Via Mike Giberson
I asked Stern if it is in the best interests of his league to seek legalization of sports betting. He sighed with his head down, as if to emphasize the gravity of what he was going to say.
“-It has been a matter of league policy to answer that question, ‘-No,’- ”- he said. “-But I think that that league policy was formulated at a time when gambling was far less widespread —- even legally.”-
He went on to provide a brief lesson in history involving J. Walter Kennedy, the NBA commissioner from 1963-75. “-Walter Kennedy testified in Congress many years ago, probably over 40, that gambling —- any gambling, not just sports —- should not be allowed in Atlantic City, that gambling shouldn’-t be expanded,”- said Stern, who was a lawyer for the NBA at that time. “-I remember it because I wrote a statement. It was the U.S. association of attorneys general, the U.S. attorneys association, the association of chiefs of police, the clergy of all denominations —- all lined up to say that expanding [was wrong] …- and I don’-t think lotteries were legal back then.
“-So that was the sin. And that’-s the way sports grew up in their opposition.”-
What has changed, Stern acknowledged, is that the NBA can no longer oppose gambling on moral grounds.
“-Considering the fact that so many state governments —- probably between 40 and 50 —- don’-t consider it immoral, I don’-t think that anyone [else] should,”- Stern went on. “-It may be a little immoral, because it really is a tax on the poor, the lotteries. But having said that, it’-s now a matter of national policy: Gambling is good.
“-So we have morphed considerably in our corporate view where we say, Look, Las Vegas is not evil. Las Vegas is a vacation and destination resort, and they have sports gambling and, in fact, there’-s a federal statute that gives them a monopoly of types [on sports betting]. And we actually supported that statute back in ‘-92.”-
Stern has long maintained that he doesn’-t want the NBA to turn into a point-spread league, and he talked about how NBA games create little of the sports-betting handle in Vegas, and that the majority of NBA fans have scant interest in the spread. I responded by noting that the NBA has created a variety of constituencies, including fans who wear NBA clothing, who play NBA video games and who view Kobe Bryant and LeBron James as Hollywood-level stars, which is not to forget the fans from any number of countries who follow the NBA patriotically via Dirk Nowitzki, Tony Parker or Yao Ming.
Why not make room under the big tent for the minority of fans who like to bet on NBA games?
“-OK, but then you’-re arguing there may be good and sufficient business reasons to do that,”- Stern said. “-And I’-m going to leave the slate clean for my successor.”-
He smiled and added, “-But it’-s fair enough that we have moved to a point where that leap is a possibility, although that’-s not our current position.”-
There you have it. That is a breakthrough. You don’-t hear baseball commissioner Bud Selig —- and you surely don’-t hear NFL commissioner Roger Goodell —- saying that legalized betting on their games is a “-possibility.”- Sports betting is their third rail, and they’-ve long maintained the anachronistic appearance of having nothing to do with it. (Even though illegal sports betting has helped turn the NFL into the No. 1 sport in America.)
As Stern acknowledged, gambling has gone mainstream since the scandal of 1919. The gambling industry will continue to grow as more and more casinos are built throughout the nation, such as the casino now being planned by Cavaliers owner Dan Gilbert for downtown Cleveland nearby Quicken Loans Arena.
Without committing himself in any way, Stern acknowledged that sports betting could create a new stream of revenue for the NBA —- not unlike the interest that March Madness betting pools have created for the NCAA tournament.
“-You’-re right about the threat that we perceive, and we stay on it,”- said Stern of the menace of illegal gambling rings. “-I think the threat is the same legal and illegal —- the threat is there.
“-Gambling, however it may have moved closer to the line [of becoming acceptable], is still viewed on the threat side,”- he said. “-Although we understand fully why, buried within that threat there may be a huge opportunity as well.”-
[This article is cross-posted from Major Wager.]
A recent article in the prestigious academic journal Science (May 16, 2008, Vol 320, p. 877-8) once again makes the case for regulated prediction markets, more commonly known as “-betting exchanges”- to online gamblers. The authors make the case that such markets are useful in forecasting future events with less error than traditional measures such as polling. This argument is hard to ignore, with the authors including 21 top economists from such esteemed institutions as Yale, Stanford, Berkeley, and the University of Pennsylvania. Notable among the authors is Justin Wolfers from the Wharton School of business at UPenn, an economist who has gained notoriety in gambling circles due to his work on such topics as NBA referee bias (highlighted in a May 2008 article from MajorWager: http://www.majorwager.com/index.cfm?page=27&-show_column=660).
