Betfair And Bookmakers

B E T F A I R V S. U.K. B O O K M A K E R S

LEONARDO DE FREITAS LEVY MORAES – HUID: 10831652-0
BHAVAK U. CHINAI – HUID:

1. What aspects (choices) of Betfair’s business model inter-link to create a powerful interactive system? In particular, why did these choices make it successful in its initial competitive battle with Flutter.com?

The main choice of Betfair was to use anonline platform system allowing bettors to bet against each other, instead of betting against a bookmaker. Without knowing each other, bettors had access to an enormous network base, allowing them to interact and at the same time, creating a risk-free source of income to Betfair’s business. There was no risk exposure like in the bookmaker model.

Differently from the Flutter.com’s model, Betfairallowed the creation of a more dynamic market, following the trading style system where users/customers trade in and out according to the market movements. Flutter.com’s model had to combine peer-to-peer offers in full and matching exactly the amounts and odds of each offer. By doing so, Flutter.com limited the flexibility of the platform and providing less liquidity. Betfair, in contrast, decided toincrease the chances of matching the offers by aggregating all offers, without the need of a peer-to-peer direct transaction. Betfair also reinforced this intention by giving incentives to high volume bettors such as preferential commission rates. This, in the end, helped to balance supply and demand at Betfair’s marketplace.

This also allowed Betfair to expand its platform to real time/livebetting experiences as people could trade “odds” according to the different outcomes of each competition. This could not be copied neither by Flutter.com, due its slow response as a consequence of the full peer-to-peer matching scheme, nor by street bookmakers, who didn’t have a dynamic and high-liquidity online platform.

Moreover, Betfair also decided to promote in a clearer way “what was init” for the customers. Instead of showing its odds in the traditional fractional method, Betfair showed them in decimal odds, which translated in a simpler and faster way the marginal return to a punter (3.5 instead of 5/2).

2. How do the bookmakers and Betfair interact? Does the competitor compete for the same customers? At what other points do they interact?

Despite several attempts frombookmakers to place obstacles in Betfair’s path, the traditional middlemen observed significant benefits from the entrance of a different business model in the market:
* The fact that Betfair was able cut out the middleman, has granted the company a significant cost and pricing advantage. Although no BS statement is provided in the case, it is safe to assume that Betfair has a lower asset basethan the traditional competition (no street shops, working capital to fund operations, etc), reinforcing also a leaner P&L statement with lower expenses linked to insurance and interest.
* The lower cost base from Betfair allowed the creation of a major interaction channel with the traditional bookmakers, which could then hedge their operations at a lower cost with Betfair, instead ofdoing with other bookmakers (as they were used to).
* In addition, by having a more transparent pricing scheme (real market with no filters like a middlemen), Betfair served as a good source of information to bookmakers providing them a fast way to assess their exposure to risk and, thus, pricing their “product” (odds) accordingly.

In regards to the customer base, Betfair’s product enabledpeople to “back” or “lay” against sports, creating a new market, appealing to “traders” and eliminating the need for knowledge in sports or horseracing. By giving benefits to high volume customers, Betfair also increased its commission. Yet, given the lower cost base of its platform business model, Betfair was able to capture the same customer base of the traditional bookmakers. The demographics...