BetFair’s brand-new matching-bet logic is endorsed by the Chairman of the Midas Oracle Advisory Board.
Chris F. Masse March 14th, 2008
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The Sporting Exchange executives and shareholders will be happy to know that economist Michael Giberson has given his stamp of approval to BetFair’s brand-new matching-bet logic. Wow. They’ll open Champagne bottles in HammerSmith, tonite, when they know that. If that’s not an ebullient endorsement, then I’m the Queen of England.
From the description you quote [*], it sounds as if BetFair is using a technique similar to that explained by Chris Hibbert in “Increasing Liquidity in Multi-Outcome Claims.” (For more, see Hibbert’s “Market Makers for Multi Outcome Markets” and Dave Pennock’s “Right Way to Implement a Multi-Outcome Market.”) If they’ve done something like this, it should make their markets work more efficiently. Personally, I’m not sure why they’d privilege the traditional back vs. lay if there were a more complicated match that offered a better price, but it is a start in a good direction.
[*] I quoted it fully. And they said they’ll come out with a Q&A, later on.
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UPDATE: See Ed Murray’s comment…
I have spotted 2 BetFair forum threads… #1… #2…
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- Comments(31)
Well, I hedged my comment with a "sounds as if", and I don’t know any more about what they are doing than the description you quoted. But, if they are, then it is a good move.
I’m interested in learning more, when more information is available.
He’s misunderstood the markets affected, and what is really happening. "Time" is critically important - if you submitted a bet you used to get matched against an order on the screen if it was available, now that order may have been filled by the Betfair bot, arbing against a bet on the other selection to lock in a guaranteed profit. The bet you would have taken is taken by Betfair, who don’t have to wait 5 seconds before they can take the bet, which is something all of their users have to do. The result if your order is then left up unmatched (when previously it would have been) is that it is untaken, unless the market swings against you (wicket falls/point won or lost etcetera). Its now more difficult for people to take a price off the screen, because Betfair can jump ahead of them during the 5 seconds that Betfair customers have to wait to match a bet. There is a huge problem with Betfair’s tennis markets - there is a 5 second delay, but pictures on feeds are 4.54 seconds ahead of matches being shown on Eurosport (giving normal mug punters, which Betfair depends on only 0.46 seconds to cancel). The courtsiders are even faster. The people with fast pics used to whack through bets to grab any out of date prices - now this is amplified by the Betfair robot automatically backing or laying on the opposing selection, to magnify the "hoovering" money. The normal Betfair users are disadvantaged enough to be using slow pictures (getting next to no time to cancel) but the hoovering money is now magnified by the new Betfair bet matching scheme. Say its 7-7 in a final set tie break between two female players, who win 50% of points each (they are rubbish at serving). The odds are evens the pair. A courtsider would smash through say £10,000 at 1.8 to try to hoover the market, when the player has won a point to make it matchpoint, where the real price should be 1.33. Before the new Betfair robot, they might have got say £5,000 of money matched picking off out of date prices. Now the new Betfair robot will match £5,000 at 1.8, but also make available a lay to the tune of £5,000 on the other side at odds of 2.25 and below, so the pick off merchants will get £6,000 or £7,000 matched at the out of date price. A normal punter had submitted a bet with a delay at evens on the 2nd player, and there was a bet available they would have been matched against, but the Betfair robot stepped in due to an overround and arbed it. The bet is then left up backing player 2 at evens. Then player 1 gets matchpoint, and the hooverer whacks through the £10,000 at 1.8. The new Betfair robot ensures that all left over backs of player 2 are also hoovered, and locks in a risk free arb. This is a disaster for the health of the markets, and to be honest, probably a long term disaster for Betfair, as the huge extra new money from betting into its own markets risk free may well be unsustainable, and helps the snides, and clobbers the customers betfair should have been supporting. Time is critical to this, and a well running healthy exchange should see people able to take or leave up orders fairly for other users. This new system is a joke, its a pyramid scheme to boost the Betfair share price now, and hope that people who buy Betfair shares in the future don’t realise that the huge rise in profits is from a really worrying source, plus will damage the health of the markets. Sad day for Betfair users and future Betfair shareholders, great news for snides and current Betfair shareholders.