The concept behind using prediction markets as a decision-making tool is simple. “-Shares”- are made available on an open market, and the participants use their capital (and the promise of profits) to make predictions on future events, which is incorporated into the share price. In general, information tends to be widely dispersed, and a market allows wide-ranging opinions to be gathered and consolidated into a market-wide prediction. In other words, an infinite amount of opinions can be aggregated, and an open market with potential for profit provides an incentive for individuals to make their opinions publicly known.
Prediction markets always get more than their fair share of press near the end of the 4-year U.S. Presidential election cycle. The Iowa Electronics Market, housed at the University of Iowa, is perhaps the most well-known. The authors of the Science paper show that, in the week immediately preceding the Presidential elections from 1988 through 2000, the Iowa Electronic Markets erred by an average of only 1.5 percentage points from the actual vote results, while the traditional Gallup poll was off by 2.1%. Numerous other studies have shown the superiority of markets compared to other forecasting tools.
Of course, there have been some dust-ups regarding prediction markets in the past, most notably the “-terrorist strike market”-, unveiled a little too close to 9/11 to be palatable to the general public. The official name was the “-Policy Analysis Market“-, and it was established by the Pentagon to act as a prediction market for Middle East political events. It was quickly scuttled after heated comments from U.S. Senators, calling it “-grotesque”- and “-stupid”-, due to the perception of using catastrophic events such as assassinations as profit-making tools. Regardless of its political correctness (and the misinformed opinions of a few politicians), such a prediction market still holds value as a glimpse into the collective mindset of everyone with an understanding of political currents in the region. Utilizing such a prediction market as a component of foreign policy decisions may have ultimately spared the U.S. much grief in Iraq.
In recent years, prediction markets have grown beyond academic and government roles. Dublin-based InTrade is rapidly growing and provides many more options than the Iowa Electronic Markets. Others such as MatchBook have focused more on sporting contests, but provide coverage of other events as demand calls. Of course, those outside the U.S. have access to the largest betting exchange of them all, the massive European markets of BetFair. The success of these exchanges speaks to the public interest and feasibility of prediction markets.
One factor holding back the growth of online prediction markets is their close association with the quasi-legal world of sports betting and internet casinos. InTrade has been fairly proactive in this regard, spinning off from Tradesports to clean up its corporate slate, but it is still knee-deep in the legal sludge surrounding offshore “-gambling”-. All have to deal with the legal and financial hurdles of operating offshore.
The authors of the Science paper propose that clarification of internet gambling laws is needed to exploit the benefits of prediction markets within the United States. Clearly, the Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 is one such mechanism restricting the widespread use of prediction markets. Another is the Commodity Futures Trading Commission (CFTC), the regulatory agency which oversees futures markets in the U.S. The CFTC has provided a “-no-action letter”- to the Iowa Electronic Markets, an assurance that they will not seek any enforcement action against the exchange. However, this protection is not absolute and may not trump state and federal law if challenged. The Science authors propose a number of legal reforms which will allow prediction markets to begin to gain acceptance within the U.S. financial regulatory structure.
By no means does the Science article condone large-scale public markets, at least not initially. They take a (typically academic) conservative approach, recommending new legal framework to allow for the establishment of small markets with limited scope so as to evaluate the promise and use of prediction markets. But baby steps are going to be a necessity in the growth and acceptance of regulated public markets.
Clearly, there are negative aspects to financial markets, and regulation certainly has its place. Bear Sterns, Enron, the S&-L scandal of the 80s, and the current housing bubble all caused tremendous loss of wealth resulting from missteps in the financial markets. The current oil crisis is due at least in part to speculation, leading to the introduction of no less than 9 separate bills in the U.S. Congress seeking tougher regulation over the trading of commodities. However, the existence of problems in the financial markets does not necessitate their dissolution. Likewise, prediction markets are sure to encounter bumps in the road, but their utility should far outweigh the risks.
