MatchDaq - The Lion's Share?

With Matchbook taking over Betdaq and Enda's excellent piece on Twitter (X, like Premierisation, is not a word) I thought it may be of some interest to put out a piece on the relationship between on course bookmakers and the exchanges. As always this is from our perspective- we are not the Oracle and if you get 100 bookmakers in a room you'll get 100 different opinions - we are just one of them.

Before looking further it's probably worth a quick look at the main ways bookmakers will structure their books and what that will mean for the relationship to use of the exchanges plus, in our opinion, the advantages and disadvantages to each method. We do what we do our way so the other methods will, inevitably, contain elements of conjecture as we are not as familiar with them but let's have a go. The terminology is all mine, and not necessarily the standard.

Standardised/Christmas Tree Method

Stand the top of the market up to a liability the bookmaker wants to run with, through a combination of being aggressive in the ring price wise in that space and/or use of exchanges to lay online. As the prices of the runners increase, so do the profits on each runner with the outsiders being the most profitable in the book- achieved either by not naturally laying that part of the market as heavily or backing back via the ring or exchanges.

The exact number of horses that will be losers in the book will depend on the make up of the race. Often based on percentage of book the top of the market takes up so there will likely only be one loser at Evens but many more at 6s the field.

As we see it the main advantages are the consistency of book - you know you'll win if you get a traditional "result" and not if the favourites go in. The other big benefit is you are taking the smart money out of your book. Laid a 10/1 shot to a shrewdie? Doesn't matter because it'll be a winner regardless.

The main disadvantage, for us at least, is the likely increased use of exchanges or decreased margin at the top of the market.

The Chuck It In Method

Essentially it's bookmaker v punters. If they back the winners, the bookmaker loses and vice versa. A bookmaker is still likely to have a maximum liability but, unlike the above method, that liability could be on the evens favourite or the 100/1 shot. Or both.

This is the method that we will, largely, use.

The main advantage is that use of exchanges is reduced - effectively only used to hedge a horse back into liability and laying via exchanges is relatively rare under this method.

The main disadvantage is that you can't mitigate the shrewd bets you take as you will be standing them for your liability. And the psychological grief of losing on a funny named rag and your colleagues queuing up to tell you that you are an idiot. Often quite correctly

The Bet Over Method

Books will have an inherent value to them. Bookmakers, like all businesses, operate with a margin. A bookmaker may choose to bet to a zero liability and have no horses losing for them with a varying amount of winners depending on how much value is in the book. The make up of the winners could be either of the above 2 methods.

The advantage is obvious - the bookmaker can't lose.

The disadvantages are that exchange use is heavier than either of the above methods and the winners will be at a much lower level than either of the above two methods

The Green Up Method

Taking the Bet Over Method a step further this method makes every horse worth the same. If you book is worth 63 quid then you win 63 quid regardless of the result. Often done by pressing the big green button (ours is disabled...) and the software does the rest or by continuously churning bets that come in off the floor.

Advantage being you always win.

Disadvantage being you chuck an enormous amount of stuff through the exchanges, particularly if you hit the big green button. And every bet has to be at margin. More on that in a bit.

The Takeover (or our take on it at least)

Matchbook taking over Betdaq makes perfect sense. As Enda pointed out there are 2 main software providers in the on course bookmaker space. One provider offers Betdaq, the other offers Betfair and Matchbook options. Matchbook will now have access to every on course bookmaker assuming the existing arrangements continue.

But what is so special about getting more on course bookmakers on board?

A proportion of the markets on the exchanges are seeded by the stakeholders. I don't know how much as a percentage but I would imagine fairly high, especially on the lay side. Gone is the utopian world of a bloke in Aberystwyth sitting in his pants, watching Grandstand and having a play at being a bookmaker by laying horses online. Enda also alluded to this in his piece. So, if there are stakeholders, then they will want losers and, as a whole, on course bookmakers will lose on their exchange accounts to varying degrees.

But why? Because the vast majority of bets put through by on course bookmakers are merely hedges from their ring business. There is very little edge to these bets (unless you are constantly laying shrewdies) merely a large element of "blind" betting to straighten books out. As someone once said "the most expensive insurance policy there is".

If you're bored and there's a Ladies Day or a Student Day going on with low grade, low liquidity racing, get yourself on an exchange before on course betting opens and look for the outsider with the funny name. Ladies Days - something like "Party Dress" or "Mine's A Gin" at 1000 on the machine for a quid liquidity. And then watch what happens to the price when the on course books open for business. 1000/900/800/500/300/100/50... Books are backing something at 50.0 that was 1000 ten minutes earlier just to clear up their liabilities. It'll likely be 1000 again in the last 30 seconds.

This is not a criticism of books, they will have a liability they need to get the horse into but, if you're a stakeholder and you know that you can lay 1000 chance at 50s (49/1 for you pedants) you'll want to.

The next thing exchanges will want is for bookmakers to press the big green button on the off. Especially in low grade, low liquidity markets. Why? When you press the big green button the software gets to work- it lays some, it backs others but what about the liquidity and, therefore, the price it's going down the price ladder to take? Its job is to get the book level. So, if you have a big loser or a big winner in your book it's unlikely that it will complete its job at the current offer price. It'll take what is there then move down (or up if laying) the price ladder to get the book straight. Consider this - there's a horse 50.0 on the machine for 2 quid to back but the book has a big liability on it. So the big green button takes the 2 quid at 50.0. Then the quid at 48.0. Then the 2 quid at 46.0 and, before you know it you've backed a 50/1 shot at 38.0... And the place market price ladders and gaps are even worse.

On course bookmakers are not immune to affordability regulations, however proof of affordability (correctly) is assessed based on the overall business not purely on the exchange bets. Periodically we will provide proof that the business is profitable and that the hedging via exchanges is a part of our business and, whilst likely to be running at a loss, is part of the strategy of a profitable business overall.

The Future?

I'm not best placed to provide the answer to this question but I'll have a stab. Matchbook have a great position right now with access to pretty much every on course bookmaker, plus a 0% commission offering and, if they sort out the liquidity situation across all of the horse racing markets they are in (place markets, in running markets and forecast markets, I'm looking at you) they could seriously dominate. They have excellent reps in the field (Enda was previously one and our current guy, Lee, is also terrific) who support bookmakers and this could also prove to be their trump card. But, despite Betfair's liquidity being a shadow of its former self, it is still ahead of the current Matchbook offering and that is something they will have to resolve to completely dominate the on course space.

Anyway, enough of these ramblings. As I say, these are our thoughts on the matter and not a definitive "on course bookmaker" statement. We, as is so often the case, could be very wrong in all matters. Though at least we got a 10000 Maniacs song title in. See you at The Fighting Fifth. Until then....