A new report from Media & Entertainment Consulting Network (MECN) suggests that betting exchanges, the latest phenomenon in the betting industry, could be the beginning of a new era of betting in Europe.
"Betting Exchanges - The eBay of the Betting Industry" takes a look at the evolution of sports betting in the United Kingdom from pools to odds betting to the "new era" of person-to-person betting. It also examines the ever present philosophical dichotomy within an industry that the BBC in England calls "the greatest revolution in gambling generations" and that Australian-based Tab Ltd. calls the potential "end for bookmakers."
England, Europe's frontrunner in the entertainment industry, has always been on the edge of transforming the media and entertainment industry.
British offshore "pirate" radio stations like Radio Caroline and Radio London broke up the BBC's radio music monopoly in the 1960s, ultimately creating a lively English pop music scene that started with the likes of the Beatles and the Rolling Stones and continues strong today. Similarly, the BBC's television monopoly ended with the start of Sky's cross-border commercial TV service, and it is well known that England has a very strong TV industry market position globally.
So it's not strange that the first successful betting exchange, Betfair, came from the United Kingdom as well. The company, founded in June 2000 by Andrew Black and Edward Wray, came to force in 2001 when it grew by 25 percent overnight through a merger with Flutter.com. Now, according MECN's research, Betfair handles an estimated betting volume of US$190 million of matched bets a week, matches 500,000 bets a day and has probably 150,000 registered customers in more than 70 countries. Most of the bets are taken on racing and soccer, which combined account for 70-80 percent of turnover.
The concept of the betting exchanges is twofold: A player can back the bet by another player and can also act as a bookmaker. Above that, the odds don't have to be fixed, which means exchanges' prices are about 20 percent better than those of traditional bookmakers. Another major advantage is a commission rate of 2-5 percent up against traditional bookmakers' commissions of 15-20 percent (and good causes can bring it up to 50 percent).
According to the MECN report, Europe is home to around 25 exchanges, with Befair leading the way with an estimated market share of 80 percent. Its closest rival, Betdaq, plans to realize a turnover of US$4 billion from its global activities.
As for future trends, MECN says that exchanges' most catered-to market segment--the heavy bettors--will not experience the same growth it has in the past. "Future market," the report states, "has to come from converting non-bettors and casual bettors into users of exchanges."
Additional Facts from MECN's Executive Summary:
It is expected that the total annual volume of bets matched by betting exchanges in Europe will grow from US$16 billion today to $159 billion by 2008--a compound annual growth rate of 79 percent.
The market leader, Betfair, has an estimated yearly turnover (volume of matched bets) of about US$9.88 billion and makes an estimated annualized profit (EBIT) of about $68 million.
Odds offered by betting exchanges on average are about 29 percent better than those offered by traditional bookmakers.