04/21/2016 3:20PM

Beyond the exchange: Notes on the Betfair launch


Here are some notes, observations and opinions from Daily Racing Form reporter Matt Hegarty on the May 10 launch of Betfair's exchange-wagering site in New Jersey.

* The best way to learn how to exploit the exchange is through a simulator Betfair launched in conjunction with its announcement on Thursday. The simulator can be found here. Bettors who are familiar with hedging strategies will find some interesting ways to play the races, especially with the in-race betting features and the “cash out” option. And if you live in New Jersey, expect some dumb money to be on the exchange early on, especially when liquidity is low. May as well have a jump on the competition when the site is launched, and learn the dumb strategies yourself before real money is on the line. You also may be surprised to discover how fun it can be to grind out a guaranteed 4 percent profit.

* Betfair told New Jersey regulators that 70 percent of the matched bets on its site currently come from computer programs. These are probably programs designed by professional players grinding out those aforementioned 4 percent profits, as well as programs utilized by bookmakers in the UK laying off their risk. It’s unknown how computer programs will affect betting on the U.S. races at launch, since bookmaking is illegal in the U.S. and you won’t have massive companies attempting to hedge in the pools like in the UK, at least not at first. But keep that in mind for down the road.

* While it’s tempting to think that you can hang up a juicy line on a horse you feel has no hope of hitting the board and raking in all that dumb money, the system is designed to aggregate all offers on the site. So the spreads on horses’ odds may be far narrower than you initially expect. Also, remember: it only takes one or two hits on horses at 20-1 or better to make you think twice about how smart you are. Limit your liability early on, as most aspiring bookmakers do. Take it from me, who may or may not have experience running a book, depending on the statute of limitations.

* After Betfair opens betting on a race, usually the night before the race, scratches will be treated as refunds to both parties. Dead heats will be subject to calculations that divide up the odds on the existing bets to reflect the fact that multiple parties won, reducing returns. Betfair also said that it anticipates offering some “antepost” markets for big races, such as Monmouth’s Haskell, three or four days prior to the event. In those cases, a scratch means a loss, just as if you were betting in a futures market in Vegas.

* Betfair does not just offer exchange wagering on horse races – its UK site offers betting on just about every sport in existence and, yes, that includes cricket. In fact, in the company’s latest financial filings it stated that football (or soccer in the U.S.) is it’s “most important sport,” though the company does not break down revenues by segment in the sports division. Nevertheless, Betfair is interested in gaining a toehold in New Jersey beyond its interest in horse racing – the state’s legislature and its governor have attempted to skirt a federal prohibition on sports betting for several years, and the state’s objection to the federal government’s opposition is still winding its way through the courts. Should sports betting become legal in New Jersey, Betfair would be in a prime position to capitalize on the development, and its focus on racing may diminish as a result.

* Although Betfair’s legal team is adamant that exchange wagering “meets the U.S. definition of pari-mutuel wagering,” using the words of John Hindman, the company’s general counsel in the U.S., the bewildering moral uproar over fantasy sports contests that erupted last year hints the site is going to be targeted for scrutiny by some of the more sanctimonious non-governmental organizations and media properties. Federal law in the U.S. prohibits bookmaking in all but limited circumstances, and expect there to be some discussion about the site’s legality. In addition, some state racing commissions have had informal discussions about whether betting on a horse to lose represents a threat to the integrity of races held in their jurisdictions. It is not out of the question that one or more state racing commissions will seriously consider prohibiting exchange wagers on races held in their states.

* For a preview of Betfair’s potential problems in making an argument that the site is not in violation of federal prohibitions on bookmaking, look no further than a term it has adopted to describe the activity on its U.S. site: “fixed odds pari-mutuel wagering.” The term is a paradox, since a defining aspect of pari-mutuel wagering is that odds are not fixed until betting in the pool closes, at which point no more bets are accepted (logically, then, odds in a pari-mutuel pool are at all points variable, since you cannot make a bet at the “fixed” price without privileged access to the pool). As for whether "fixed odds" can be pari-mutuel, try telling your bookie you need higher odds on a bet that you already agreed to because all your friends are betting on other horses. Good luck with that. At what point did Betfair adopt this term? Only since it began lobbying for U.S. approval, 10 years after it had launched its system in jurisdictions where fixed-odds betting – i.e., bookmaking – had been legal for hundreds of years.