??? BetFair bet-matching logic ???
Chris F. Masse March 16th, 2008
While market design expert Chris Hibbert is puzzled by Niall O’Connor’s statement mentioning an automated trader, event derivative trader Ed Murray (who made a series of accusations against BetFair) has just written a comment bringing in some intriguing (but yet unconfirmed) facts [UPDATE: FOLLOW THIS LINK FOR MORE INFORMATION]:
Just one point, Betfair have already hired a team of traders to bet into its own markets last year, and are increasing that. Andrew Black has insisted that these traders are betting without looking at who is betting on what. I can’t understand how if 98% of Betfair punters lose overall, how they are paying the hypothetical £25,000-£30,000 a year salaries of these traders. They not only have to break even, but also have to win at least £25k to £30k a year to justify the expense of actually employing them.
I have no idea how anyone could get a straight answer out of Betfair about this. They either mothball and as happened with this new case, not even bother announcing it, or they have a record of press statements which, to be frank, have mostly been the opposite of what has happened. Mark Davies went on Radio 5 at the end of 2007 claiming that they didn’t offer any markets on Davydenko or Arguello, when in fact Betfair had been offering loads on both, after the voided Davydenko v Arguello match. The Radio 5 presenter threw him an unexpected googly live on air, which Davies wasn’t prepared for, saying “well surely if you have deemed that one player (davydenko) is not someone that you see fit to run markets on, surely the other player involved in the suspicious match is also someone you don’t take bets on”. Davies stuttered, saw that it seemed completely logical, and said something very close to ‘erm,…. yes,…… we don’t offer markets on arguello either’. It simply wasn’t true.
Betfair are exploiting a total lack of regulation in sports markets to beat the clock, bet into its own pool, take a huge scoop out of the pool unannounced, change their bet matching software unannounced, etcetera. All this would be completely illegal in any financial market. I think sports markets deserve the same level of protection, and its time the FSA [the UK equivalent of SEC + CFTC] were compelled to step in to stop them.
This is all about Betfair’s share price. They still have a massive price/earnings ratio, and they are gambling that if they scoop an extra £15 million from the pool by placing their own robot on the markets, they can boost the value of the company by say £500 million. The people who buy these shares looking solely at the headline growth in profits are going to be gobsmacked in 2 or 3 years time that Betfair is being run as a pyramid scheme, and will wonder why company profits growth actually went into reverse in 2009, 2010 and 2011. The markets cannot sustain this level of front-running, clock-beating, trap bets, and attrition of the userbase. I just pray that the people tempted to buy Betfair shares are able to understand why the headline profits figure is going to be completely misleading for 2008.
UBBER UPDATE: BetFair is as innocent as a lamb… but their P.R. people can’t tell you that at this time. Here’s why.
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UPDATE #2
Michael Robb’s e-mail to me:
Hi Chris,
Firstly I’d like to clarify that Betfair is a privately-owned, limited company and is not listed on the Stock Exchange. Therefore, there is no trading in its shares and so when Ed Murray says, “I just pray that the people tempted to buy Betfair shares…”, he is mistaken because people simply cannot buy shares in Betfair at this time.
As you say, however, Betfair is trialling an improved bet matching process. This work is ongoing and will affect a limited but growing number of markets.
Previously we would only attempt to match customer bet requests against unmatched bets of the opposing bet type (backs vs. lays) on the same runner in the same market. That part of the bet matching process remains unchanged. Where there is no opposing bet to match on the same selection, rather than just leaving a customer’s bet request unmatched, we will now attempt to match the bet request against unmatched bets on other runners.
For example in addition to matching back bets against lay bets we can from time to time match customer back bet requests across all selections, or customer lay bet requests across all selections. The effect of this change is that customer bet requests will stand a greater chance of being matched.
There will be circumstances where a customer bet request could be matched by either process. In this case priority will always be given to matching in the traditional way, back vs. lay, and the process for matching those bets is identical to the way this was done previously. Where a market is turned in-play and bets are subject to an in-play delay this also remains unaltered. Bets will only become available to be matched once the in-play delay has expired: backs vs. lays first followed by matching across selections where no other match was possible.
