The best ideas are the simplest – What odds Betfair?

This entry was posted on Monday, March 16th, 2009

THEY say the best ideas are always the simplest. So I got to thinking about whether, in another life, I might have invented the internal combustion engine or television or even the light bulb. Not so simple eh? But then I turned my attention to the phenomenal phenomenon known as betting exchanges.

Well, here is a one-trick pony if ever I saw one. All you do is match a backer with a layer and if, in the words of the popular quiz game, the price is right, you have a match. It couldn’t be easier – and it’s all based on the stock market idea of matching buyers and sellers that’s been around for what seems like donkey’s years.

Since king of the betting exchanges Betfair was launched in 2000 when a group of businessmen sat around basically laying and backing horses with each other on the winner of that year’s Epsom derby, it has grown at a faster rate than the economy has recently declined.Now boasting two million customers and a turnover well in excess of £50million. Some events – like five-day Tests – can rack up turnover exceeding £10million in matched bets.

It’s the biggest online bookmaker in the UK and the largest betting exchange in the world. Actually the ‘online bookmaker’ part of those claims is far from the truth. Betfair is in no way a bookmaker. Bookmakers can lose on any given event. Betfair can’t. They simply act as a stakeholder. And unlike bookmakers they want their clients to win. That’s because they take commission from winning clients, while they don’t take a cent from losing bets. That’s the exact reverse of how conventional bookies work.

When Betfair first came on to the scene almost nine years ago, the established bookmakers didn’t appear too worried. Publicly they said they weren’t happy with the new kid on the betting block, but privately they couldn’t have feared the competition too much or else they would have set up their own exchanges. For a start the idea wasn’t copyright and initially there was some opposition to Betfair. Why the big bookmakers didn’t get together and produce a monster rival to Betfair, I have no idea. Perhaps the thought of working together to maintain their share of the betting market didn’t appeal to their sensitivities. Whatever the reasons, Betfair was left with what is known in the trade as an ‘easy lead’.

There are still a handful of other exchanges out there but they trail in the wake of the Betfair superliner. Even the fairly recent introduction of higher commission charges for big players didn’t seem to rock the boat too much. That’s because Betfair had first-mover advantage and spent a fortune on advertising and marketing to maintain that advantage and secondly, because in a marketplace that relies more on liquidity than anything else, Betfair has the highest liquidity of any exchange – and that doesn’t look like changing any day soon.

But the Betfair monolith does have its drawbacks. One is the perception that laying horses to lose leads to some dubious actions on behalf of some trainers, jockeys, owners and punters. That’s a red herring that needs filleting because that’s precisely what the traditional layers did when they had information that a particular runner wasn’t ‘off’, had missed a crucial gallop or was waiting for another day.

Never one to look a gift horse in the mouth so to speak, the old-fashioned bookmakers just laid and laid that horse – exactly what exchange layers are able to do nowadays. And why shouldn’t they – as long as they are not in possession of inside information, which by its very nature isn’t available to the general betting public.

Betfair has opened things up in a way that was unimaginable only a decade a go.It has ushered in what I feel is a golden age for backers. If you haven’t tried it already you don’t know what you’re missing. It might not suit everyone, but you’ve got to give it a go. Don’t remain a Betfair virgin forever…

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