Lol typical nerdy economist, endorse it without knowing any of the facts just in case it’s any good but try and cover yourself with a few if statements so you don’t look such a plum just in case it’s not all it seems to be.
Thanks, Dave and Ed Murray for your comments. We are all trying to understand more fully the brand-new BetFair bet-matching logic, and we will go tru many sentiments, positive and negative, during this process. Stay tuned…
Ed, from your description, it does sound like BetFair more efficient matching routines would amplify any time advantage a trader has - a courtsider, for example, as in your comment. But this just sounds like a side effect of a more efficient matching routine successfully finding matches among orders that previously were not found. Being more efficient, it should tend to reduce bid-ask spreads and work to reduce margins available to traders.
My typical nerdy economist advice is: trade smarter.
Michael - you can say "trade smarter", but the lifeblood of the exchanges is money from losing punters, and if they do need to "trade smarter", you can see that the rate of attrition of their funds will be much higher now. This is actually bad news for Betfair’s long term organic growth. People buying Betfair shares looking solely at the headline jump in profits will expect a similar yearly jump, but this is just the same as hiking up commission massively. There are rumblings that Betfair expect to take out an extra £15 million a year if this was rolled out to all their markets - and this is an unannounced price hike, which they have only commented on when a firestorm of disgust has been whipped up.
If Goldman Sachs’s management team announced they had found a way to front run client orders, jump ahead of the queue in financial markets, mismatch customers at different odds etcetera, their management team would definitely be facing a jail sentence. Because sports markets are unregulated, this Betfair management team are looking to exploit that, and the people left carrying the can will be future Betfair shareholders, who bought the stock at inflated prices, not realising that this Betfair board are several planks short of a pirate ship.
This Betfair parasite robot amplifies the bets of the courtsiders, and results in a much faster churn of the user base. Betfair can be delighted they’ve made a few pence from the example above, helping a courtsider get 1.8 at matchpoint on a 1.33 shot, but the reality is that the courtsider has absolutely raped the market. Skilled gamblers don’t arb - they take the value price available, whilst not taking the opposing side of the bet. The Betfair parasite robot takes both the good value side (laying everybody at 2.25 and below on the girl who is matchpoint down), but also lets the courtsider get more on at 1.8. It will be no surprise if they make the decision to go overweight on the side with the out of date price being hoovered by the Betfair parasite bot, or even not match any of the courtsider’s bot. Following money with a time advantage will be much more profitable than just arbing it. Betfair trade in their own markets, beat their own delay, help the snides, and have a non-existent PR policy now (don’t tell anyone about it, and hope they don’t notice). It will be zero surprise when current shareholders ask why they are bothering to match the bets placed by the courtsider, and just hoover the other side, up to a controlled limit. There is huge money to be made by Betfair if they become the snides. They can also frontrun winning accounts bets etcetera. All this would be completely illegal in a financial market, and the hope for the long term health of Betfair is that the FSA regulates them, not the Gambling Commission. Betfair is currently being run like a pyramid scheme, with ever more stupid ideas put forward every few months as to how Betfair can exploit a lack of regulation, to massage current profit figures, and sell on the shares to people who don’t realise that (a) the regulation may well change, (b) any competent business wouldn’t do this to start with.
If this Betfair board took over Arsenal football club, they would cut the price of corporate packages to £10 a ticket, whilst look at people who buy family tickets (with a kid or two) and put the price up to £200 for kids seats. Helping courtsiders smash through the market is just really dumb. Real profitability for Betfair lies in giving mugs a fair run for their money, whilst extracting large amounts from the winners. This actually takes Betfair a step in the opposite direction, it fails to give mugs a best price, whilst actually helps snides to get on. What a joke :). It is unbelievable how incompetent they are, and really sad for Betfair’s long term health.
Betfair are arbing their own customers bets, they do this the moment the book goes overbroke, for me, this is fundamentally wrong in an in-play market.
What they are in effect doing, is queue jumping their own customers bets to gain profit, I can’t see how anyone can see this as a good thing?
In an in-play market, a delay is imposed to protect customers who are slightly behind live to be able to cancel bets. Betfair are using this delay to their advantage with this new bet matching logic!