Should prediction markets be legalized in the U.S.? Almost certainly. They would have benefit across numerous industries, from business decisions to political policies to financial forecasting. Unfortunately, this would require building an unlikely bridge over the Puritanical moral moat placed around gambling in the U.S. But there is no inherent difference in betting on who will win in an election than what the price of oil will be in 6 months, or what the S&-P 500 will close at on a particular date. Distancing prediction markets from “-illegal”- gambling, and instead likening them to regulated financial markets, will be a necessary first step towards broader acceptance.
The academic groundwork on prediction markets has already been laid, and offshore exchanges have begun to turn these concepts into functioning businesses. As these markets grow and begin incorporating more diverse opinions, we can expect their success rate at predicting the future to only grow. To restrict such a promising tool simply due to its perception that it is a gambling outlet is silly indeed.
[This article is cross-posted from Major Wager.]
At Ed’-s request…-
BBC TV report on sports betting —- (only for UK-based people )
Previous blog posts by Chris F. Masse:
- IIF’s SIG on Prediction Markets
- Why did prediction markets do well in the pre-polling era, professor Strumpf?
- Mozilla FireFox users, do you have trouble downloading academic papers (as PDF files) from SSRN?
- “Impact Matrix. Used to collect and gauge the likelihood and business impact of various events in the very long term.”
- Ends and Means of Prediction Markets — Tom W. Bell Edition
- How to run enterprise prediction markets… legally
About the latest New York Times story on BetFair fighting sports corruption…-
Prediction markets not only make fixing easier to profit from, by creating a liquid market for insider betting, but they also make it easier to detect, by creating a centralized database of betting for analysis: […]
So. the effects are mixed, and in the end we are left with the Homer Simpson-esque paradox that prediction markets are both the cause of, and the solution to, insider trading.
My remarks about his 2 statements:
#2. Sports betting (thru bookmakers and sportsbooks) existed well before the apparition of the prediction exchanges (betting exchanges) —-BetFair was created in 1999 and was launched in 2000, and TradeSports, in 2002.
#1. More money is bet on sports with bookmakers than with prediction exchanges (betting exchanges).
- Match fixing existed before betting.
- Profiting from match fixing existed before BetFair and TradeSports.
- BetFair is the only betting company in the world that has systematized a cooperation program with sports bodies in order to detect and fight sports corruption.
Guess who said that in 2006.
Previously: BetFair’-s Mark Davies on sports betting
Bet Matching Forum Q&-A Session 19/03/08
Betfair Customer Services 17 Mar 11:50
As announced last week we’ll be hosting a Q&-A session on the forum this Wednesday evening (19th March) between 6pm and 7pm (UK Time). The purpose of this Q&-A session is to answer questions regarding BetFair’s new bet matching logic. To help us get through as many questions as possible you can send them in advance to firstname.lastname@example.org. Unfortunately it is not possible for us to respond to each Email individually but we will attempt to answer all questions raised via the live Q&-A session.
We realise that customers would appreciate the chance to have questions answered on other topics too, but we want to focus this initial session on just the new bet matching logic to ensure that we answer as many questions as possible. For those customers who have questions for Betfair that aren’t related to this topic we’ll be reintroducing regular forum Q&-A sessions over the coming weeks. We’ll post more information about those sessions nearer the time.
We hope you find this session helpful and informative
Betfair Customer Services 19 Mar 18:00
Welcome to the Betfair livechat.
Answering the questions this evening are Mathias Entenmann (MD of Betfair’-s UK and Ireland business)- Mark Davies (Betfair’-s MD Corporate Affairs) and members of their teams.
We have received a number of questions in advance which we will start to answer now. If you have any questions which you have not already submitted, please email email@example.com and we will attempt to answer between now and 7pm (UK time), when the session ends. Please note that you will not be able to post in the relevant forum section.
Betfair Customer Services 19 Mar 18:02
Chatname – Lee (Genuine Scouser)
Do Betfair employ traders to bet in their markets?
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 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. Betfair Malta is charged commission on winning bets in the same way as any other customer in order to comply with relevant regulation and law.
Betfair Customer Services 19 Mar 18:05
Chatname – NB
– Why did you choose not to announce this significant change to your clients? Was it in the hope that we just wouldn’-t notice?
Betfair frequently makes changes to it’s software and we always have to weigh up the balance between keeping customers informed against inundating them with information. In this particular case we’d agree that we’ve done a poor job of assessing the reaction of some customers and communicating appropriately, for which we can only apologise. We’re committed to doing a better job of communicating with customers in future, and this Q&-A is the first step in that process.
