The Best Balance Between Liquidity and Low Commissions

Betting exchanges. Why were they invented? Well quite simply, they provided an innovative betting solution; offering customers better odds, the ability to lay bets and imposed no limits on stakes, unlike many traditional bookmakers. The owners of betting exchange technology are exposed to no risk, with income being derived through commission paid from winning bets. Betfair, the market leader and founders of the first betting exchange, have long promoted the advantages that their platform offers over high street and traditional online betting firms. But has their recent practice jeopardised their reputation and contradicted their mantras on which their success was built?

An extremely attractive selling point of the original Betfair model was that the odds on offer were generally higher than those available with bookmakers. As betting exchanges enable peer to peer betting, and as individuals do not have associated overheads and demand from shareholders for a particular profit level, the prices being offered on markets were more attractive. The same still rings true today, however, there has been a noticeable shift in Betfair’s commission policy which has had a detrimental effect on profits.

In April 2012, Betfair announced that they would be increasing their commission rates on Australian racing, from 5% to 6.5%. A year later, they imposed a blanket hike on commission levels in a number of European countries, with customers in Poland now having to pay 6.5% and in Bulgaria, the rate has increased to 7.5%. This may seem fairly minor, but can a significant effect on the final odds received, as the example below demonstrates:

Say you want to strike a bet on "Horse X" and your current options are:

• Bet with traditional bookmakers at odds of 2.5
• Strike a bet on Betfair at odds of 2.68

The logical choice at face value would be to use Betfair, as for every £100 staked, you are receiving an extra £18 profit. However, factor in the new 7.5% commission rates that are being imposed in countries such as Bulgaria, and the picture soon changes:

£100 back at 2.68 = £268 return with £168 profit

That £168 profit then has £-12.60 (7.5%) commission deducted, leaving the profit for the bet, £155.40, and the returns £255.40 – only marginally more than received when betting with a traditional firm.

Factor in that online bookmakers are generally now offering best odds guaranteed, and the advantages of Betfair are diminished. Those successful punters on Betfair also have to pay a premium charge. This can be anything from 20% up to an eye watering 60%, and can chop profits in half further.

There is a fine balance between low commission rates and liquidity. Common sense dictates that the lower the commission rates, the higher the liquidity, as better returns are available. However, having had a large market share for a decade or so, Betfair appear to be changing their approach and trying to take as much money from their customers as possible. The high commission rates that they charge will eventually have a negative impact upon liquidity.