If you have any questions on how this change will affect you or your readers the Q&A session, as you mentioned, will take place on the Betfair forum this Wednesday evening (19th March) between 6pm and 7pm (UK Time).
I hope this helps. Please let me know if you have any further questions.
Kind regards,
Michael
[Michael Robb works at BetFair, as you all know.]
- Exchanges & Markets , Market Designs , Market Trading , Mechanism Designs
- Comments(15)
[...] and is not listed on the Stock Exchange. Therefore, there is no trading in its shares and so when Ed Murray says, “I just pray that the people tempted to buy Betfair shares…”, he is mistaken [...]
LOL
I wrote "I just pray that the people tempted to buy Betfair shares are able to understand why the headline profits figure is going to be completely misleading for 2008.", looking at a future point in time when people are considering buying Betfair shares, either in Betfair as a floated company, or as Softbank did (about 18 months ago?) to the tune of about £400 million. It is perfectly valid to discuss why scooping large sums unannounced from each market that a robot with a zero second delay is active on, might give a misleading headline profits figure. Betfair is a company which has built up profit streams, and sought to sell stakes in the company, both in the past to Japanese firm Softbank, and presumably in the future as well. Michael Robb’s email is misleading for falsely criticising my post, and is using semantics to falsely twist the original post. Betfair has actively looked to outsiders to take over part of its business in the past, and like all companies, will look in the future at some point towards a partial or complete change in ownership. That’s what all companies do, sooner or later. (No investor is immortal, and holds on to a set stake in a company for all eternity).
If Ebay unannounced changed their bid procedure, would that be "an improved bid matching process"? If you bid £110, and beat the 2nd highest bid of £100, you would expect to pay £101, with the seller paying the fees. This "improved bet matching process" now results in the buyer being charged £110, the seller getting £101, Betfair pocketing the £9 difference, and the seller then being charged fees. The effects of this robot are subtle, but critical - it removes from the screen any overround orders, leaving many bets unmatched that would have been matched. These are then more vulnerable to being picked off, by swings in the underlying probability of the event, such as a point being won, goal being scored etcetera. There will be more bets picked off as a result. It also dramatically increases Betfair’s rake from the pool, and will result in a greater rate of attrition of the user base - something which is relevant to people tempted to buy shares in the future in Betfair post-flotation, or to buy stakes in Betfair pre-flotation, something which Betfair actively sought with Softbank. To suggest that I am mistaken to hope that future investors either pre or post float in Betfair realise that Betfair have increased the attrition rate hugely of the markets they run (short term huge boost in profit, potentially long run damage to organic growth) is completely valid :).
"The effect of this change is that customer bet requests will stand a greater chance of being matched." this statement from Michael Robb is only true under first order conditions. However, the reality is Betfair doesn’t work like that, and relies on a long term churn rate where users keep coming back for more. This robot is draining funds from each market much more quickly than before, where Betfair just charged a commission, and the reality is that if the attrition rate exceeds the elasticity of demand for the product (i.e. the mugs go skint too quickly and get bored, go elsewhere, thinking that they aren’t getting a good enough run for their money, which is what will happen to anywhere from a small to potentially a big margin) then the total bets matched and wagered will fall. If you skim off big money now, there may be less people to bet against in the future, and less chance of being matched. So by draining the pool quickly, this may have a "locust" type tragedy of the commons effect, and the chances of being matched against other users at the price you want will in the medium to long run, potentially fall quite drastically. That is why Michael Robb is just wrong in his statement.
