Betfair Sees Positive Trends in Exchange's First Year

The company that launched the first betting exchange in the United States, Betfair US, believes its first year performance offers some encouraging trends for the industry.

While acknowledging the numbers are from a small sample, Betfair US chief executive officer Kip Levin said that in looking at the horseplayers who tried the company's New Jersey betting exchange at least once, as a group their handle increased 12% on the state's advance deposit wagering platform, 4NJBets.com, which also is run by Betfair US.

Betfair US launched the first United States horse racing betting exchange in May in New Jersey and company officials said players have been risking about $1 million a month on the site. Horsemen and other industry groups have raised concerns about betting exchanges, questioning if the low-takeout model it relies on will generate enough handle to benefit tracks and horsemen. They also fear it could cannibalize pari-mutuel pools.

Levin, will participate in a question and answer session March 8 at the National Horsemen's Benevolent and Protective Association in Las Vegas, believes the initial numbers are encouraging that exchange wagering, which uses internet and mobile technology to allow bettors to both offer and accept locked-in odds on horses, can work for U.S. racing and can even generate additional pari-mutuel handle. While it's a small sample, the company's position as operator of the exchange and New Jersey's ADW hub puts it in position to track trends.

"The overall (New Jersey ADW) market year over year—if you look at the total ADW handle in New Jersey, it was relatively flat," Levin said. "But if you look at the players who tried the exchange at least once, that player group increased their ADW handle 12% year over year. If you take that player group out and look at everybody else, the remaining players were actually down about a percentage point year over year. That's really, really encouraging.".

Betfair US believes that trend is providing initial evidence that the betting exchange will not cannibalize pari-mutuel pools. Earlier this year Betfair US general counsel John Hindman noted that much of the pari-mutuel handle—some 70%—now focuses on exotic wagers (exacta, trifecta, daily double, pick 3, etc). Those wagers are not available through the exchange.

Betfair believes the two Internet platforms can complement one another, with players locking in win, place, and show odds on the exchange but turning to ADW for exotic wagers. 

Levin notes that 70% of the exchange players were not previous customers of NJBets.com, suggesting that the platform is attracting actual new horseplayers, as opposed to only moving current bettors from one platform to another. Levin said another encouraging metric is that the exchange players who also participate on the ADW, have improved their play on the ADW, allowing them more gambling entertainment for the dollar and keeping them around longer.

"We're always sort of tracking the win rate of our players. 'Are they losing their money fast, are they winning.' We obviously hope that they are winning at a higher rate because that keeps the client longer," Levin said. "If you look at the player group who was trying the exchange, their year over year win percentage of their ADW handle grew 4%. So they got better. And again, the rest of the market actually declined in terms of their overall win percentage, just a slight decline."

Of course judging numbers from half a year in a single state does not present a wide view. Also, betting exchanges would hit their stride with more states coming on board to provide liquidity from additional players, an atmosphere that may provide a better idea of the overall industry impact.

Levin said the company continues work toward legalizing the betting form in more states. He said with many states addressing gambling laws concerning daily fantasy sports, it could provide an opportunity for exchange wagering to get its foot in the door. Levin said marketing to daily fantasy sports players would be a natural for the exchange.

"If you take a customer that's used to daily fantasy and is playing at a high volume in daily fantasy, and you put a typical ADW site in front of them and you put the exchange in front of them, they will gravitate to the exchange and understand it," Levin said.

In terms of reaction from tracks that have allowed their signal to be wagered on through the New Jersey exchange, Levin said the betting volumes are low but many see the potential for growth. If more states come on board, Levin anticipates a bigger marketing push that would target potential horseplayers who currently are spending their time focused on Wall Street. These would be well-heeled players who currently are not participating in horse racing's pari-mutuel pools.

"I think so far everybody wishes the volumes were higher but I think they're encouraged by the metrics," Levin said. "It's pretty analogous to the early days of ADW—sort of that one phase at a time, with questions about whether this is going to be good, and winning folks over one step at a time. We're still going through that early progression and process with this."