“-The wide price range, for an equity value between ?1.16 billion and ?1.48 billion, reflects mixed views on the company’-s prospects for growth in countries with strict regulations on gambling, such as the U.S., and for its new financial-trading platform, LMAX.”-
I am one of the people who Ed Murray has referred to in this blog. I was interviewed at Hammersmith by Betfair during the summer. For the time being I am going to concentrate on what Betfair has finally admitted from the past, present and future plans that betfair outlined to me.
“-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.“-
There is 3 objectives for the “-Maltese”- trading team, “-Maltese”- is in quotation marks because betfair were unclear to me about who and what parts of the trading team were still going to be based in London and those who were going to be in Malta.
All 3 amount to the same thing, Betfair playing their own markets.
On each of the 3 points
i) Hedging, this is what Betfair has admitted to and has been doing to from day 1 of the multiples. Betfair admit to taking the other side of the bet for the mutiples, so I guess like any other bookmaker it is only natural they “-hedge”- their bets to reduce potential liabilites.
However unlike traditional bookmakers, who will lay off a multiple when one runs up, the bets taken by Betfair multiples are placed directly back into the exchanges before they “-run-up”-.
This is one of the reasons behind the mutliple groups, they look at the back/lays placed on the mutiples for the first match and then the bets are placed into the exchange to reduce the liabilites and to cream off the difference between the price they have offered and that offered on the exchanges.
ii) Trading, this is what betfair are attempting at the moment, albeit unsuccessfully from what I last heard. Betfair have admitted they change their hedging positions, this by definition is trading. however the most serious aspect of their trading, is the in-running trading.
If betfair have accepted liabilities X &- Y for events A and B being the outcome of a match, then why would liability X for A or Y for B be no longer acceptable during a match unless there was an advantage to be gained by trading betfair’s position in-running?
Afterall, on betfair’s exchange with a 100% book, whether that 100% book was an efficient or inefficient, the net expectation of betfairs position would remain the same if they were trading hedging positions blindly to “-balance”- the liabilities.
In the instance of an inefficient market, if betfair were blindly trading (i.e. not using odds compilers, traders or other means to form an opinion on the market) in-running then there would be no net gain as betfair would be equally likely to be on the efficient and inefficient prices and the differences would average out.
iii) Arbing, this is betfairs ultimate goal for the multiples. If this new cross-matching bot is being called a superbot, then this will be the hyperbot. A bot which will perfectly arb the mutiple bets into the exchange so betfair can make money from it’s mutiples operation risk free.
But if betfair are denying that they never form an opinion to a market and place bets accordingly and they have no plans to do this in the future either. Then why are they covertly recruiting academics from universities, odds compilers from the bookmakers and recognised traders from their own customer base?
If betfair are playing their own markets, then what is to stop them abusing the position they have by owning the exchange. Having worked for several bookmakers in the past, I have yet to know one who would voluntarily wait 5 secs to place their “-hedges”-, wait in the queue like everyone else, make trading decisions according to the flow of money or not use their “-warm sources”- wisely.
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.
frog2, It is best I leave questions on cross matching for the Q &- A. I am not really that close to the project. I just thought I would answer the one on the multiples team to prevent any speculation getting out of hand.
It is also pertinent that this team operates under Maltese jurisdiction- which of course puts it outside the scrutiny of the UK’s Gambling Commission!
However, I think there is also another issue that needs to be explored, and that is the general efficacy of a policy that allows Betfair’s own employees to trade on their exchange. Many people within Betfair have access to historical trading data unavailable to the broader betting public- such as what stables are backed and when- the significance of early money for particular horses etc- some are also able to access the betting records of individual persons. I specifically remember a comment made on Betfair radio concerning the boys in the office and how they had mopped up all the value regarding a particular horse from a gambling yard. The problem for Betfair, and one that is not likely to go away, is that nobody is sure any longer as to who it is they are actually trading against.
“-Blackpool had the best case, proved it and still lost”- is a sentiment shared by a town in shock at the decision to award the lucrative prize to Manchester. Our North West neighbours were, said the CAP, the best bet on all counts –- for helping assist regeneration of a poor district and as the social impact test bed for Las Vegas-style glitz and gambling. Not so, say MPs, council leaders and Gazette readers who today made an 11th hour appeal to Culture Secretary Tessa Jowell to think again ahead of the crucial Parliamentary vote on the matter.
The City of Paris, too, had the best case in bidding for hosting the 2012 Olympics —-it lost to London. The error (or “-bias”-?) is to think that small, secretive committees only judge on merits.
–->- Beware event derivatives whose expiry is based on the decision of a group of people…- you know close to nothing about. (((Psstt…- I will talk to you, later on, about…- event derivatives whose expiry is based on the decision of a group of people…- you know everything about. Ha! ha! ha! I’-m serious. It’-s the high end of my concept of X Groups.)))
With news that the Unlawful Internet Gambling Enforcement Act has passed the House, all eyes seem glued on Washington to see just how regulation of online gaming is going to change the industry.
Looking at stockmarket reactions, it seems pretty serious.
From today’-s Guardian:
The online gaming industry’-s bet that American legislators would never get around to outlawing internet games such as poker went spectacularly wrong yesterday. An estimated ?4bn was wiped off the sector’-s value as share prices crashed after a weekend ambush by Washington.
Full story: http://www.guardian.co.uk/frontpage/story/0,,1886369,00.html.
I have already heard of at least one major bookmaker – Australian-based Centrebet (www.centrebet.com.au) – already closing the accounts of US-based clients.
While these early stock-market reactions look pretty serious, my guess is that these sorts of laws tilt the competitive landscape away from the larger more legitimate operations (like those public companies based in London), and toward the smaller (and more legally “-agile”-) firms operating in a less transparent manner. So perhaps this stockmarket reaction somewhat overstates the impact.
Stay tuned for more…- (Hat tip: Paul Tetlock and Sam Savage.)