– You appear not to be using the new bet matching engine on those events that run under the Australian wallet. Is there a particular reason as to why not?
Events run under the Australian wallet are processed on hardware located at our office in Hobart, Tasmania. If we make a change to the software on the UK exchange it isn’t just a case of choosing to switch Australian wallet markets on or off. We have to install the software on the Australian exchange itself. Keeping both systems in sync imposes an overhead, and it’s an unnecessary overhead if, as in this case, there are further changes imminent. We’ve made the decision that our efforts are better spent getting to the complete solution we want in the UK, with price improvements and those bets we could match across selections displayed, and then to look to implement that for the Australian exchange just the once.
– When the SP product was released you announced it in advance and couldn’-t advertise it enough. Why then did you not announce this fundamental change with the same enthusiasm?
Announcing and promoting Betfair SP has had a significant effect on the amount of new customers we’ve been able to attract to Betfair. Once we have the ability to offer price improvements to bets matched across selections, and we can display all the bets we could match, we’re very confident that the vast majority of customers will recognise that as beneficial. Even then that’s still not going to be something that’s going to make a compelling advertisement.
Betfair Customer Services 19 Mar 18:07
Chatname : CLYDEBANK29
– My understanding of the new cross bet matching logic is that it offers neither best execution or common pricing in most circumstances. Is this correct? (By common pricing I mean that if one of my bets is matched using this method it will be matched at that price by another customer).
That’s not correct I’m afraid. The majority[b1] of the bets that have been matched by the new logic so far have been matched at prices where no price improvement would have been possible. While there’s inevitably a temptation to focus on situations that aren’t typical, most Betfair markets aren’t hugely volatile, for example soccer match odds markets. For those markets where prices are more volatile, for example in-play tennis, as I’m sure you’re aware the vast majority of the betting activity takes place on the favourite, so the proportion of bets matched across selections is relatively small.
– What commitment do you have to introduce best execution and common pricing on this new cross bet matching logic? and if you are committed to providing it why have you introduced this change before it delivers either best execution or common pricing in most circumstances? (By common pricing I mean that if one of my bets is matched using this method it will be matched at that price by another customer).
Our developers are already working on providing price improvements when bets are matched across selections. The only factor limiting when we’ll introduce this is how quickly we can develop and test it.
We introduced the current change even without the ability to offer price improvements because we considered it an improvement over the previous situation. One of the biggest barriers to becoming a regular Betfair bettor for new customers is the concept of an “unmatched” bet, an experience they won’t have had when placing bets with our main competitors. Anything we can do to address that and give them a better chance of getting a bet matched immediately helps the long-term growth of our markets. Clearly for customers who’ve been with Betfair for some time, and for whom unmatched bets and what to do about them are second nature, that isn’t going to be obvious.
– Can you understand why some customers think that because this new matching logic doesn’-t offer best execution or common pricing in most circumstances that they view you effectively as a player in the market skimming overbroke situations and who is beating the in running delay and therefore cheating on your own exchange to achieve this? (By common pricing I mean that if one of my bets is matched using this method it will be matched at that price by another customer).
I’d suggest that focussing on the in-play delay is missing the point, although it’s easy to understand why a customer might mistakenly come to that conclusion
The purpose of the in-play delay is to prevent someone watching an event either live at the event, or using pictures with a shorter delay, from selectively matching orders on one side of the market or the other following a price changing event(like a goal or break of serve). As the process only matches opposing customer bets, and no bet is matched by this process selectively based on anything that’s happened in the event being bet on the in-play delay isn’t applicable.
Backing one selection is (and has always been) equivalent to laying the other selections in the market. In-play bet matching takes place as soon as the in-play delay has expired on a newly submitted bet request. If we have a bet request to back a tennis player, say, then it would clearly be unfair to match a request to lay that player as soon as the in-play delay expires while imposing a 2nd delay on a customer looking to back his opponent.
Betfair Customer Services 19 Mar 18:14
Chatname : askari1
– How much money has the engine / arber made for Betfair so far? If commercial confidentiality prevents you from quoting a figure, could you give some indication in terms of the total turned over on a typical event e.g a televised tennis match and / or the typical post-game commission taken by Betfair?
