P2P Betting: A Winning Model? (Part 1)

27 March 2001
Among the thousands and thousands of gaming sites on the Internet today, person-to-person betting sites make up a very small portion, but many in the industry feel the genre is one that will shape the way sportsbooks are run in the future.

P2P betting is not only a relatively small part of the market, but a young one as well.

As with any growing industry, operators are learning what works and doesn’t work with P2P betting. A few operators that have learned the hard way have already shut down, but others have seen their sites flourish considerably since adding the platform.

The idea of P2P betting is to eliminate the middleman (the bookie). Instead of placing a bet with a sportsbook, the P2P bettor decide which side of a wager he wants to put money on and is (hopefully) matched with others who want to take the other side of the bet.

Tom Courts, whose SportsMarket Inc., is in the process of implementing its new P2P plan, said those who were able to stay afloat while the sector got on its feet were able to learn from those who failed.

"Sites are learning from the history of the business," Courts explained. "There are some that made various mistakes and others have learned from it."

Courts says the main difference between the sites that have failed and the ones that have had success is maintaining a system with which punters are familiar and comfortable.

"They (those who have failed) have not left in place the status quo structure," he said. "They have asked their audience to learn a new structure or way of betting. I don’t think you can ask bettors to learn a new structure. They know point spreads and money lines, and if that is not what making a bet is about then they probably won’t place it."

And even within the sector there are various systems that seem to be working. Flutter.com and Betfair.com have been the leaders of the P2P pack, and each has unique methods for matching up punters with each other.

Flutter.com has gone the route of a bulletin board-style platform while Betfair is modeled on financial exchange technology. Flutter works similarly to the popular Internet auction site eBay, where sellers are matched up with buyers.

Betfair Marketing Director JoJo Primrose admits that there are some advantages to the Flutter.com system. "The advantages of this style are that it is easy to understand, and non-daunting to the new gambler," she said. "I would suggest that their business strategy is to grow the gambling consumer base. It is a mass-market proposition."

The ease of the platform in which Flutter--and other P2P sites--uses attracts the casual bettor, but Primrose feels that could be the bulletin-board style's biggest downfall as well.

"The disadvantage is that it does not appeal to serious gamblers who have no interest in community and are solely focused on getting their bets taken in the most efficient manner," she said. Betfair, meanwhile, has taken the concept of buying and selling stocks through the web to its "range" betting platform. Punters can decide which side of the bet they want to "buy" or "sell" and the system then matches them up with others wanting to get in on the other side of the bet.

Primrose says Betfair's real-time system offers the best bets available to the punter.

"The system will automatically allocate you the best price available even if you have foolishly agreed to accept worse odds," she said.

In addition to making sure users are getting the best available bet, the system pulls all similar bets into one pool to offer bigger pay outs.

Pool betting seems to be the key for start-up Bettingcorp.com. The U.K.-based P2P site, which underwent a soft launch two months ago, has found that its pool-betting option draws more clients than its head-to-head option.

Bettingcorp U.K. Limited President Michael Lobel said his site has seen a great deal of action early on thanks to an educated consumer base. Lobel agrees with Courts that a status quo system is essential for a P2P site, but he says that site was able to get by that.

"A lot of bettors in the U.K. had been educated in the P2P market so that helped us out," he said. "They came across our site and were familiar enough with the options. They were able to jump right in and not learn a new system."

Primrose feels that serious punters will be willing to learn a new system if it means a bigger pay-out, which P2P betting often does.

The P2P system has many advantages for the punter. Often users are willing to give far greater odds than what the traditional sportsbooks offer--usually 20-25 percent greater.

"If the bookie always wins, why not be one?" said Primrose. "The benefits to the system include greater liquidity, greater attraction to serious gamblers and a much higher turnover."

The P2P system, according to Courts, naturally provides that liquidity that doesn’t come from traditional bookmaking.

"Sites have not included the incumbents," he said. "Any type of any exchange means a lot of volume unlike a bookmaker who doesn’t need a lot of volume. He needs volume to make the system work economically, but the system doesn’t require volume to survive whereas any type of an exchange does. You need liquidity and efficiency which is provided by a certain critical mass of volume."

Tomorrow we'll examine the importance of volume and software that can handle volume as well as the types of sports P2P betting is geared for.

Continue to Part 2

Nobody knows where Kevin Smith came from. He simply showed up one day and started writing articles for IGN. We liked him, so we decided to keep him. We think you'll like him too. Kevin can be reached at kevin@igamingnews.com.