Betfair business model

Hi everyone,

Ill keep the question short. As some of you might have known, www.betfair.com is now by far the world largest and most successful betting exchange, ahead of its nearest rival, betdaq.com by miles.

My question is, betfair is charging a comission on all players 5% on their "net winning" on a market. If you have a net loss on a market you do not pay commission. The official reason given by betfair on why they came up with this comission struture is because this will entice traders to trade on their market and thus increase liquidity.

Commission is calculated by multiplying your net winnings by the Market Base Rate which is 5% normally, for simplicity purposes, we will not take into account the discount rate.

Now, suppose i have another model of business, charging players on both the "Bet" and "Lay" transactions, but at a rate of 0.2cents for every bet dollar and 0.4cents for every lay dollar.

I would like to know the mathathemics behind these 2 models in which model is more benefical to the company and punters alike. Or if they both have their own pros and cons, at which thresehold will 1 overtake the other. The impact can be both business and pychological as well.

Thanks aplenty

I use Betfair on a daily basis, and have done so since it was launched.

Firstly you pay 5% on ALL profit, whether you lay or back. If you back at 10.00 for £100, you win £100 and profit £90, so pay 5% of £90. If you lay the same selection for £10, and the bet loses (ie a lay win) you win £10 and pay 5% of £10.

Secondly if you trade at lot, circa £10,000 a week, you can pay only 2.5% on most markets. This is easily achieved if your running a book or backing and laying.

Thirdly, many have tried to outprice Betfair, and none have managed it. No offence intended but what makes you think you can achieve it? The reason Betfair is the most popular is the liquidity within it, most Premier League football (or soccer, yuk) matches have in excess of £10,000,000 traded on them, and there are about 10-13 a week. Your exchange is only as good as the punters within it. 4% is great but if no-body is there to trade its worth nothing. Look at eBay, as much as I hate the corporation (making you use paypal when you join should be looked at!) they are the market leaders by a similar margin to Betfair.

Fouthly, I will lay you 1000-1 that you never even make 1% of Betfair's turnover if you attempt this ;-)

Oh, Welcome to the forum!

Betfair also charge an additional commission on punters who's normal commission paid amounts to less than 20% of their gross profit. It mainly effects those who trade.

Thank you for the prompt reply wizard.

Betfair is no doubt the world biggest exchange, but it is not the only successful betting exchange in the world. Over in Asia, there are a couple of exchanges specialising in their own niche market that is doing extremely well and they are not in view of the public eye. Asia has one of the highest gambling population among the world, where do you think are all these monies?

My particular area of interest is in horse racing, whereby monthly turnover is in the region of 300million gbp in one of the exchange in Asia. My question remain as whether betfair's way of taxing players is better or the 2c/4c we were talking abt earlier as superior.

Im looking for some math or reason on these 2 models.

Awaiting your kind comments.

And if this thread is able to generate substantial interest, i will be more than happy to share the exact mechanics on how those asia exchange work, i think many will be amazed by it.

Quote: Wikipedia on Betfair

Zero Lounge
In 2006 Betfair Casino introduced its "Zero lounge - where the house has no edge". According to Betfair, perfect play should result in the player having an equal chance of winning or losing. For example, the roulette wheel has no zero. This means that someone playing red-black, odd-even, or high-low has an exactly 50% chance of winning, (as opposed to a 48.65% chance on a normal roulette wheel with a zero). However, in some games, such as blackjack, it is necessary to learn perfect play in order to match the house. Players who draw a card when they have 17 or more are likely to lose money to the house. The zero blackjack rules have been slightly modified (re-written) compared to normal European blackjack. For example natural suited blackjacks pay 2 to 1 instead of 1.5 to 1, Any five card 21 automatically pays 2-1, pairs of aces cannot be split, all other pairs can be split, including 4s, 5s, and 10s, only one split is allowed, doubling is allowed on 8, 9, 10 and 11, including "soft" 18s, 19s, 20s and 21s, and insurance can be taken any time the dealer shows an ace, no matter what cards the player holds.
The games offered in the Zero lounge are blackjack, roulette, baccarat, Jacks or better and Crazy Eights .

I don't want to hijack the thread, but we don't have Betfair in the USA. I sort of understand this Zero lounge, as you can make money on player errors. All except for roulette. Since there is no skill at all, is roulette just a loss leader, to get people to play?

There still is a very small edge on most games (sub-0.1%). Most Betfair services also charge you a commission on cashout, and these are the ones most used.

Quote: P90

There still is a very small edge on most games (sub-0.1%). Most Betfair services also charge you a commission on cashout, and these are the ones most used.

That makes sense. They should offer craps.

Yeah, I've long wanted to play zero-edge craps. It would be a completely different game with all these sucker bets suddenly being as good as any other. Of course, computer craps isn't quite the same, lacking the crowd psyche and hands-on illusion of control, but it would still be interesting.

Its been a long time since I looked at Betfair or the like.
I know there have been some developments in Betting Exchanges and in Online Bookies.

As to business models its been strange to see how certain firms take off financially and do really well yet Look Alikes and Me-Too type places often fail to thrive.

Twitter? EBay? Yelp? Some of these new social media sites and news aggregator sites seem to prosper but it seems there is no way to unseat the first firm. Twitter offers nothing that can't be duplicated by someone else, other than words such as Twitter and Tweet.

In theory WeatherBill, a betting exchange from a few years ago that was only open to those with a million dollar or more account could be taken down by an amateur with a streak of larceny in him, but firms seem to prosper. Now people seem to bet on the weather, sporting events, news events, Hollywood starlets, anything.

i believe all these could be due to first mover advantage.

The moment, u get the critical mass and the company is half decent and improving, it will be tough for other to follow suit, unless again, they have an USP or have some form of diruptive innovation.

not to digress, anyone have solution to my initial question.

cheers

Quote: FleaStiff

In theory WeatherBill, a betting exchange from a few years ago that was only open to those with a million dollar or more account could be taken down by an amateur with a streak of larceny in him, but firms seem to prosper. Now people seem to bet on the weather, sporting events, news events, Hollywood starlets, anything.

Is it actually a betting exchange? I mean, the principle is still that if an event happens, you get paid, but it's the same principle with any exchange market. They seem to rather offer an indirect form of hedging.

Quote: P90

There still is a very small edge on most games (sub-0.1%). Most Betfair services also charge you a commission on cashout, and these are the ones most used.

I have never been charged on cashout in the 6 years I have used them. They do have a 1.5% charge for credit card deposits. Not sure about other methods of deposit as I haven't investigated them but my understanding is direct debit from bank accounts incurred no charge.

Betfair has a much larger capital than you, even if you did manage to get started all Betfair would have to do would be to undercut you until you run out of business.

I would believe alot of you are still mistaken. Betfair's core market is in UK, its aussie business are still losing money after 5 years in operation, and recently they tried to penetrate into the US market staying low profile.

Like what i mentioned earlier, Asia has the highest gambling pops in the world, why did they not try to enter it, the answer is simple; they couldnt.

Japan, China, Korea and the rst of asia pacific, no governement allows its citizen to gamble online, let alone with offshore operator and there is no way in the near future betfair could hit Asia.

With that said and explained, there are ALREADY betting exchanges in operation for the past many years with 300m turnover monthly doing niche market in asia. So stop telling me it wont happen, BECAUSE it is already in existance.

Im coming here to ask all the brilliant mathameticians for my initial question. Does betfair way of taxing players or the 2c/4c i talked abt as superior.

What are the names and URLs of these other exchanges?