The biggest market the new code has operated on was the televised tennis match between Andy Murray and Roger Federer a couple of weeks ago. Approximately ?6.85 million was matched in the market, and the amount accrued as a result of our inability to offer a price improvement when bets were matched across the two players was ?882.91 . Obviously in well-traded markets like a big tennis match the amounts won and lost by customers are much less than the headline volume figure too, but as a percentage of what’s won or lost in each market the amount is small.
Betfair Customer Services 19 Mar 18:18
Chatname : askari1
– Please could you give the company’-s working definition of the terms ‘-best execution’- in cross-matches and ‘-of holding a position’-? According to these definitions, does ‘-holding a position’- differ from ‘-holding a liability’-? Do you apply the same definition to ‘-best execution’- in the case of cross-matches as you do to matches in the case of single-runner sub-markets?
“Best execution” means never less than the price you requested, with the prospect of a price improvement where we can do so, if we can deliver that.
By “holding a position” we mean taking an outright position against a customer, rather than matching opposing customer bets.
The definition is the same for bets matched across selections. As and when we have the means to provide a price improvement we will.
Betfair Customer Services 19 Mar 18:20
Chatname : astonvillain
how can betfair users be assured that in the case of a market which suspends with a delay such as football, that betfair owned bots will not match bets which are out of line at the time of suspension? there is a big trust issue here.
The times at which Betfair will match bets across selections are identical to the times at which regular matching (backs vs. lays) takes place. If the market is “active” (not “suspended”) and there are opposing customer bets that can be matched then we’ll match them. If the market is “suspended” then no matching takes place, either backs vs. lays or across selections.
Betfair Customer Services 19 Mar 18:21
I hope you will answer the following:
Q. Why did you feel it unnecessary to inform your vast customer base of the changes to the bet matching algorithm in advance and take feedback- or accept that a trial period may have been a more appropriate way to introduce the changes?
It’s Mark here. I made that call and the judgment was based on the fact that I saw this as a product enhancement which was a benefit to users, and we do not announce every one of those every time. It was doing what we have always said we do – using our technology to match demand between customers – and it was just doing it more broadly than directly backer to layer. We have frequently made the statement that we are a bookmaker which is using technology to match demand, and to my mind this fell directly into that.
I think that if you consider a situation where a 100% book saw backers all sit and look at each other (for example, in a two-outcome event, I think it is daft that two backers, one of each outcome at 2.0, should not be matched), that is easy enough to understand. I also feel that in a situation where there is, say, a backer at 2.0 and a backer at 1.98, it is silly for us not to match those bets: we were doing so at the price requested, not worse- and therefore the customer matched was getting the best price that we could offer them, bearing in mind the limitations of our technology currently preventing us from giving a price improvement. If we left a backer at 1.98 and a backer at 2.0, people would think we were daft- and equally, if the price was matched by another customer seeing the arbitrage, the initial customer would only be getting the same price.
I accept that I did not consider the difference in-running, as it relates to people mistakenly posting the wrong price, which would take the book over-broke by a significant margin. But I did not think we needed to make an announcement about the fact that we were using our technology to match bets. That is the business we are in.
Betfair Customer Services 19 Mar 18:22
19 Mar 18:13
Didn’-t anybody at BF imagine this will drain quickly the markets?
Absolutely not – we expected this to increase liquidity and make it easier for our customers to get bets matched. On markets where we’ve had this in operation, that’s exactly what we’ve seen happen – the markets have been more efficient.
Betfair Customer Services 19 Mar 18:23
Andy Fuller: I will email this question but if you read it here first please reply BF –- what have you done with the money you have collected from clients unfairly as you admitted to earlier today?
Under our UK bookmaking licence, these revenues are legitimate profits and have been treated as such. The amounts involved are not what some people were speculating and some people have suggested that the money made should be donated to charity. However, be assured that we will be donating to charity this year far in excess of what the bet matching process has made!
Betfair Customer Services 19 Mar 18:24
Chatname : lippy
Are these changes an attempt to boost betfairs profits for an impending IPO?
There are no plans for a Betfair IPO.
Betfair Customer Services 19 Mar 18:25
Chatname – Get On MASSIVE
Do you ever plan to stop the skimming and give best execution to your customers and if so when?
