A revolution has rocked gambling in Britain. So-called "sports betting exchanges," exemplified by a company called Betfair, have enthralled gamblers, giving them unprecedented opportunities, while generating fear and intense opposition from established bookmaking firms.
While Betfair is principally oriented toward British events, it also handles action on American horse racing and other sports. U.S. horseplayers who establish an account with the company will be amazed by the value it offers. And U.S. racetrack operators -- most of whom are now oblivious to what is happening at www.betfair.com -- are going to be stunned by the nature of this new competition.
Betfair has done for wagering what eBay has done for commerce: Through the Internet, it brings together two parties to make a transaction without having to pay the traditional middleman. Just as the owner of a painting can offer it online to eBay's customers and avoid an auction house's steep commissions, subscribers to Betfair can make wagers with each other, bypassing bookmakers and racetracks with their high takeout rates.
The business has been stunningly successful, and it now "matches" -- i.e. serves as the middleman for -- more than $10 million per day in bets.
Betfair's founder, Andrew Black, told an interviewer: "Centuries ago, betting started between individuals and then needed market-makers -- bookmakers -- when it got bigger. Now, in a sense, it has come full circle."
Betfair handles wagers on a wide variety of activities -- soccer, American football, cricket, darts, the Golden Globe Awards, the 2004 U.S. presidential election, the Dow Jones industrial average (you can bet whether the index will be up or down on any day). In any category, a customer may offer a wager for which he will act as a bookmaker, e.g.: He wants to lay odds of 15 to 1 against Hillary Rodham Clinton becoming the next Democratic presidential candidate, and will take up to $100 in wagers. Or a customer can propose a bet that he wants to make with someone: He wants to bet $50 at 3 to 1 or greater that "Gangs of New York" will win the Golden Globe Award for best picture.
Betfair's computer systems streamline this process, handling as many as 12,000 transactions per minute. Customers first establish an account and make a deposit -- though U.S.-issued credit cards are not accepted. (Americans need to make a wire transfer from their bank.) Their transactions are anonymous; bettors simply type the amount of a proposed or accepted wager into a grid on the screen. Betfair calculates the wins and losses, making the additions or deductions to the customers' accounts after each wager is decided. For its services, Betfair takes from the winner's profit a commission ranging from 2 to 5 percent -- depending on the customer's overall level of betting.
It is this low commission rate that makes horse betting especially attractive on Betfair. Because American racetracks take from 15 to 20 percent of any win bet -- and British bookmakers aren't noted for their generosity, either -- there is an enormous edge in betting man-to-man and paying only a small percentage to Betfair.
Two horse-racing channels televise American races in England, and Betfair handles wagers on these races -- from tracks including Laurel Park, Calder, Hawthorne and Santa Anita.
The action on Betfair is fast and mesmerizing -- and it offers opportunities that horseplayers never see in parimutuel wagering. Every handicapper has encountered innumerable races where he doesn't like the favorite but doesn't have a good way to capitalize on that opinion. On Betfair he can, in essence, become a bookmaker and accept a bet. Recently I was looking at a maiden race from Suffolk Downs where a horse with an 0 for 28 career record was the 6-to-5 favorite. I had no opinions on the race, but this looked like an ideal situation for Betfair. I offered 8 to 5 on the bum favorite and quickly got a taker.
As gamblers around the world make similar offers, the market on a horse race at Betfair is similar to a stock exchange where "bid" and "asked" prices for stocks are constantly fluctuating. The Betfair data on the computer screen shows a "back" and "lay" price for each horse. A horse might be available to bet at 3.2 to 1, while wagers on him could be booked at 3.4 to 1. In most cases, the betting odds are higher than at the track. A player who can anticipate the movement of the odds can lock in a price significantly higher than the post-time odds. I got 8-to-1 odds at Betfair on a horse who would up going off at 5 to 2 at Laurel.
The amount of action on run-of-the-mill American races is astonishing. Typically a U.S. race will produce $30,000 to $50,000 in matched bets. Gamblers are continually looking for any edge they can find, and the Betfair market offers myriad opportunities to secure an edge. As a result Betfair's business is growing every week, and the racing establishment has found it difficult to counter or eliminate the competition from a service that the public loves.