Different Approaches Create Results for Two New Betting Exchanges

12 November 2003

Two new betting exchanges have hit the market and both are hoping to make major inroads in what is becoming the fastest growing sector of the interactive gaming industry despite taking two different approaches.

Earlier this month Ian Davies announced the launch of BackandLay.com, a P2P exchange he hopes will eventually change the way business is done with online betting exchanges. Davies, the founder of the site, is only charging 1 percent commission on all matched bets, a rate far below the industry standard of 3-5 percent. His hope is that the lower commission rate will bring savvy punters to the site and eventually force bigger brands to follow suit.

Earlier this year officials rolled out iBetX. In less than six months since its launch Rocky Mirza, the founder and CEO of the site, claims iBetX is already surpassing Betfair in North American-based turnover.

Betfair, the world's leading betting exchange with nearly 90 percent of the market share, is a tough business to compete against, according to Davies. And he should know, he helped turn Flutter.com into a viable betting exchange before it merged with Betfair.

Davies, who is no relation to Mark Davies the communications director for Betfair, said he was one of the few members of Flutter management that didn't want to see the site merged with Betfair in 2001.

"When I came to Flutter the site was in bad shape," Davies said. "Our interface wasn't user-friendly and the technology wasn't being used to its fullest potential. We turned it around and within six months had a viable betting exchange."

Davies' experience with Flutter made him a firm believer that the best way to compete in any section of e-commerce is to keep your overhead low so you can offer the best prices.

More than a year-and-a-half after departing Flutter Davies launched BackandLay.com. He said it took so long to launch the site because he was determination to keep costs to a minimum.

"We spent very little money in building this site," he said. "The software was done and the small number of people that helped with the developmental phase of the project did the work in exchange for equity in the company. We have very little overhead and that is how we are able to keep our commission down to 1 percent."

Large betting exchanges, Davies said, are no different than any other company that has shareholders to answer to. If too much focus is put on earnings, price per share and other investment jargon, sites will have trouble competing in the long run.

"There are a lot of sites out there burning a lot of money," he said. "I predict it is just a matter of time before some of these sites start to close as investors get tired of waiting for the site to do something and make them money."

Once those larger sites close, Davies is hopeful that BackandLay.com will be able to build up its liquidity and become a bigger player in the exchange market.

"I am not expecting a mass exodus, or an exodus of any kind, from Betfair now that we have launched," he said. "But I do expect in the long-term that we will become a viable option in the P2P market. We aren't burning any money so we will just sit back and let everyone else burn cash and then go out of business and watch our business grow."

Mirza is also taking a different approach to the exchange sector and he is already watching his business grow.

Earlier this week iBetX announced its expansion into the U.S. market, making it the first P2P exchange to publicly go after American-based punters. The announcement came after officials with the site saw an increased amount of turnover coming from North American punters.

Since it was launched in March, iBetX has processed over 180 million matched bets and liquidity is growing by 10 percent per week for the UK alone, he said. U.S. business has also taken off, with more than $5 million in turnover generated a week through the site.

According to figures released by iBetX, which is based in UK, exchanges now account for more than 10 million pounds per day in bets in the UK, with membership growing 10 to 15 percent per week.

The betting exchange market in the U.S. is virtually untapped as operators have shied away from the market due to legal uncertainly and a feeling that the U.S. betting public wouldn't be interested in P2P betting. Opinions on the popularity of exchange betting among American punters is slowly changing though, as sites see more and more action from the U.S.

The legal uncertainty still remains and is the main reason cited by Davies and Betfair for staying away from U.S. play.

"My hope is that some time down the line the U.S. market will open up to us, but until then it is in our best interest to focus on other areas of the world that are more friendly to the betting industry," he said.

iBetX allows a minimum bet of just £1, or approximately $1.50 in U.S. currency. BackandLay also offers a £1 minimum stake. iBetX site also accepts bets in pounds sterling, U.S. dollars, Euros, Hong Kong dollars, Australian dollars, and Japanese yen.

A unique offering through iBetX is its batched betting feature, which allows users to upload text files to the site to place multiple bets simultaneously. The iBetX site has five betting odds boxes, and customers can make multiple selections in their betting window without having to type in the odds and stakes.

Davies, based in Basingstoke, doesn't like the sliding commission rates like the ones used on Betfair and iBetX.

"Sliding commission scales are unfair both to low-stakes punters and occasional punters alike," he said. "Sliding commission scales are also socially irresponsible - they encourage punters to bet above their means in order to obtain, then maintain, low commission rates. At BackAndLay, we value all our users. Big-stakes punters, small-stakes punters, punters who bet occasionally - they all pay one per cent commission on net profits from each market."

Even with their different philosophies both Davies and Mirza and their sites, look to make in impact in the ever growing betting exchange industry.