Betfair has always given a price improvement to bets placed wherever possible, and that approach has never changed. We’d like to be able to offer price improvements across selections too and it’s something we’ve been working on, but it’s much, much more complex than many people imagine , and we don’t have a way of giving customers that improvement yet. We’re hopeful that we’ll have that in place in the next few weeks.
Betfair Customer Services 19 Mar 18:27
Dear BetFair, I hope you will answer the following:
Under current UK regulations you are not required by law to inform your customer base of changes in advance, but under FSA regulations and European Law you would be. Given the strength with which you defended the GC’-s consideration that exchanges should be FSA regulated when the Gambling Bill was first drafted, don’-t you think it would have been wise or prudent to satisfy the most basic of FSA regulations too –- and advise your customer base of material changes to the bet matching algorithm: the key component of the exchange software we all trade on, and one which matches wagers totalling billions of pounds in the UK today.
I am not sure you are correct here: what we were doing here is entirely in line with our licence and what we have always said we do. If you look at repeated statements made about what we are, I (this is Mark) have always stated publicly on behalf of the company that the best definition of a betting exchange is a bookmaker which uses technology to manage its risk perfectly. This is what we were doing here: matching bets in a manner which meant that we, as an operator, had no exposure to the outcome of the event. People have always described Betfair as P2P and told me that our description of the company in these risk-based terms was spin. The reality is the opposite: Betfair is a many-to-many system where demand between customers is matched such that the operator of the exchange does not have risk to the outcome of the event. It is precisely on this basis that we have always been licensed as a bookmaker.
Betfair Customer Services 19 Mar 18:30
Chatname : MoreTea
– Once it was established that best execution was no longer being provided in the new system (in conflict with your own T&-Cs and help area), why was it not turned off immediately and an apology made, and why is it still running now?”
– Why did you make a material change to your product which breaks your own terms and conditions and the description of your product in the help area without announcement or warning?”
There was no change to our existing matching process – if a bet could be matched against an opposing bet, that would be done giving the best price available. Adding cross-matching gives another chance to get a bet matched – something we thought, and still think, is an improvement that benefits the vast majority of our customers.
Betfair Customer Services 19 Mar 18:33
Chatname –- Getting Better
Can you confirm that you will not be applying the new matching process to markets such as horse racing that have a reduction factor? If you did I fear that you would be open to abuse on occasions where there was a known or likely non-runner.
Yes, we can confirm that the new bet matching process will not be used on horseracing markets any time soon. If this changes we will let you know in advance.
Betfair Customer Services 19 Mar 18:37
Magician: Specifically did the GC APPROVE this change to the matching algorithm –- or where they simply made aware of it and did not grant or reject formal approval
We did not seek Gambling Commission pre-approval for cross matching before we launched it because we don’-t believe that this was required. However, we were in dialogue with the Commission in relation to the licensing status of cross matching and we would always be happy to address any questions the Commission has on any part of our business.
Betfair Customer Services 19 Mar 18:37
Feck N. Eejit
19 Mar 18:33
Have they answered mine yet? “-Why do horse racing people all wear funny clothes?”-.
John McCririck here… just stopping by Betfair towers, on my to the Ivy, looking for a new gig, what do you mean by funny clothes?
Betfair Customer Services 19 Mar 18:39
the man marcus
19 Mar 18:31
?882 on a 6 mill traded game?
We expected to make more money as a result of this change because we believed it would make our markets more efficient and increase the volume matched – the amounts retained through the odds differential are much much smaller than all of the forum speculation would suggest.
Betfair Customer Services 19 Mar 18:40
1. Is it true that Betfair have started matching bets across selections while not offering best execution? e.g. if two customers want to back different selections in a two outcome event at 1.9 Betfair would lay both outcomes at 1.9 and pocket the overround for themselves.
This is what we were doing but we have announced today that we would take it down until we can deliver best execution as you state it. However, I (this is Mark Davies) think that ‘best execution’ is moot in its definition here. Best execution for me means the best price at which we can execute the bet- and it is not trivial to offer a price improvement on a cross match.
Given the situation I have already suggested, where you have two backers of a 2 outcome event, one at 2 and one at 1.98, I believe that we ought to be matching those bets. Ideally, we should be matching them at 2 and 2, but our technology is not currently able to do that. For me, we should therefore match the bets at the prices asked for.
