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Betfair Primer

Launched in 2000, Betfair is the dominant betting exchange. The UK-based company pioneered the betting exchange concept where customers bet against each other, rather than the bookmakers, and can modify their positions during an event!

While Betfair may have higher commission charges than rival betting exchanges such as BETDAQ, it does have the advantage of providing better liquidity (market depth) than its competitors. With betting exchanges, liquidity is key because you cannot bet if there isn’t anyone to bet against. The best sports on Betfair for liquidity are, in no particular order, Football, Tennis, Horse Racing, Golf and Cricket. A fantastic array of sports are covered, which include Basketball, Darts, NFL, Rugby and F1, albeit with varying levels of liquidity.

The Betfair Interface

The Betfair navigation panel runs horizontally across the top of the screen. The navigation panel allows you to access betting markets grouped by sport and those markets that are or are about to turn in-play.

The sidebar on the left hand side of the screen provides further ways to access betting markets, they are listed by betting volume and as alphabetical list of sports. Additionally you can use Betfair’s search facility to search for betting market participants or events (e.g. teams, competitions, horse races etc.)

The navigation panel also lets customers access the Betfair Cash Out feature.

Placing Your First Bet

When you have found the market you want you can then place a bet. (You will need to login / register with Betfair and then deposit funds first, if you have not already done so.)

The first thing you will notice on Betfair is the option to back or lay the bet, backing the bet is the same as placing a bet with a normal bookmaker — you are placing a bet at the offered odds on that specific outcome. If that outcome happens you will win. With a lay bet you are taking the liability of the bet, in effect you are taking to role of the bookmaker. If you lay a bet at 4.0 (3/1 in fractional odds) to win £10 you will be liable for £20 if that specific outcome happens or you will win £10 if any other result happens, this is described as your "liability".

Place the back or lay bet by choosing the back or lay odds for your selection. Enter your stake and then choose Place bets. Assuming Betfair can still match your bet, you have now successfully placed a bet.

Cash Out

Betfair’s Cash Out feature takes customers to a page that lists their active bets and gives them the option to lock in a profit or loss before the event has finished. Note that the cash out feature is not available for all betting markets.

How Betfair Operates

Betfair operates in a similar way to a stock exchange. For each transaction, one customer is required to “back” a result and another is required to oppose that outcome by placing a “lay” bet. Punters are not aware of the identity of their opponents. Betfair’s revenue is generated by a commission of between two and five per cent on a customer’s winnings.

Unlike traditional wagering platforms such as bookmakers and the TABs, Betfair does not accept cash, nor does it allow customers to obtain credit. Betfair customers must have registered with Betfair and opened an account and then deposited sufficient funds to cover their exposure for any given bet before they are able to place or lay a bet. In this way, winning customers are readily able to be paid out on their win and losing customers can never lose more than they have available on deposit.

All customer funds are held in a ring fenced trust account.

Betfair Charges

Commission

Betfair charges its customers a commission based on a customer’s winning bets. Traditional bookmakers build their charges into the odds they offer the customer. This means that customers pay the bookmaker’s margin (charges) on every bet that they place with that bookmaker. By contrast, Betfair customers can make several bets on a market, but will only pay a charge on their profit on the market in question.

Premium Charge

A small number of successful Betfair customers incur a premium charge (what is classed as “successful” is set out in a page on the Betfair web site). This charge is in addition to the standard Betfair commission charge. The charge was introduced to meet the infrastructure costs of customers “who currently pay a rate of commission and charges that does not reflect the benefit they gain from the Betfair ecosystem”. The dilemma for Betfair is that this means imposing an unpopular charge on customers who provide market liquidity for more profitable customers.

Regulatory Obligations

Betting exchanges just like any other gambling platform need to comply with the requirements of regulatory bodies such as the Gambling Commission. To a regulatory body, the role of the betting exchange operator is to provide a regulated, structured and safe environment for online betting, which is crime free and protects children and the vulnerable. To meet these requirements, Betfair:

  • Gives customers control over their gambling activities. For example:
    • Customers can limit the total amount of money deposited over a period of their choice, to reduce the risk of customers spending more than they want to.
    • Customers can limit the frequency of their deposits over a given period, again of their choice, to reduce the risk of customers “chasing losses”.
    • Customers can limit the amount of time they can spend on one activity, notifying them after certain time periods.
    • Customers can self-exclude themselves from the Betfair web site for a minimum of six months.
  • Has a strict and rigorous process for age verification that takes customers through multiple stages to confirm their identity and age. Betfair confirm the customers details provided actually relate to the user of the account, via one of a number of methods.
  • Has a dedicated risk team who monitor the betting exchange for potentially fraudulent activity and/or money laundering.
  • Monitors activity on the betting exchange by using:
    • A secure interactive web-based application developed to monitor all bets taken on the exchange in real-time.
    • A system which sends automated alerts and exception reports to monitor accounts and betting activity.
    • High tech tools used to analyse computer forensics and linkages between accounts to prevent, detect, investigate and report any potential criminal activity.

    Betfair publicise the fact that they keep this betting audit trail. Their view is that “The most effective deterrent to malpractice comes from demonstrating that there is a likelihood of being caught.”

  • Can close or suspend a particular account at any time to prevent customers from betting on all or some markets or from removing funds from their account.
  • Has information-sharing agreements that allow information about irregular betting patterns to be passed to and from sports governing bodies such as the International Olympic Committee, FIFA, UEFA, the ATP, the ICC, the Rugby Football Union and the English FA.

The Betfair Sportsbook

Currently, when you visit the Betfair web site for the first time, you see a sportsbook not a betting exchange. With the sportsbook, Betfair assumes the role of bookmaker offering its customers the option of taking fixed odds on many of the markets available on the betting exchange. The need to simplify the product in a way that takes it to a broader audience has seen Betfair focus on fixed odds. As a new Betfair customer, if you didn’t know the exchange exists, you could be excused for missing it, it’s given no more prominence on the site than their casino or poker offerings.

The focus on the sportsbook may indicate that Betfair has saturated its audience of possible exchange customers – the difficulties of explaining the exchange to a wider audience or that multiple odds are on a market for people who are used to a single set of odds.

In addition, the introduction of the premium charge could have adversely affected betting exchange market liquidity. The serious money that underpins Betfair’s liquidity in its main markets on racing and football is provided by a relative handful of its millions of clients (no more than a few hundred, according to one estimate). Increasing the charges for the people who are providing the bulk of the liquidity inevitably means that some of these customers will fall away.

The future direction for Betfair, as set out in its Annual Report, highlights the joint importance of both Betting Exchange Sportbook products for Betfair: “We are now focused on redefining the boundaries of how customers can bet on sport by integrating our Exchange and Sportsbook to create market leading products.” An example benefit of this approach is that it allows customers wanting to take an early price on, for example, a horse race to get on before the exchange’s market is fully formed (which can take some time for minor races). Instead of customers setting the price, Betfair will do it. Another benefit of this integration is that it allows Betfair to offer prices on markets they were previously unable to offer or were only very illiquid.

However this integrated approach, which Betfair aims to take its brand to a mass market audience, seems to be a little diluted by the introduction of Betfair Exchange+. Betfair Exchange+ is a version of the betting exchange where, in response to customer feedback, Sportsbook integration has been removed from the Exchange market pages.