Why Didn’t Exchange Betting Work out in the United States?

Sports betting is thriving in the United States. Both land-based and online sportsbooks have popped up in many states over the past few years. It’s clear that sports gambling is going to be a huge success in the US.

That said, you might think that exchange betting could also experience success in the American market. After all, betting exchanges are an interesting alternative to sports betting and have done well in Europe.

However, exchange wagering has failed really badly in the US. Betfair tried and failed to establish this type of sports gambling in New Jersey. They eventually pulled out of America in late 2020 due to disappointing revenue.

Why is exchange betting a failed experiment? I’ll answer this question while also discussing more on how this type of wagering works.

How Does Exchange Betting Work?

At a regular sportsbook, oddsmaker set the lines. The bettors, meanwhile, must accept the given odds if they want to wager on a particular side or move on. They don’t have any say in how the lines are set up.

The bookmaker ensures that they have a long-term advantage by taking juice (a.k.a. vig) from the losing side. They commonly collect 10% from the losing side of a point spread or totals (a.k.a. over/under) wager.

A betting exchange differs because it doesn’t set the odds or take juice from the losing side. Instead, it simply provides a platform for sports gamblers to use.

The bettors essentially act as the oddsmakers. They can set odds (a.k.a. backer) on a particular game and wait to see if anybody will take the other side (a.k.a. layer).

A betting exchange makes its money by collecting a fee from each wager. Their method for collecting fees can either be:

1. Take a commission from the winning side only.
2. Take a commission from both the winning and losing sides.

Here are examples on how leading exchanges handle the commissions:

• Betfair (part of Flutter Entertainment) collects 5% from the winner.
• Ladbrokes Coral also takes 5% from the winner.
• Smarkets collects 2% from the winner.
• Matchbook takes 1% from the winner and loser (2% total).

How Is Exchange Betting Different from Regular Sports Betting?

As seen above, exchange wagering is certainly different from traditional sports betting in certain ways. Here are some highlights on how exchange betting differs from regular sports gambling.

Bettors Make the Odds

Betting exchanges provide lots of freedom for the gamblers. They allow the bettors to set the odds to their liking.

That said, a backer can look through the list of available games and set lines on one or more of them. They merely need a layer to complete the bet.

Some bettors simply prefer having the ability to choose the odds themselves. This way, they don’t need to rely on whatever sportsbooks give them.

No Juice Involved – Only Fees

Exchange betting is often cheaper than regular sports gambling in the long run. Exchanges take small fees from winners and, sometimes, losers.

These fees can be as little as 1% per side. In this case, you’d only be giving the betting platform $1 for every $100 wagered.

At worst, you’ll be paying a 5% commission on wins. Contrast this to the 10% that sportsbooks often take from the losing side.

Winning Bettors Do Not Get Banned

Some sportsbooks have a reputation for limiting or banning winning bettors. William Hill, for example, is notorious for this practice.

Of course, many betting sites have more in-depth reasons for limiting/banning customers beyond simply winning. They take action against bettors who arbitrage and/or abuse loopholes in promotions.

Whatever the case, you don’t have to worry about any of this at an exchange. The latter makes money no matter who’s winning and don’t feel the need to ban successful bettors.

Exchange Gambling Has Experienced Success In Europe

Exchange betting isn’t some new concept that came about in the American market. It has been a successful idea in Europe for years.

Betfair is the premier name in exchange gambling. Launched in 2000, it’s one of the biggest brands in the UK and has expanded to other countries.

Other online sportsbooks have also had success with exchange wagering in and around Europe. Ladbrokes Coral, for example, offers both exchange and traditional sports gambling.

Smarkets and Matchbook bank on providing the cheapest rates anywhere. They both only take 2% of the total betting action they handle.

Many European sports gamblers appreciate the small fees in comparison to the larger juice that regular betting sites collect.

Reasons Why Exchange Betting Didn’t Take Off in America

In theory, exchange gambling is a great concept. Its success in Europe is a testament to how it’s a winning idea.
Nevertheless, exchange betting hasn’t done well in the US and isn’t even available right now. You can see the main reasons why this type of waging hasn’t been successful below.