If you think about there being three options here: that we don’t match those bets- that we match them at the prices asked- or that we match them at the ‘best execution’ you suggest (by which you mean giving the price improvement implied), then clearly the philosophy of the company is to do the third of those. This is what we are working towards. In my judgment, it was better in the interim to do the second, than to leave it at the first. However, clearly many of our users disagree, and this is why we have rolled back to where we were. Personally, I think the second point is a better place to be than the first. I accept that bot users who previously benefitted from that arbitrage will disagree. But, looking back to the early days, many (and I think you were one, frog) objected to bots coming in and taking that arbitrage. You could argue – I would – that it is fairer that we should take that arbitrage, and pay tax and levy on it, than that someone should have a free lunch. However, it is clear that customers disagree and would prefer to leave that arbitrage to the bots. We have therefore decided that we will not match those bets until we can do so with the price improvement.
2. If (1) is the case, is this permanent or do Betfair guarantee they be implementing a best execution algorithm for this in the future?
I think I have answered that above.
3. If (1) is the case do Betfair guarantee that they will never change the current policy of best execution for bet requests on the same selection? For instance if I put in a request to back a horse at 2.0 and there is someone offering 2.5 on Betfair on that horse will Betfair never back it at 2.5 with that person and lay it back to me at 2.0?
I think that goes very much against the philosophy of the company as we set it up, and I would resist it very strongly myself.
Betfair Customer Services 19 Mar 18:41
Chatname –- flapjack
– When will you introduce best price execution on the new matching system for all bets?
We are working on it but it will take a number of weeks.
– On another forum recently, someone made the comparison between Betfair and the bankers in the current Natwest adverts, i.e. you are not remotely interested in what your customers want or what is in your customers’ best interests? Are you aware that this is how a lot of people see you?
We have read all the criticism. Some of it is unfair, in my view (this is Mark here)- some of it pointed out things that we had not considered. Unfortunately you’ll never please everyone. I hope that your assessment that ‘a lot’ of people see us like that is an exaggeration. I think we do spend a lot of time listening to customers, and working to produce a product that they like, and if the perception is that we are not remotely interested, I think it is a misconception. I think we spend a great deal of time listening to customers’ feedback.
Betfair Customer Services 19 Mar 18:43
Chatname – The Magician
Where some users or third party developers informed about this proactively from betfair. Is it betfairs future intention that when changes are made ALL users received the same information regarding the operations of the betting markets
No, customers were informed preferentially. We made the decision that we would answer inquiries individually, and the first question was submitted by a third party developer which was then disseminated more widely. We’ve recognised that we should have communicated this issue to the customer base more broadly, a misjudgement for which we can only apologise, and we’re committed to doing a better job of communicating similar issues in future.
Betfair Customer Services 19 Mar 18:44
Another question to Betfair: To ensure people do not make figures up and blow things out of proportion –- you say you made ?882.91 on the biggest market, but can you confirm that was the biggest takeout you have had from a single event? If it was not can you state what the biggest take out has been and on what event. I think this is important to stop people thinking you are exploiting this situation any more than they already think you are.
I (Mathias) can assure you that the example given was not unrepresentative or misleading (and cross matching was switched on for the entire market in question). I hope you understand that we have never given out commission data in relation to a market so are not particularly keen to go any further.
Betfair Customer Services 19 Mar 18:47
Chatname : mugsgame
I would like to know your intentions regarding using the new bet matching engine on horse racing markets, particularly in play.
There is no immediate plan to operate the new matching process on horse racing markets. There are a number of additional issues with horse racing, particularly withdrawals. If we match bets across runners in a horse race and one runner is subsequently withdrawn we would have to void the bet on the withdrawn horse while honouring bets placed on those that come under orders. Having the ability to offer price improvements where possible is a higher priority, and we’ll revisit horse racing once that issue has been resolved.
Would it be possible for you to put some text into the market rules window stating if the matching engine is being used?
It’s a fair point to want to know if the new matching process is applicable in a particular market. It’s unlikely we’ll make changes to the market rules tab to communicate that, but we will announce future changes to the matching logic and the markets affected in the Service section of the forum.
Betfair Customer Services 19 Mar 18:47
19 Mar 18:34
Can you assure us that Betfair will never at any point in the future begin actively trading in the sports betting markets other than to hedge the risks from your multiples product?
No – but Betfair is not in the business of risk-taking on sports markets. That said, we’re always looking for better ways to meet the needs of our customers.
