04/25/2011 1:55PM

Betfair-funded study favors exchange betting


A study paid for by the exchange-betting pioneer Betfair has largely confirmed what the company has said in support of its efforts to launch betting exchanges in the United States.

The study, which was conducted by Eugene Christiansen, the noted U.S. gambling-industry analyst, concluded that betting exchanges in the United Kingdom and Australia had not had adverse impacts on the horse racing industries in each country, and that similar results would be anticipated in the United States if exchange betting were launched. The study also said that exchange betting could allow racing to attract a new demographic and lower the cost of betting to increasingly price-sensitive consumers, points that Betfair officials have repeatedly made in attempting to build support for its product.

“Exchange betting can rejuvenate Thoroughbred racing’s consumer base, stimulate new interest in Thoroughbred racing, and generate new revenue from betting on Thoroughbred racing for racetracks and purses,” the report said. “The data we examined in preparing this report suggest that exchange betting can accomplish these things without material adverse effects on existing sources of funding for racetracks and purses or on existing casino gaming.”

The study, however, limited its analysis in the U.K. to effects since the legalization of Betfair on contributions to the racing industry from the state’s levy board, rather than on total purses or national betting handle, while omitting any mention of critics in both countries who have claimed that exchange betting has cannibalized vast sources of betting and weakened the economic fundamentals of their racing industries. The report also brushed past any concerns that allowing betting on a horse to lose – one side of most racing bets on the exchange – compromises the integrity of a race.

Christiansen said during a conference call on Monday to discuss the study that numbers for national handle and purses in the U.K. were not readily available, and that the report was limited to publicly available data. In addition, Christiansen said he did not include betting numbers through Betfair’s exchange because those numbers were not publicly available and because of a concern that the numbers did not readily compare with handle totals in the United States because of differences between exchange betting and parimutuel betting.

Betfair, which purchased Television Games Network in 2009, has lobbied aggressively for the legalization of betting exchanges in many U.S. states. Last year, both California and New Jersey passed legislation authorizing exchange betting, contingent on an agreement between the betting exchange operator, racetracks, and horsemen.

Betfair charges its customers 2 to 5 percent of any winning bet. It does not charge a commission on losing bets. In Australia and the U.K., the company pays approximately 10 percent of its commissions back to the racing industries.

Fears of cannibalization of existing racing handle are especially acute in the United States, where the racing industry currently retains approximately 20 percent of each dollar bet through the takeout. Under Betfair’s current model, according to racing officials, the company would contribute less than 1 percent of its wagering transactions to the racing industry, which is already struggling to make ends meet because of a protracted decline in handle.

The report said that cannibalization of existing handle in the U.S. would be limited, citing what it called the emergence of “parallel markets” on Betfair to existing parimutuel systems in the U.K. and Australia. The report said that handle through the parimutuel systems in both countries rose following the legalization of exchange betting, though Christiansen acknowledged that a large number of factors could have influenced the increases. In Australia, for example, fractional betting was introduced over the last several years, leading to large gains in the parimutuel pools.

The report did not provide an estimate for what amount of handle in the United States could be cannibalized by exchange wagering. Nor did the report provide an estimate for the impact of Betfair’s current business model on the industry’s existing revenue streams. Christiansen said an analysis of the impact was not conducted because Betfair told him that they have not yet determined how the racing industry would be compensated in the United States.