P2P Betting: A Winning Model? (Part 2)

(Part 1)

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.

Yesterday we discussed the keys to selling this new style of betting to the traditional bettor and examined two contrasting models that have proven successful. Today we examine the importance of volume and software that can handle volume as well as the types of sports P2P betting is geared for.

Due to its nature, person-to-person betting tends to work best with a fast-moving subject. For that reason, Betfair Marketing Director JoJo Primrose says horse racing and dog racing have been able to reap the benefits of the P2P platform.

"It is in these markets that you get the greatest movement of prices," she said. "Just as in a betting ring at the racetrack the bookies prices will be flying in and out, they also move a great deal at the exchange.

"We will do £10,000 in the five minutes before the off on a single horserace at prices ranging several points," Primrose said. "Punters can see immediately whether their bets have been taken, whether the price they asked for is in line with the general view and what that view is."

Seeing that kind of action in a short amount of time, a high standard is placed on software requirements.

"Technology plays an important role as well," SportsMarket Inc. cofounder Tom Courts explained. "To have a dynamic and fluid exchange you have to have technology that can support that, and a lot of the sites don’t have it. They have built sites that aren’t structured or that don’t have the backend to really support a tremendous amount of volume moving quickly."

The sites may not be able to handle a great deal of volume yet with the technology they have, but Courts feels that this is something they can deal with later.

"That is probably the least of their worries at this point," he said. "They probably feel they will face that issue when they get a lot of volume."

Primrose says her company knew from the start that software was going to be the key. Some sites were unable to keep up with the amount of simultaneous action, but her site has been able to weather the initial storm.

"Once they get all those people betting together their software needs to be able to match one bet against another," she said. "It needs to be able to make the relevant calculations as to their exposure rates, send out confirmation numbers etc. Our record to date is processing 300 bets at exactly the same moment. If the software cannot cope with this type of scenario the site will not succeed."

Although some operators have found the P2P venture to be a futile one and were unable to turn a profit, Betfair and Flutter, two of the successful models discussed in part one of this series, have been able to buck the trend.

Betfair claims that its turnover is close to £1 million a week. Flutter doesn't disclose its figures but estimates from Primrose suggest that theirs is well under half of what Betfair is doing. These numbers prove that if done the right way, P2P can be a moneymaking venture.

"I would argue that the relative successes of Betfair and Flutter in the crucial area of turnover and profit is the biggest indicator," Primrose said.

But that's not to say some kinks still need to be worked out of the P2P platform. The system does not lend itself as much to team sports, like cricket and soccer, as it does to racing.

"A punter could put in an order for a cricket match that is happening in five days and it may take half a day to get filled," Primrose said. "Because the market is not so fast moving he cannot tell whether the odds he has asked for are reasonable or too high. Without the same sense of urgency and excitement he may prefer to accept a slightly lower rate of return from a traditional bookie rather than wait."

Courts and Primrose agree that those P2P sites forced to cease operations were unable to bring in the volume needed to match up bettors with one another.

"The greatest enemy to a P2P site is lack of liquidity," Primrose said. "If a punter puts out five orders for bets and none of them get filled then he will not return. Sites need many people betting simultaneously to satisfy customer needs."

The problem for many P2P operators is the old "chicken before the egg" argument.

"The problem is that it is very difficult to ramp up an exchange," said Courts. "If there is no volume it is a self-fulfilling prophecy; no one will come. Only with a lot of volume can it be attractive, so it is a difficult process to ramp up and therefore inclusion of incumbents is very important."

So what does this burgeoning sector have in store for it?

Clearly there are hurdles that need to be overcome but those operators who have been able to survive through the early stages of the industry’s growth are optimistic about the future of P2P betting.

"Clearly P2P is the future," Primrose responded when asked how much of an impact P2P betting would have on the sports wagering arena.

Bettingcorp U.K. Limited President Michael Lobel says that there may be more of a future in pool betting as opposed to head-to-head betting. Pool betting sees all like-minding gamblers put their money into a pot against those on the other side of the fence. The system lends itself to bigger pay outs for the winners.

Lobel says Bettingcorp is the only properly licensed U.K. operator to offer pool betting. "We are only in a soft launch phase," he pointed out, "but we are seeing a lot more action from out pool betting then our head-to-head betting."

Courts is adamant in what he feels P2P exchanges have to do to survive: "Time and time again on the Internet, and in the technology revolution that we are in, most exchanges that have survived are the ones that have included the incumbent," he said. "Most of those are the bookmakers and to date no exchange has done that effectively. They have either not given the bookmakers what they want or they haven’t tried at all--which is the case with most of these guys."

P2P sites have to evolve just like all e-commerce sectors had to, according to Courts.

"They are destination sites and they are going to have to go through the same thing everyone else does which is get customers at a certain price and retain them at a certain price and try to monetize them over a certain time," he said.

As the P2P sector does continue to grow from a young and experimental market to a legitimate alternative to sportsbooks, Courts thinks it is just a matter of time before P2P betting consumes the betting market.

"How it is done will be a matter of time before someone does it right," he said. "P2P sites are just one way to make the sports betting market more efficient. The sports betting market right now is very inefficient and it will become more efficient overtime. Whether that is a radical revolution of the system very quickly or an evolution towards efficiency is yet to be seen. The law of economics suggest that at some point it will become more efficient."