EServices Marketing BMG593

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E-Services Marketing (BMG593)

• Online Betting Industry and P2P Betting Exchanges

Andrew Kincaid
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Content

• Brief history of UK betting industry
• Traditional model
• Migration of traditional model to online
  environment
• P2P models Betting Exchanges
• Differences in models
• Focus on Betfair
• Impact on industry, customer and society
• New possibilities/challenges
• Summary

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History of UK Betting Industry

• Sub-category of Gambling Industry
• The UK market is a relatively liberal
  environment (Paton et al., 2002)
• Originated on-course
• Not legalised off-course until 1961
• 1960 Betting and Gaming Act
• Created high-street bookmakers, betting more
  accessible
• Initially very segregated marketplace
• Big 3
• GBD reduced in 1992, abolished in 2001 to
  re-ignite industry
• Annual betting-shop turnover of 12bn (Mintel,
  2003)

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Traditional Model

• Profits made from deliberately imperfect model
• Perfect market should be 100, over-round is
  usually 115-120
• Odds are quoted with profit margin worked in
• eg. a 25 chance may only be quoted at 2/1
• Our Example
• Large bookmakers able to manipulate market
• This was essential to cover overheads, taxation
  etc.

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Migration to Online Environment

• Facilitative Factors
• Availability and evolution of internet
• Increased live coverage of diverse events via
  various mediums
• Increased trust in e-tailing
• Instant fund transfer
• Creation of online bookmakers
• Models were simply moved to virtual environment
• Consistency was required to protect high-street
  (Channel conflict)

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Migration to Online Environment

• Why use internet as opposed to land-based
  ventures?
• Relative convenience, comfort, and ease of
  Internet gambling
• Aversion to the atmosphere and clientele
• Preference for the pace and nature of online
  game-play
• Potential for higher wins and lower overall
  expenditures (Jones et al., 2004)
• This should theoretically bring in more customers
• Is there a trade off in channels?
• Advertising placement at sports events
  bet-in-play
• BetFred advertise on dynamic hoardings at Old
  Trafford
• Betfair placement of advertising on ropes in
  Cricket

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P2P Models

• After the industry had adjusted to the impact of
  e-commerce and the end of the GBD a more radical
  application of internet technology started to
  develop, namely P2P betting (Laffey, 2005)
• Important distinction in how bets are placed
• Punters are able to dictate their odds
• Ability to bet or (critically) to lay
• Bets can be left live awaiting a matching bet
• Commission based model
• Rate based on personal rates 2-5 on net
  winnings
• Better value
• Regularly 20 better odds claimed by exchanges
  (live example)

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Differences in Models

• Revenue created differently
• Traditional model much more rigid using step
  system
• Exchange model offers more transparent market
• Market is not normally actively managed by P2P
  exchanges
• Traditional bookmakers are layers
• No liabilities in exchange model
• P2P model relies critically on liquidity

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Introduction of P2P Exchanges

• Flutter and Betfair were instigators
• New application of existing technology
• Both web ventures live in 2000
• Flutter should have become market leader
• Many other entrants into market
• Low investment barriers
• Major barrier of liquidity

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Introduction of P2P Exchanges

• Liquidity became Flutters demise
• 2002 - Flutter merged with Betfair creating
  more liquidity
• Betfair controlled 98 of the exchange betting
  market (Wood, 2002)
• Betfair is the dominant design in P2P betting
  exchanges
• 500,000 matched bets per day
• Working on new architecture to enhance
  scalability and reliability

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Focus on Betfair

• Offering other innovative services
• Zero Lounge casino
• Unique games
• Financials
• Introduction of forum social networking aspect
• Education services
• Customers can attend free meeting to learn how
  to use service
• Total revenue of 239.7m in 2008
• Attempting to plug biggest hole in model

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Impact on UK Betting Industry

• P2P still in first decade
• Looks insignificant when profits are compared
• Distorted image as models are not comparable
• Surprising safe haven as a hedging service
• Creation Long-tail model with bet-in-play
• Legal challenges to layers proves perceived
  threat

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Impact on Customers

• Are online users the same as offline users? No.
• Exchange customers were a minority of UK
  betting customers they were generally seen as
  more sophisticated higher value customers, with
  the average stake being 3 times that of the LBO
  customer (Stanley, 2003)
• Improved terms
• Able to compare the market to ensure best value
• Able to stake larger amounts matched my many
  others fragmentation
• More diverse markets with longevity
• Rise of Arbitrage Betting
• Protection from problem gambling

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Impact on Society

• Is e-betting good for society?
• 24/7 access at home
• Risk of underage exposure
• Easy to lose track of time whilst gambling
• Reduced perception in value of cash (source
  GamCare)
• P2P may exacerbate problem
• Impact on Sport
• Positive -
• Negative -
• Dissolving of negative stigmas
• Access for women in male dominated environment

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New Possibilities

• Bet-in-play possibilities
• Trading environment especially on P2P Exchanges
• Hedging service particularly for independent
  bookmakers
• Can accept much larger liabilities, certain
  profit?
• Creation of user defined markets???
• Protection of vulnerable users
• Accounts need to be set up
• Traceability of transactions
• Mobile and iTV betting

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Challenges

• Market comparison rise of arbitrage betting
• Legal Challenges
• Fraudulent use
• Event fixing
• Neither model is perfect
• Traditional models have bloated margins
• P2P Models have limitations
• Possibility to merge ideologies?

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References

• Davis, M. Pitt, L. Sharipo, D. Watson, R.,
  (2005). Betfair.com Five Technology Forces
  Revolutionize Worldwide Wagering. European
  Management Journal, Vol. 23, No. 5, pp.533-541.
• Jones, P. Hillier, D. Turner, D. Comfort, D.,
  (2004). Customer-to-customer developments in
  (r)etailing - A case study of betting exchanges
  in the UK. Marketing Intelligence Planning,
  Vol. 22, No. 7, pp. 742-750.
• Laffey, D., (2005). Entrepreneurship and
  Innovation in the UK Betting Industry The Rise
  of Person-to-Person Betting. European Management
  Journal, Vol. 23, No. 3, pp. 351359.
• Paton, D. Siegel, D.S. Vaughan Williams, L.,
  (2002). A policy response to the e-commerce
  revolution the case of betting taxation in the
  UK. The Economic Journal, Vol. 112, Issue 480,
  pp. 296-314.
• Smith, M.A. Paton, D. Williams, L.V., (2006).
  Market Efficiency in Person-to-Person Betting.
  Economica, Vol. 73, pp. 673-689.