Should the world’s biggest betting exchange, Betfair, be bothered about competition from Matchbook with its nil percent commissions?

Betting exchanges offer gamblers the chance to be both punter and bookmaker: to back a team or a horse to win, or to lay them if they think they will lose. Since it was founded in 2000, Betfair has largely been the dominant exchange – but now it is facing a serious challenge from Matchbook, which created a stir by removing all commissions on horse racing in the run-up to Cheltenham, and has now extended the offer through the Aintree and Punchestown festivals.

As it says in the introduction, Betfair has long been the dominant force among betting exchanges, but now it is facing a challenge from Alderney-based Matchbook, with its nil commission and “time to move over” campaign.

What’s a 0% commission?

Let’s suppose I have a matched bet at 3.0 (2/1 if you prefer fractional odds): if I stake £10 ($14.9) and the bet wins, my profit is £20 ($28.17). But on Betfair, I will pay anything up to 5% commission on those winnings. At 5% commission, I pay Betfair £1 ($1.41) and my profit on the bet is £19 ($26.77) – meaning my real odds were 2.9, not 3.0.

If I’m paying nil commission, then my profit is £20 ($28.17) – and to betting exchange traders who bet significant amounts and make a small profit on a large turnover, that is a crucial difference.

Liquidity problem

The problem for Betfair’s competitors has always been one of liquidity: there simply wasn’t enough money staked on markets – especially the smaller markets – to make using them worthwhile. In some cases, Betfair’s market could be five or ten times the size of its competitors, and if you wanted even a moderate sized bet on say, the 3:40 at Fontwell on a Friday afternoon, it was only possible on Betfair.

But now, it appears that Matchbook may be more than a match for Betfair. I am writing this article on the morning of Friday, April 6: the first round of the Masters has just been completed at Augusta National. Betfair’s market shows £11.5m ($16.1m) matched on the winner: Matchbook’s has just under $17m matched.

Betfair wins out on tonight’s televised football, with £36,871 ($51,600) matched on the Cardiff–Wolves game compared to Matchbook’s $12,361 (£8,774.7). Interestingly, however, there is not that much difference on the three-runner 3:40 at Fontwell. Betfair has £12,093 ($17,035.53) matched as I write, compared to Matchbook’s $12,536 – just under £9,000 and 75% of Betfair’s figure.

This may well be clear evidence that Matchbook’s decision to extend its nil commission on horse racing through the Grand National and Punchestown meetings to April 28 is working. There has been plenty of grumbling discontent with Betfair for some years, and Matchbook’s slogan – “time to move over” – seems to have plenty of people nodding in agreement.

Neil Campbell, Matchbook’s director of marketing, commented: “Offering 0% commission is bold. And disruptive. Which is exactly what we’ve set out to do – it’s a push for more competition. When one brand has too much market share, it isn’t good for anyone – particularly customers.”

Clearly, horse racing is the biggest market for betting exchanges, but Matchbook plans to gradually expand in areas such as soccer and US sports. One innovation they have made – and which is bound to be popular with backers and layers – is smaller price increments than those offered by Betfair.

US golfer Jordan Spieth is leading the Masters at the end of the first round. If I want to lay (bet against) Spieth on Betfair, then the price bands on their site are 3.25, 3.30 and 3.35. If I want to lay Spieth on Matchbook, I can do so at 3.24, 3.25 and 3.26. As above, if you are working to small margins on a high turnover, that is a significant difference.

Right now, Matchbook doesn’t offer the range of markets that Betfair does, and there certainly isn’t the liquidity in some of the fringe markets, but their site is fast, easy to navigate and responsive. Betfair could well have a fight on its hands…