The British press on the disaster.

Via Mark Davies.

Previously.

Thanks for our faithful reader for the links.

C’est minable.

UPDATE: David Rothschild e-mails me to say he forgot to link to InTrade and BetFair in that story, at publication time, but he added the links later on. Also, he did link to InTrade and BetFair in the past. Kudos to David.

PREVIOUSLY (CIRCA 2008): The Sporting Exchange (BetFair-TradeFair) ranks #4 in the Silicon Alley Insider’s list of the top 25 digital startups, and is valued at 5 billion US dollars. (Yes, billions.)

Platform Metrics (More Soon)
Platform operational: Since 2001
Total Predictions: 619,141,899
Average Daily Predictions: 169,589

This is just a preposterous misrepresentation of the volume of activity on the site.

The average number of contracts traded per day for the year to date is 9k, with a median of 8k. Those numbers are way up from 2010, before the change from high transaction fees to a small, flat monthly fee.

Since there is someone on both sides of each trade, it’s could be fair to say that each trade represents two predictions so you can double the trading volume if you are counting “predictions” instead. But counting predictions raises another problem.

If I think Sarah Palin will run and I place an order to buy 100 contracts, I have not made 100 predictions. I have made one prediction. (Even if I place an order today, and another order tomorrow, unless I am buying or selling at a very different price from the first order it’s a stretch to say that I’m making new predictions with every order.)

So there are at least two problems:

One is that it’s silly to call every contract a separate prediction when a single person, acting on a single point of view (e.g., Palin has a 25-30% chance of running) can buy or sell many individual contracts (buying at 24, selling at 31, for instance, without changing their “prediction” at all). And of course these trades often happen in blocks of 10 or 100 or 1000 contracts anyway.

Two is that whether you are counting, trades, contracts traded, or “predictions” you don’t get anywhere near the 170k daily “somethings” that Intrade is claiming. Unless…

Perhaps they are not only counting each contract as a separate “prediction,” even if a single order is for many contracts. Perhaps they are also counting every order, whether it is executed or not. That is, I put in an order to buy 100 contracts of Palin at 24, and they count 100 “predictions.” Then I put in an order to buy 500 at 10, and another for 1000 at 1, and another for 5000 at .1, and a sell for 1000 at 99… and by Intrade’s math I’ve just made nearly eight thousand predictions. and when I change the order for 100 at 24 to 100 at 24.1, that’s another 100 predictions. And when some bozo puts in an order to buy 5000 shares of something for a penny after the event has already happened, that’s 5k more “predictions.”

The urge to publish big, impressive numbers about activity on Intrade is understandable. Venturing into fantasyland to get there is just embarrassing.

Speaking of math, my very rough estimate is that Intrade is collecting twice as much per month in fees via the $5/month charge than they would have been based on the pre-2011 transaction fees.

This is good for Intrade, good for active traders, and horrid for smaller accounts. It’s also a short-term situation with a bad ending. Once the small accounts are mostly closed out or leeched down to a zero balance, then what? How many mid- or large-sized, reasonably active accounts are there? Within 2-3 years can one really expect there to be more than a few thousand accounts left? Some new big players may come into the mix if they see the good deal, but each one is only worth $60/year.

Even if you think Intrade will have 15k active accounts in a few years (which I don’t), that’s still less than a million dollars of top line revenue. Larger traders will probably tolerate an increase in fees at some point, but still I do not see how Intrade gets from the current situation to a future as a solid, profitable, growing company that is more than a flea compared to BetFair.

Guardian:

Share buybacks are a popular tactic for mature businesses and are typically employed when companies cannot think of efficient ways of deploying spare cash. However, Betfair was sold to investors in October as a company that had strong growth opportunities.

More here and here and here and here.

- BetFair to increase charges on big hitters. (Via OddsFutures.)