximum rating of five equals “Exceptional”;
(3) Exchange is (part of) a publicly traded company, and/or is disclosing full financial information, and therefore giving customers insight in its financial “track-record”;
(4) Exchange offers its customers the possibility of placing multiple bets (a bet which combines the outcome of several unrelated events);
(5) Exchange is currently accepting customers from the nine European nations, whose gambling policy is under investigation by the European Commission;
(6) Exchange offers its customers the possibility of live-betting;
(7) Exchange offers its customers a betting portal, including casino and poker platform; (8) Exchange is currently accepting customers from the United States (despite the Gambling Enforcement Act);
(9) Number of recommendations, made by Griffiths (2006), the exchange has / unclear / has not implemented with regards to socially responsible gambling (see appendix 1);
* The exchange does offer the possibility of placing multiple bets; however, not trough the exchange, but by offering the bets itself ;
** The exchange does offer a poker-platform, but does not offer a casino-platform;
- Country
The betting exchanges are relatively one-minded concerning the location they have settled. Both the United Kingdom and Ireland prove popular locations, as well as British “off-shore” locations and the European tax-heaven of Malta. Only betting exchange Matchbook.com has chosen a more exotic location to do its business at, the Caribbean island of Antigua. All of these countries are known for their liberal views on gambling.
- Commission
The comparison of the amount of commission customers from the different betting exchanges have to pay revealed some interesting differences. It clearly shows five percent is the absolute maximum a betting exchange charges its customers, and there are quite a few betting exchanges who have managed to lower these percentages significantly.