I have called Betfair about 20 minutes ago to try to have a civil chat with Michael Robb, fingers crossed but I don’t hold out much hope. He is potentially only right with his statement in the immediate short term markets that this was put on, and even then, there will be strong negatives to Betfair removing overround orders from the market, and creaming off risk-free profit by doing so. Would love to have a cordial chat with Michael Robb, but would be very surprised if I did get that chance. They know that the line they are putting forward is flawed that more people “get matched”. Obviously if Betfair’s rake went up from 5% max per market to say 50% per market, people would get bored pretty quickly, and liquidity and orders would collapse in the medium & long term, as people weren’t getting any value at all. You may “get matched” faster to start with, but the number of customers using the markets will drop off a cliff. The same if it is a 40% level of rake by Betfair, but slightly more slowly. The question is where does the balance lie, and at what point does the increased risk free rake by Betfair damage market health. ————————————————— Update: i have just had a phone call back from Betfair, and Michael Robb has refused to have a short civil conversation about this. I’d love to have a short and civil conversation about this, but won’t get the chance. If he is talking to people on Midas Oracle, via email or any other form of communication, please bear this in mind. I’m very pro-Betfair, but very anti-market skimming, trading in Betfair’s own markets by Betfair traders, clock beating, etcetera. I’m sure Michael Robb is reading this, so fair play to you, but you and I both know your argument only arguably holds under first order conditions, and is completely detached from the long run reality of how Betfair markets work ;). Best of luck to you Michael
Ed,
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I was told that the people preparing the LiveChat on Wednesday will answer all questions. We have to e-mail them using this e-mail address:
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livechat@betfair.com
Ed,
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Michael Robb works in the PR department.
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You need to put up your questions to the market design specialists. They take question sent to that e-mail address, only:
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livechat@betfair.com
Chris - have a look at the betfair forum at the mo. There is probably over 90% fierce condemnation of Betfair on there, and huge scepticism of the Live chat.
lippy17 Mar 17:30Dont like the idea of betfair seeing all the questions in advanced.
They will choose to simply ignore all those in the too hard basket.
Probably will even make up some questions themselves which highlight what they percieve are advantages to the new systemYou can see from the titles on the Betfair general betting forum "Betfair skulduggery", "Anyone notice the similiarities with the totegate scandal in the 70s" "how much money are betfair skimming" etcetera, that these moves are not without their critics.
If I submit any questions to Betfair, they won’t answer them in the Q&A. I will however drop you an email with the questions I’d like to ask, and if you ask them, they may put them in.
Can people see the (gaping) hole in the argument put forward by Michael Robb?
Its the equivalent of a Chinese takeaway deciding that instead of telling customers they had run out of, say, "duck", they will now offer all the duck available, plus then offer all the out of date duck. They will also not tell the customers that out of date duck is now being served. Sure more people will get to eat duck to start with, but in the long run, you’ll have made a lot of them sick and they won’t come back. Michael Robb’s argument is that by offering more duck (whatever the source), customers will be happy because more of them were satisfied. The fact is that draining the pool to the tune of millions a year unannounced will put a lot of customers off through natural attrition rates, and market forces, so in the future the chances of getting a bet matched on Betfair against another user will fall as a result of these changes, if this money betfair scoop risk free is taken from customers on an inelastic part of the supply curve.
To be fair, the snides and cheats who make say £300,000 a year are on the elastic part of the curve, where now instead of paying maybe £15,000 a year in commission, they may be paying £17,000 or £18,000. However, the little people who pay £3,000 or £4,000 and break even or lose, are on the inelastic part of the demand curve, and probably can’t afford paying an extra £1,000 or £2,000. Betfair should not be hammering the little fish, whilst letting the people who would pay the most for the service, the winners who use skill/winners who cheat (use inside information)/winners who fix matches/winners who pick off out of date bets by being courtside, all escape unscathed. Its incredibly bad business.
I think most people realise the Q&A will consist of "cherry picked" questions with little input taken from users to the replies given. Although hopefully after the Q&A Betfair will be obliged to answer any email queries after the event without being given the stock reply " I think it would be best if you submit this to the forum Q and A" With regard to the accusations of Betfair trading on their own markets you may wish to look at a thread on moneysavingexpert.com forums, in particular comments made by benefits blagger. http://forums.moneysavingexper.....ost9158899
With regard to the accusations of Betfair trading on their own markets.