The moment the book goes overbroke Betfair will arb, the problem is, the bets it is arbing against in the majority of cases would have previously been matched by customers bets that were in the delay portion of being processed, i.e bets that have already been placed.
If Betfair stop arbing and give a common price to both customers then the new bet matching logic will be great but until then I think it is clearly unfair!
"Being more efficient, it should tend to reduce bid-ask spreads and work to reduce margins available to traders. "Most mugs bet with Eurosport pictures on tennis (tennis is the market that Betfair have put this on first and foremost), with feeds 4.54 seconds ahead. Most of the money matched is between people with fast feeds and those without fast feeds. This now helps the fast feeders drain money even more quickly from the pool. You’d be right if the market had a level playing field, with everyone having the same pictures, but that isn’t the case with tennis. The real effect is that Betfair have put in a mechanism whereby they extract a percentage of the money from the mugs who leave bets up. There are a lot of bets that go into the system that would have been matched had the Betfair parasite bot not snatched them, leaving this mug money more vulnerable than before (they are less likely to get matched at a value or out of date price now, because Betfair are taking those bets). The introduction of this parasite bot is a great day for all the snides, and moves Betfair further away from extracting an efficient level of funds from its customers. It is charging a fortune to the mugs, and charging next to nothing to the snides. Very silly. I think this management team would be eaten alive if they were ever put in charge of a FTSE-100 company, that didn’t have the option to mismatch customers, front run accounts, trade in its own markets etcetera. The traditional bookies recognise sustainable churn with their roulette machines - the takeout is minimal, for every £1 bet, as much as 99pence is returned to the customer on average. You keep them going with plenty of wins alongside the losses, and in the end, by playing under the odds, the customers will on average lose a fortune. The secret is to keep them playing. This Betfair robot means that instead of two customers betting against each other, with BF taking a maximum of 5% from the winner, they now take up to 99% commission. (Seriously). "Betting as it should be" "Betfair the place where punters bet against each other". Erm, nope. If I was in charge of Betfair I’d remove the rights of current shareholders to vote on current decisions being made to short circuit the markets and inflate the share price artificially (gambling that they can sell it on to people who are too dense to spot this is probably unsustainable, and potentially could lose Betfair their license), and I’d reduce the commission charged to losers, whilst massively increasing the commission paid by all winners. People would get a much better run for their money, people at the margin would be attracted to the exchange, whilst the huge profits being made by snides would be removed. A snide betting without skill making £300,000 a year, paying £12,000 commission on that, would still go courtside and hoover if you charged them £150,000 commission a year. That is where the real money is. I wish that this Betfair board had even done GCSE Economics. Its hilariously obvious they haven’t, and very sad for Betfair’s long term health.
Dave, I’m the administrator of the blog. I made a mistake. I wanted to edit your second comment, to put some white spaces between two of your sentences, and I ended clicking on the "delete" button. All my mistake. Please, re-type your comment.
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I’m sorry for that, it’s the first it has happened to me.
This was DAVE’s comment:
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QUOTE
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Well thanks for at least posting any views and maybe my \’nerdy\’ comments could have been a little harsh. Although I still think coming out with such postive headline grabbing statements endorsing a product without fully grasping the facts behind it could be seen as a little naive at the very least. Although very similar Betting exchanges have always worked on different principles to the traditional stock exchange model of bid-ask spreads whereby any intermedaitary takes the spread. Betfairs \’spread\’ is already built into the commission structure. The main issue here is that Betfair are not providing best price execution, all other issues and problems come as side effect of this basic principle.I’m unsure why you’ve assumed this is a more efficient way of matching bets, will reduce bid-ask margins and advising people to trade smarter. We need to look at who this is more efficient for ? Surely any smart trader should already be able to realise a lay on one side is equivalant as a back on the other side and trade the side giving best value. This value will now go direct to Betfair without even appearing on screen. As for reducing bid ask margins it could be argued that with overbroke books occuring, the bid-ask margins have been indeed been severley reduced against traders. So is this now a much more efficient matching system ? Surely in the case of two runner events (the very markets this is primarily operating on) prices should be displayed as a win/lose single runner market taking away any need for overrounds to occur in the first place. Lets face it the maths behind best price matching are not exactely complicated. In reality the only people to benefit are now Befair who can trade on their own markets risk free with many advantages over other traders. All the issues regarding delays woud be removed if best price was implemented and Betfair were no longer effectively betting into their own markets with far greater advantages than others. I doubt the FSA would allow this behaviour on the financial markets where any delays . late suspensions, mis-managment can only benefit the people managing those markets in the first place.