No Liquidity

Exchange betting is similar to online poker in that it needs liquidity to thrive. The larger the pool of bettors, the more success an exchange site will have.

These types of betting sites need lots of backers and layers—especially when it comes to smaller markets. If only a few people are betting on volleyball, for example, then there’s not much liquidity there.

Those who like less-heralded sports like volleyball, darts, and snooker will need to find other online sportsbooks. In turn, they also won’t be putting any of their action towards the major markets at exchanges.

Betfair only gained licensing in New Jersey. The Garden State has just over 8.9 million residents, make it one of the larger states in the US.

Even still, 8.9 million people don’t provide the type of liquidity that a betting exchange needs to thrive. Ultimately, Betfair needed states to share liquidity to create a large enough market. So far, though, all states have kept their sports betting markets within their respective borders.

High Fees

As discussed earlier, low costs are a big advantage to exchanges. Smarkets customers, for example, only pay a 2% commission on winning bets.

Due to the lack of liquidity in New Jersey, however, Betfair imposed much higher fees. They required winners to pay as much as 12% fees in smaller markets.

When commissions get this high, there’s literally no point to using an exchange over a traditional bookmaker. Common sportsbooks don’t normally go beyond taking 10% from the losing side.

No Hope on the Horizon

Some states have signed compacts to share online poker player pools. New Jersey, Nevada, and Delaware currently have such a compact.

The idea is to pool more players and create larger cash games and tournaments. In turn, operators stand to make more money and pay more taxes to their respective states.

Again, exchanges need liquidity to fill out smaller markets and thrive. They won’t get this beyond larger states like California, Texas, and Florida—none of which have regulated sports betting yet.

Lack of Familiarity

Many people are still getting acclimated to regular sports gambling. After all, traditional sportsbooks weren’t legal outside of Las Vegas until 2018, when PASPA fell.

That said, the majority of bettors aren’t familiar with exchange wagering. They’re not going to jump into something that they have no clue about.

Betfair likely hoped to increase awareness on exchange gambling. However, they never really got much of a chance to do this.

No Bonuses

Most betting sites use lucrative welcome bonuses to draw customers. For example, they might offer a risk-free bet worth up to $500.

These bonuses have proven quite successful at drawing bettors. They tempt people with the idea of earning hundreds of dollars in free money right away.

Exchanges feel like they’re already saving bettors quite a bit of money with low fees. As a result, they don’t feel the need to shower customers with free money.

However, the layman bettor may simply feel like an exchange is being cheap. They expect a bonus and don’t really think about the low fees after the fact.

Of course, Betfair wasn’t able to charge as low of fees as they would’ve liked. This, combined with the lack of a bonus, hurt their cause in the US.

Will Exchange Gambling Ever Make a Comeback?

Exchange betting has a lot of factors working against it. Therefore, it’s difficult to see this type of wagering ever thriving in the US.

Many states have been content so far to keep their markets within state boundaries. Their sportsbooks can still thrive in this manner.

As explained earlier, though, exchanges need more liquidity to thrive. It’s the bettors—not the operator—making the odds in these cases.

More gamblers mean that there are more people backing and laying odds. This scenario ensures that even the smaller markets have plenty of action.

That said, no operator is likely to try exchange gambling again until states sign betting compacts. No such compact appears to be on the horizon.

The only other case where an operator might consider exchange betting is if they do so in a huge state like California. The Golden State especially offers an opportunity with its 41 million residents. However, the three largest states (CA, TX, FL) have yet to regulate sports gambling.

Conclusion

The US sports betting market is still relatively young. It has only been alive since mid-2018 and is just taking off in some states.

There’s plenty of room for new types of wagering to emerge. Up until this point, though, exchange betting has not had any success in America.

Betfair tried and failed to establish exchange wagering because there wasn’t enough liquidity. As a result, they had to charge higher than normal fees, which turned off customers.

The jury is out on whether exchange betting will ever return to the US. At the moment, it doesn’t appear anywhere close to making a comeback.