Has there been any confirmation if BF actually do have people trading the markets on their behalf ?
Squash,
We are trying to put BetFair on the record on that. We will wait their Q&A on Wednesday, and if we are not satisfied by their answers, then we will ask again thru different channels.
squash -
you will have seen the reply to your thread on the bf forum
Loki Lab Rat 18 Mar 08:20
I can answer this one quickly. There is a trading team based in Malta which manages the risk around the multiples product. They have software which tells them what the risk is associated with a potential result is and suggests what hedge bets can be placed to mitigate that risk at current exchange prices. They then place the hedge bets to manage the risk. They place the bets using the same software as everyone else using the site and respecting any in-play delays. The line about ‘opportunities in-play’ refers to the match situation and is nothing to do with beating the delay.
For example, when just about every favourite won their international Euro 2008 qualifiers in early June last year (known as ‘Black Wednesday’ in some quarters), Moldova scored late-ish against Greece to square the match. The multiples team heavily laid the draw as the match drew to a close as it was a much better potential result than a Greek win. That meant that when Greece did score with the last kick of the game, our losses were mitigated to some extent by the hedge bets placed in-running.
The multiples product is run under Betfair’s Maltese bookmaking license and is regulated by the LGA there. Therefore the team has to be based in Malta. The operation is an arms-length operation - there is no special access to any functionality or data from the exchange.
What is fascinating is how a detailed answer appeared, at 8.20am (lol). There is no way would that answer would have appeared without sanctioning higher up the ladder and consulting the PR people.
If you look at the posts on here from Graham “Sharp” Minds, and the 2nd person on the MSE forum which you quoted, these people have both had interviews for positions as internal Betfair traders, and both have indicated that what "Loki Lab Rat" (a poster with zero credibility, and no history of contributing, who has conveniently decided to suddenly out him/herself as a BF member of staff) says is probably misleading. The sugary statement put forward is typical BF spin, and as with the Tony Calvin quote in the News of the World, pretty much along the lines of - "Betfair don’t accept bets after events have finished, and if we do find bets have been placed after an event has finished we void them", which was obviously laughable, and Mark Davies’ claim on Radio 5 at the end of 2007 that Betfair offered no markets on Davydenko or Arguello (which was also not true), BF is fully focussed on the "spin for now" approach. It may be true that Malta based internal Betfair traders don’t peek under people’s cards to see who is betting on what before ‘hedging’ positions, though as ever with BF, we need a "and we have no intention of ever doing so" added on to the end of the statement.
Chris - BF will likely give you an answer if they think they can fob you off. This thread helps, as they are glued to the forums at the mo (as is evidenced by the 8.20am Loki Lab Rat post) but the "HIGHLY SUSPICIOUS RUMOUR" flagged up at the top of the page, that Betfair staff do bet into Betfair markets, has seemingly been confirmed on the BF forum by someone claiming to be a BF staff member, describing the intricacies of said insider trading. If it was a fake post, BF would have taken it down today surely - they can’t have people randomly claiming to be BF members of staff, and betting into the Betfair pool, if they aren’t.
I need to add one correction -
http://forums.moneysavingexper.....amp;page=3
I have just seen this thread a few seconds ago, with a reply I had not seen previously. I had not realised that the poster there "Benefits Blagger" was the same person I had previously spoken to, and is behind the Graham "sharp" Minds name on here. Apologies for thinking they were different people.
Cheers
"HIGHLY SUSPICIOUS RUMOUR"
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Ed, I have replace that with a link to: "One un-hired job candidate and one HammerSmith employee tell all about BetFair Malta’s combo market maker (trading algorithm + human market makers) operating on the multiples."
http://www.midasoracle.org/200.....multiples/
BetFair is as innocent as a lamb… but their P.R. people can’t tell you that at this time. Here’s why.
http://www.midasoracle.org/200.....et-making/
[...] Updating that post with the link to the post that debunks that [...]