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UNQUOTE
In the second Dave’s comment, and in the third Ed Murray’s comment, there was strange formatting in the text… (I corrected them.) I’m trying to guess why… Mystery…
[...] economist Michael Giberson says that the reform is a step in the right direction, trader Ed Murray makes a series of accusations [...]
Thanks for managing to retreive the post Chris, I hadn’t kept a copy and wouldn’t have remembered what I said
. No need to post this to the board, the strange formatting mave have been due to my typing it first in wordpad then copying into the comments box.
Ed’s comments have got him in trouble with Betfair in the past and I understand his posting rights withdrawn from the forum, which is a pity as I’m sure he’d make valuable comments on the current betfair threads. I’m sure Ed would elaborate on that as he was also subject to the Betfair dirty tricks dept which I’ve no doubt will come out to play at some time or other.
Dave, I’m sent automatically all comments by e-mail, which is where I retrieved your deleted comment.
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Freedom of speech applies on Midas Oracle, which is powered by a server located in the U.S. US laws apply.
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UK laws and BetFair corporate policies don’t apply here.
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For your curiosity, here are our terms of service and code of conduct:
http://www.midasoracle.org/about/terms-of-use/
http://www.midasoracle.org/about/conduct/
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As long as there are no insult or defamation, BetFair-TradeFair or InTrade-TradeSports are welcome to publish their grievance on Midas Oracle. But we are economics-oriented, so expect to have economists taking a hard look at your claims.
Dave
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"the strange formatting mave have been due to my typing it first in wordpad then copying into the comments box. "
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If you want to prepare a text, write it in a HTML editor, then copy the HTML codes, click on HTML in this window, and then paste your HTML codes there.
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I recommend Kompozer/Nvu:
http://kompozer.net/
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Other IT links:
http://www.midasoracle.org/links/
(at "information technology")
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But our resident comment editor is not that bad.
"Because sports markets are unregulated"
No, any complaint will be warmly investigated by the UK’s Gambling Commission. If you have a complaint against the site then you will need to follow the complaints procedure explained in the following link -
http://www.gamblingcommission......tentId=295
Let’s face it as most of the UK\’s bookmakers have based their sites offshore; it will give them something to think about. Perhaps you could also ask them why it is that Betfair is allowed to advertise a starting price that does not include commission (a transaction cost); and why it is allowed to compare this "false price" against the traditional SP provided by the bookmakers….
"Betfair is allowed to advertise a starting price that does not include commission (a transaction cost)"
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Here they include the 5% commission in their computation:
http://promo.betfair.com/betfairsp/index.html
New Betfair bet matching system is a step backwards.
http://www.midasoracle.org/200.....backwards/
[...] statement mentioning an automated trader, event derivative trader Ed Murray (who made a series of accusations against BetFair) has just written a comment with some intriguing facts: [...]
When comparisons are being made, Betfair has to include the commission; following this judgement;
"In 2003 the traditional William Hill objected to a Betfair national press advertisement that ran; "You get better odds at Betfair" and included a table of the odds available from Betfair and three other bookmakers. The table was headed "West Indies v New Zealand" and claimed "West Indies Betfair 1.82 William Hill 1.66 … New Zealand 2.2 William Hill 2.1 …".
William Hill objected that:
Firstly, that the comparison was not clear and fair, because the advertisers offered a different betting medium from the competitors named in the advertisement and because the advertisers” odds were subject to limited availability and a maximum stake;
Secondly, that the comparison was not clear and fair, because the advertisers charged commission on the quoted odds.
Thirdly, that the advertisement denigrated the complainants” business.
Concerning the first objection Betfair said that members of the public could place bets on their website, at specified fixed odds, in the same way as they could place bets with a conventional bookmaker. They said the complainants” odds were, like theirs, subject to limited availability and maximum stakes.
