If US sportsbooks truly do not want winning bettors, what can be done?
Comments from DraftKings CEO Jason Robins late last year sparked plenty of replies, but a popular one was “bring on the exchanges.”
Betting exchanges are seen as something of a bettors’ fix-all: a place where sharp customers can fire away with tight lines and high limits.
Win more or lose less on betting exchanges
NFL games on UK exchange Betfair regularly close with one side of the spread at even money (+100) and the other at -102, albeit with a 2% commission for the winning bet.
That type of hold looks plenty appealing compared to a standard -110 sportsbook offering. So what’s the catch?
“In the UK, the initial surge in exchanges in the early 2000’s was seen to be great for punters as lots of recreationals attempted to play bookmaker,” UK professional gambler Neil Channing said.
However, those recreational players soon started to dwindle as they realized they were losing money. Within a couple of years, only the best market-makers were left, using systematic trading techniques and software.
Sharks vs. minnows
It is the classic problem with peer-to-peer games, seen also in poker and DFS. Recreational players are pitted directly against the sharpest players in the world and inevitably, they lose.
Log onto Betfair on a Saturday to bet some Premier League soccer, and you are likely betting against a global syndicate and paying 2% commission for the privilege.
“Sure, some will stay and continue to lose, as it’s their hobby,” said Nick Goff, professional football bettor and former head of football trading at Coral. “But many will become disillusioned. What seemed like a better way to gamble and win – or at the very least lose at a slower rate – is found to be far harder than they thought. The very nature of exchange betting is that it is a pool infested with sharks.”
Be careful what you wish for
There are also downsides for professional bettors as markets quickly become more efficient.
This might not matter in already-liquid markets like NFL sides and totals. But if exchanges deliver liquid markets for college basketball totals or NFL player props, edges will start to disappear.
“What we found in the UK was that telling bookmakers how to price things meant they offered a lower theoretical margin,” Channing said. “But the punters who always knew how to price things now had less mistakes to shoot at.”
So far, so bleak then.
But fortunately, the US sports betting market has some unique characteristics that might help exchanges thrive.
This time is different
The Betfair exchange still uses broadly the same interface it did 20 years ago. It can be a clunky experience and the main appeal is good pricing.
The product has arguably suffered from a lack of investment as one small cog in giant parent company Flutter.
That suggests some upside if US exchanges can offer a genuinely good product that is fun and intuitive to use.
Price is right for betting exchanges
Best price might also be more important in the US than in Europe.
“I think culturally, US bettors are more aligned with exchanges,” said Jake Benzaquen, the co-founder of Prophet Exchange. “In Europe it’s normal to bet a five-leg (accumulator.) Here, people are betting to try and make money, regardless whether they are doing so or not.”
If US sports betting is truly aspirational, then betting exchanges should thrive.
A nation of traders
The US is also more familiar with speculation in general. People trade stock, crypto and options much more than their European counterparts.
Sports is just another vehicle for that. If an exchange can capture those different types of traders, it could make for a genuinely thriving market.
Prophet has been in touch with syndicates from the US and Europe about market-making, while Sporttrade has links with some financial prop shops willing to get into sports trading.
Crypto exchange FTX is another player that could bring some new blood into the sports betting ecosystem.
Benzaquen notes New Jersey is still working out some details of the regulations, but institutional market-makers might have to get licensed and put servers in each state to comply with the Wire Act.
“If a US exchange works, then you are talking about something that is really unique,” said Jesse May, head of strategy at Matchbook Betting Exchange. “Tight in-play markets with high frequency trading. Proper financial-style markets. All the ingredients are there for that to happen.”
It is also feasible that a current sportsbook acquires an exchange to run as a tab next to it sportsbook product.
“There’s a lot of ways to wield an exchange,” May said. “To me, the combination seems like the future.”
Reasons for optimism for betting exchanges
All told, the ceiling for exchanges in the US certainly seems higher than the ~5% revenue market share in the UK.
US sports bettors might be more focused on profitability and there is a general comfort with trading. Now it’s up to the exchanges and their market-makers to deliver usable products with deep liquidity.
Bettors should just be aware they likely still won’t actually turn a profit.