Betfair Customer Services 19 Mar 18:48
Chatname : drifterwins
How much tax will you be paying on money “-skimmed”- from the new system?
The Betfair bookmaking company (which is separate to the exchange) which operates cross matching pays tax at 15% on its profits (like any other UK bookmaker).
Betfair Customer Services 19 Mar 18:55
19 Mar 18:46
“-We think it fairer that we take the arbitrage and pay tax on it, than those who already pay us commission on it, which we then pay tax on”-
I don’-t use a bot, and wish that bots were not an inevitable competitor to me when I trade, but they’-re still owned by paying customers, and I think the customers in a “-customer vs customer”- site deserve the money more than the site. At least they don’-t have to make decisions regarding voiding markets etc.
Also, not all of arb money goes to bots. Also, why not just have one runner in a tennis match
“-Federer win, yes = 100″-
Questions to Betfair
How can you convince us that you can remain neutral as an arbitrator when you have skimmed money from the market?
Why do you believe you’-re going to be popular taking more money from a market than advertised commission rates?
If cross matching at best execution is so difficult, why not just have one-runner in two horse races and settle at 0 or 100 like many other places.
To the first point, we’re not taking a position – merely matching bets that otherwise would not have been matched. Most of our customers simply want to get bets matched, so we believe improvements in our matching process are in our customers’ interests. Having just one runner in 2-runner races would make cross-matching unnecessary but it’s confusing as most people expect to see both names.
Betfair Customer Services 19 Mar 18:58
The Magician (1)
19 Mar 18:54
another quick Q.
why dont you add this new matching algo to the horse racing SP calculation (with best execution), it would certainly make it more robust than it currently is
We are considering adding the cross matching with best execution to our SP markets in the future. However, this is a complex calculation and therefore will only be done at a later stage.
Betfair Customer Services 19 Mar 19:01
Why is giving best execution so difficult?
If 2 people are backing at 2.0 and 1.8 in the same market, it is surely simple to ensure that the person whose request came in first gets the odds they requested and the second person gets better odds than they thought they would get
eg if 2.0 is waiting to back player A and someone submits 1.8 to back player B, then both get matched at 2.0.
if 1.8 is waiting to back player A and someone submits 2.0 to back player B, then A is matched at 1.8, B at 2.2
i cannot see why this is so difficult
It isn’t difficult to calculate for a single instance. Unfortunately Betfair’s bet matching process has to be able to calculate this across multiple markets for thousands of bets each second, and it would be an unacceptable customer experience if doing so caused any delay to the bet matching process. The existing bet matching process has been refined over years, and making fundamental changes to that means coming up with a whole new set of refinements. We’re working on this now and we will have it in place as soon as we’re satisfied the solution gives the performance customers expect.
Betfair Customer Services 19 Mar 19:02
Thanks very much taking part in this discussion. We’ll continue to answer the questions we receive on this subject, via e-mail, and post the relevant Q&-As here for you to read at a later date.
From Andrew Gelman:
In a letter published in the latest New Yorker, Douglas Robertson writes,
James Surowiecki, in his column on sports betting, writes, “-How much difference is there, after all, between betting on the future price of wheat . . . and betting on the performance of a baseball team?”- (The Financial Page, September 25th). Future markets in products such as wheat allow famers and other producers to shield themselves from some financial risks, and thereby encourage the production of necessities. In this sense, the futures markets are more akin to homeowners’- insurance or liability insurance than to gambling on sports. But there is no corresponding economic benefit to betting on sports- on the contrary, there are serious costs involved in protecting the sports activities from fixing and other corruptions that invariably accompany such gambling activity.
This is a good point. I enjoy gambling in semi-skill-based settings (poker, sports betting, election pools, etc.), and betting markets are cool, but it is useful to step back a bit and consider the larger economic benefits or risks arising from such markets.
My Take: They are both misinformed. With an ethical real-money prediction exchange (a.k.a. betting exchange), this problem is easily solved. As I reported last month, BetFair has signed memorandums of understanding with TWENTY FOUR sports bodies. If the BetFair managers spot manipulation attempts, they will report the villains’-s mischiefs to the sports bodies and, possibly, to the Police, too. How do you like that, Andrew Gelman?
Addendum (October 30): Andrew Gelman published a blog post on Midas Oracle, in response.