The Authority understood that the complainants would accept bigger stakes and a bigger risk exposure than the advertisers, for the event referred to in the advertisement. It concluded that the comparison was not clear and fair.
Concerning the second objection Betfair said that they charged a commission, on the whole event, of between 2% and 5% of net winnings. They said they were willing to mention their commission in future comparative advertisements.
The Authority considered that, because the advertisement did not state that the advertisers charged commission on their advertised odds and the complainants did not, the comparison was not clear or fair. It asked the advertisers to state, in future advertisements, that they charged commission on net winnings and to ensure that comparisons were clear and fair.
Referring to the third complaint Betfair said the advertisement did not refer to the complainants except to state their odds. They said that was a factual statement and was not denigratory.
The Authority considered that the advertisement did not denigrate the complainants” business.
When it comes to the actual Betfair SP return, the commission is not factored in …….
Rab, do you have the link for that judgment? In that case, I may publish about it.
You will find references to cases involving Betfair here;
http://www.asa.org.uk/asa/sear.....ch=betfair
The one with William Hill should be there, otherwise perform a search; or email them.
http://www.asa.org.uk/asa/sear.....ch=betfair
Chris ,you may wish to link to http://site.forum.betfair.com/.....ID=1436324 as Betfair have now backed down at the 11th hour and withdrawn the bet matching software.
I think the Q&A will now become a damage limitation exercise rather than an explanation of the reasoning behind the changes made. All in all a good victory for common sense. I think Chris should be thanked for allowing treads like this to run as we all know certain things would not be allowed to run their course on the Betfair forums without the misinformation that seems to come out on mass within their forum as soon as any criticism of Betfair is raised.
Dave,
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1. I will take a look at your link. Thanks.
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2. For your information, at Midas Oracle, we are rather in favor of free markets and betting exchanges (like BetFair or InTrade).
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3. But as the same time, we can be very critical of these exchanges, at times. Dave, search for "BetFair blog" or "North Korea Missile" on Midas Oracle, and we’ll see what I mean.
[...] Via Dave, BetFair: Changes to Betfair’s bet matching logic - update [...]
Well, we see now that if they opened Champagne bottles in HammerSmith a few days ago, when Chris mentioned it, it was too soon to celebrate.
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In a few weeks, when they release the new routine with price improvement, then they should celebrate, and the traders with them.
(And actually, given what BetFair has said, traders should have already been celebrating the improvement in matching, only it hasn’t been clear just what BetFair has been doing behind the scenes.
On the whole, though, even given all the various public criticisms and some of it in quite strong terms, BetFair should take some comfort from it. Their customers clearly care about the service that BetFair provides, and would rather complain bitterly while still using the service, than to take their business to a competitor.)
BetFair has just postponed the implementation of their new bet matching logic… just so they can make improvement to it… But basically, they are in the right direction, shall we say?
http://www.midasoracle.org/200.....r-q-and-a/
Michael, I hate to be seen as too critical but you’re really coming across as a right plum. I’m beginning to doubt you understand the issues connected with markets with more than one potential outcome and just swallow the Betfair PR spin as and when they give it.
Dave, you may be right, and thanks for taking an interest in my image. Personally, I’m no good at it.
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For better or worse, I’m living in the U.S. where I’m unable to bet in the BetFair exchanges. It allows me to take a somewhat academic view, since none of my money is at stake. On the other hand, about all I know about what happens at BetFair and the other exchanges is what I read online.
Dave,
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Midas Oracle was created exactly to foster the dialogue between economists interested in prediction markets and betting exchanges (like Michael Giberson) and event derivative traders (like you).
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Michael Giberson has shown (privately, mainly, and a bit publicly) that he has been fully attentive to all the details emerging from the last week.
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In return, I am asking you to understand that Michael Giberson bases his analysis on the economic science… Science is what we believe in, here at Midas Oracle.
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If you follow this blog on the long term, you’ll see that we try to learn from the economists… while at the same time giving airtime to traders and traders’ issues… I like this mix. It’s why Midas Oracle is special. On the other forums, you will never see economists… Here there are plenty (at least, reading us)… Let’s take that as a great chance for us…