Sometimes 140 characters just aren’t enough. . .
Based on some Twitter chatter from earlier this week, I wanted to write a bit more (OK, much more) about my thoughts on Exchange Betting, which just might be coming soon to a USA racetrack near you. The basic concept of Exchange Betting is that it is a peer-to-peer transaction conducted via a website, with a company (say, Betfair), acting as a middleman. This means you can bet on horses to win, and also bet on them to lose (more on this later).
Betfair take a commission on every winning bet, you are not betting against them, you are betting against another specific person. It’s like any other computerized trading operation in this way. In the current USA system, you are betting against all the other bettors, and the track takes a usurious cut of the whole pool and return the remaining money to the winners based on the odds. This means you don’t get the price when you bet, you get the price at the off (or later, but that’s another story).
What are the advantages?
There are two obvious and massive advantages that Exchange betting offer bettors in the USA. The first is fixed odds. What a joke it is in this country that you don’t know what odds you are getting until the race is already underway. It’s a system that disincentivizes learning to handicap properly. How can you ask people to have a true sense of value and implied probability — the core of what a winning player needs — when you don’t even know your price? You can’t.
The other key thing is that — presumably — exchanges will offer the bettors a better alternative to the current takeout. If they can get the commission to 10%, that should represent enough of a bite for the tracks and still enough of an improvement to bettors to keep them flusher longer. Every economic study I’ve ever seen says that lower takeout ultimately leads to better numbers for the tracks in the long run (those last four words being the key). Perhaps the exchanges are what we need to get the lower takeout in.
Another possible advantage is the advent of in-running betting on horse racing in the USA, but that will be the subject of another post if people end up being interested in this one.
What are the concerns?
There is a line of thinking that the ability to bet on a horse to win will increase cheating. I believe these concerns to be overblown and even a little naive. For one thing, cheaters betting against horses on the exchange will leave footprints now. There are several well-publicized incidents of Betfair pointing out unusual betting action in races and launching investigations. I think the current system of exotic betting already offers a better opportunity for larceny that is nearly impossible to trace. I have interviewed and spent time with a lot of professional players. There are guys out there who if you told them with certainty that the favorite wasn’t going to hit the board in a given race would need extra rooms in their houses to accommodate all the money.
Could someone who is not greedy try to maniupulate the system to his advantage and avoid getting caught? I suppose so, but that’s already the case now with exotic betting if you think about it for a second. The perceived risks of further cheating don’t warrant cutting off this potentially excellent growth opportunity.
Financial issues
I have read some handwringing pieces about the financial side of Exchanges. A lot of people are upset because they believe that the exchanges don’t do enough to put money back in the sport in the UK, and they worry that might be the case here as well. I don’t think this is a realistic concern. The UK model is completely different. The racing industry there as a whole doesn’t get enough money from gambling dollars, and the exchanges are no different.
The deal our horsemen will be cutting with Betfair is a different animal: the commision will be higher than what they have in the UK, and the horsemen will get more. I am imagining a world in which Betfair will also have to pay-to-play, guaranteeing horsemen a certain amount of profit. If the horsemen are smart, they’ll set up Exchange betting on a trial basis — say for six months for starters — where they know they’ll make X going in. This will protect the tracks from the Law of Unintended Consequences and offer valuable further information and how the financial side is going to shake out. I just don’t see how this arrangement won’t benefit one and all.
But will it work here?
I have no idea. I do know that I have friends younger than me in the UK who support themselves full-time by playing the horses. There are few — if any — such people younger than me in the USA (I’m about to be 40 this Saratoga. Party at the Paddock Bar!!).
We have a culture of exotic betting in the USA and I’d argue that it’s grown precisely because it’s so hard for the average person to win now. Exotics increase fluctuation in results and allow some lucky people to do quite well, even over a number of years. But unless you can teach new people to win and continue funneling money back into the game, the overall game suffers. Why not try a system that teaches better handicapping and offers a healthier economic model? And one that ought to appeal to the erstwhile online poker crowd as well.
It might take time to work, but I believe the advantages are such that we at least have to try. Exchanges, coupled with the right economic structure for the tracks, could be racing’s most important growth area for this century.
I’ll be back tomorrow with a look at one of this weekend’s TC prep races, probably the Withers. I am happy to discuss this isssue further with any interested parties in the comments. And if the USA Horsemen or Betfair want to hire me a consulatant, my schedule frees up about March 1 when the Stones book is due 
