[...] we’ll be enabling the new matching process on soccer match odds markets, tennis match odds markets and greyhound win markets taking place on the UK exchange shortly.
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Previously: BetFair’s new bet-matching logic…. (endorsed by Giberson International Incorporated).
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umm, trying to be completely neutral and fair (which I think I am fully anyway), this change means that instead of scalpers laying overrounds risk-free from the inefficiency of having multiple selections on the same market (a problem with decimal odds instead of binary), now the scalpers are out of business, with Betfair themselves scalping a big chunk of the money previously scalped by scalpers, through matching only at nearest integrals (better execution instead of best execution).Â
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its probably overall a good idea (there are significant positives and negatives to the scheme for both users and BF itself), but the end result will be that instead of users betting amongst themselves, then BF taking 2 to 5% of the total won on the market at the end of it, the new system will see users betting amongst themselves plus BF taking 2 to 5% plus Betfair skimming off extra money.Â
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its like a stock market where say the FTSE is worth say 5500 points at the start of the day, where if everybody bets their funds against each other for the day, the FTSE will be worth say 3% less at the end of day one, say 5335 if BF have taken 3% of total customer deposits that day. now with the new change, the total remaining to be shared out to the winners who have staked 5500 points will be less than 5335. the old trap bet robot saw commission revenues increase to BF by 15-20% per market according to BF’s own staff, but this one skims on a much smaller scale, lets say 2 to 3%. the end result will be that revenue to BF is increased, it is a price increase for using BF, and as a result overall money remaining in the pot will decrease more quickly with the BF skimming from this logic. arguably BF’s skim is taking money away from old scalpers, so the net effect might not be negative, but talk of a boom looks very odd to me.Â
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best thing to do if anyone is anticipating a boom is to plot graphs of the total wagered on BF markets on the markets they are putting this scalping logic on to, and compare it over time as the change kicks in (its extra depletion on the pool will be felt at the margin, as any cost increase of using a predicion market will be).
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the idea of offering better matching at times is a good one, and it is a shame that reciprocal odds are not offered (with the seemingly prevalent perceived wisdom that this is a deliberate choice). it is offset by the skimming, though to what degree is unknown.Â
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i for one will look forward to seeing any facts and figures showing any substantiated increase in liquidity, or a “boom”. normally a boom in demand for wagers on exchange markets will be a result of a price decrease, so it does seem strange to see this price increase being linked to a “boom”. hopefully it will be a positive towards good health and success of exchange markets, but a causal link between a growth in trades/trading and the new better execution + extra skimming logic seems quite a big leap of faith.
did you mean a boom for BF itself through the higher commission charged per market, rather than a boom for BF users? i suppose it helped ebay when they put up their charges to generate meatier profits, hence a boom for ebay.
old logic – BF customers deposit $100,000, market takes place, winners get $97,000, BF take $3,000. Then for the next market to take place to a similar level of trading activity, $3,000 of fresh deposits have to be put into BF for the market liquidity/size to remain static.
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new logic – BF customers deposit $100,000, market takes place, BF take their normal $3,000, then skim off another $150. For the next market to take place to a similar level of trading activity, $3,150 of fresh deposits have to be put in for the market liquidity size t remain static.
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Forum Q&A session 22/07/08
The new matching logic will result in Betfair accruing a small amount of money
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BF themselves confirm they are making extra money from the new logic. The old figure was 15-20% extra commission per market (lets call that $450), and they also claimed they had no examples of big price mismatches (i.e. big user errors) on the markets their original logic ran on.Â
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Overall, assuming an extra rake of $150, then just to stay static, demand for BF itself has to grow by $3,150/$3,000, i.e. 5%. Organic growth has stalled in the UK I believe (BF have reached saturation point, and are looking to foreign markets for growth), so a rise of 5% across all affected markets is massive, and that would be just to stay at the level of trading before the new logic was put on. I do not think that is going to materialise, hence I’m going to go against Chris Masse, and predict a recession (period of negative growth) for BF in terms of net total wagered, but a growth in BF profits (assuming that demand is slightly inelastic). As always with supply and demand, customers will have a price hike and will have a much smaller economic rent accruing as a result.
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I’d go overall its a good thing to have the new logic offering cross selection price improvement, and do think that the profits BF are taking for themselves are coming from the scalpers they have put out of business, hence the damage to the markets won’t be as much as 5%. However, the real pot of gold for the BF team is when they find a way to deliver sustained long term value to their customers, not when they replace a set of scalpers with an inhouse scalping revenue raiser. Sure it provides instant profit, but the effect on the long term growth of the market will be negative.
improved bet execution combined with the skimming betfair say is necessary (as they claim not to be able to offer recriprocal odds) would be a bonus for bf users if the commission charges charged to the userbase were reduced by an amount equal to the amount skimmed. then chris masse would be spot on that there has been an improvement here for bf users, leading realistically to a marginal increase in use of bf.
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thing is the better value that a commission reduction by the amount skimmed with the new logic, would see overall amounts wagered grow, and though the commission percentage charged would be almost identical, it would be on a bigger pool. the skimming without proportionate offsetting commission reduction reduces the size of the pool, hence making a “boom” seem a long way off, imo.
PMSL