Niall O’Conner over at bettingmarket.com has written an informative article about the rise of the betting exchange. Written using Betfair the worlds largest betting exchange as an example. It describes how the betting exchanges have taken the betting industry by storm. Traditional bookmakers originally took offense to the idea that the public can bet that something won’t happen. There have been scandals surrounding abnormal betting patterns and the ease with which the system can be abused. Viz, it’s easier to ensure that a horse won’t win a race than it is for it to win the race.

Race fixing is an obvious concern but not without an agenda. Niall argues that the bookmakers are bashing Betfair because they are fearful of the competition. Competition which is essentially stomping all over a market which has been cornered by the big names of traditional sports bookmaking. Let’s face it corruption in horse racing is not a new phenomenon. Bookmakers have never been concerned about this before, well, not so publicly. Amongst other things there have been a number of complaints by bookmakers pertaining to Betfair’s advertising campaigns that highlighted the fact the bookmakers operate with fat margins. The fatter the margin the less money paid to punters. So traditional bookmakers weren’t happy. Others in opposition to the betting exchange includes the British Horse racing Board chairman Martin Broughton and various horse racing authorities. The Japanese Horse Racing Authority released a statement…

“Our position on betting exchanges has been and remains, quite clear. We strongly believe that it destroys the integrity of our sports and will ruin thoroughbred racing. Japanese racing is televised in Australia from time to time but they are not intended to be used for the purpose of betting exchanges. Therefore, we respectfully request that Betfair Pty Ltd refrain from using our race events for betting exchanges. I trust you understand our position and I thank you for your cooperation.”

But these concerns have not stopped the growth of the popular betting exchanges. Betfair has now reached over 1 million users and their profits are still growing. Whilst the betting exchange has some great selling points not all betting exchanges have been a great success. There have been many failures and none of Betfair’s peers can rival it’s success. Said peers include Livebetting, Betdaq, Betsson, Tradesports and Matchbook catering to the USA. Operators like Betsson have blurred the lines dividing the betting exchange model and traditional fixed odds bookmakers. The website offers normal sports betting and an option to use a betting exchange thus mixing the two types of betting. The others all offer a betting exchange only.

Betfair’s competition all suffer from the same problem, which revolves around the fact that there is not sufficient liquidity in their markets for all bets to be matched quickly. Betfair’s success can be attributed to first mover advantage. They where the first company to develop the best technology and corner the market. A higher number of users has really helped them create a thriving market for members to back and lay a wide range and many aspects of sporting events.

For users, the only potential problems they may have with Betfair is that large bets will not get fully matched by other members. Whereas traditional bookmakers will cater for the ‘high roller’. A slight concern is the commission that Betfair charges. Due to their dominance of the betting exchange market they have no need to compete with other exchanges for commission rates. One positive outcome of this is that Betfair’s competitors do compete for business by offering lower commission rates.

Let’s look at the reasons why the betting exchange has become so popular. This following peace has been taken from “Trading without Dark Pools – The story of how Betfair and the betting exchanges revolutionised the betting market” (Niall O’Connor 2009 All Rights Reserved).
What are the benefits of using Betfair