When you’re running a low-rent betting exchange like www.backandlay.com – often described by critics and proponents alike, not entirely inaccurately, as a ‘hobby’ website, there are no commercial pressures to succeed within any given time frame.
"You can wait 10 years, 20 years, a lifetime for liquidity to grow and, if it never does, never mind, it was fun, and hopefully you provided a good, cheap, service for a not inconsiderable number of exchange users."
You can wait 10 years, 20 years, a lifetime for liquidity to grow and, if it never does, never mind, it was fun, and hopefully you provided a good, cheap, service for a not inconsiderable number of exchange users.
For, if your costs are rock bottom, you can afford to undercut everyone else on price, the revenues being inconsequential anyway, hence the operator suffers no angst as to what extent demand might have proved relatively inelastic had he experimented with higher pricing.
But it is a different ballgame if you’re a plc, investing shareholders’ money, as Ladbrokes are rumoured (and, for the purpose of this item, the rumour is assumed to be fact) to be preparing to do. You might be able to invest a lot of money – maybe £10 million plus – but you have to have a game plan for recouping it with interest inside a time-frame of distinctly finite duration.
So, you’re chucking big money at it – what are the prospects for a rapid return? You’re taking on a market leader in Betfair which controls 90% of the exchange market place despite charging up to 5% (even 7% on occasions) commission, Betdaq, the now scandalously defunct SportingOptions, and iBetx have all spent considerable money on promoting up to 3% alternatives, www.backandlay.com’s own sustainable 1% rate and there have even been sites run at 0% commission (obviously as temporary as marketing promotions), all without significant success.
The liquidity is encamped at Betfair and, thus far, seems impervious either to the lure of lower rates or seeded liquidity elsewhere, nor even to price hikes from the Betfair host. And, even if Ladbrokes do manage to penetrate the stranglehold a little, at the rates of commission they are likely to charge, what will be the relationship between money burnt and money coming in?
"Despite the best efforts of their traders, they will lose to professional punters in the laissez-faire exchange arena which denies they the opportunity of discriminatory treatment of their customers."
Not good, IMO, not good at all. A Ladbrokes betting exchange is a tacit acceptance that low margins are here and must be embraced but, IMO, offering a low-margin platform to all and sundry – including punters Ladbrokes would rather not bet with at all – is no the way forward for them and there are other alternative strategies they could instead more profitably pursue
My prediction is that Ladrokes will burn a great deal of money in marketing and seeding this betting exchange of theirs. Despite the best efforts of their traders, they will lose to professional punters in the laissez-faire exchange arena which denies they the opportunity of discriminatory treatment of their customers, there will be a reluctance on the part of many even to use a Big Three exchange, the big traders required to provide the essential ‘liquidity spine’ will never materialise there for them, there will be an element of non-profitable conversion of their high-margin user base into users of the low-margin platform users and, eventually, probably after a year to 18 months, Ladbrokes will conclude it has been a horrendous strategic error and close, merge or sell off their betting exchange.
And when they do, being a chap of refinement and class (not), I’ll laugh.
BBC
