Game Types
Bonuses
Slots
More
Online Casinos Poker Bingo Games Lotteries Sports & Racebooks Fantasy Sports Forex Betting Exchanges Spread Betting Binary Options Live Dealers
Weekly Newsletter Online Gaming News Payment Methods Gaming Software Gaming Site Owners Gaming Jurisdictions Edit Preferences Search
 
Bonuses! New games! Gossip! And all the player news you can handle. Sign up NOW!

Related Links

Betting exchanges vs. bookmakers: Differences and similarities explained

22 Oct 2014

By Peter Arena, affiliate manager, WBX

Gaining access to sports betting is easier than ever before. Gone are the days of visiting the local bookies in order to bet; a laptop and a few clicks of a mouse are all it takes.

In the past, bookmakers were the only ones able to offer legal betting opportunities. During the rise of Internet betting, betting exchanges emerged as a revolutionary new way for punters to bet, and began to rival traditional bookmakers for punters’ cash. Due to the way they operate, exchanges have transformed the betting experience of millions.

Backing and laying
Betting exchanges such as Betfair and WBX - World Bet Exchange differ considerably from bookmakers because they operate on a person-to-person basis. Offering betting in such a way allows punters to not only ‘back’ a selection in the common manner but also ‘lay’ a particular outcome. Before the invention of exchanges, it was only possible for the punter to place bets with bookmakers, who had full control over the odds. With access to betting exchanges, the option to ‘lay’ a bet offers punters an exciting and potentially lucrative new experience.

Backing and laying are two different ways of betting. Backing is the traditional way of betting on a selection to win, the way you would with a standard sportsbook. Laying is simply the reverse of this, i.e. betting on a selection to lose. For example in a horse race, if you do not think the favorite is good value for the win you may choose to lay it.

Because betting exchanges offer the option to both back and lay, users are able to divert from normal sports betting and begin 'trading'. Some traders aren’t even concerned with knowledge of the sport itself but rather, the likely movement that will occur in the market. In principle, trading on a betting exchange is similar to trading on the stock exchange. Instead of buying and selling stocks, traders are concerned with backing and laying the outcomes of a sporting event. Backing becomes buying and laying replaces the sale. The majority of trading in this manner is conducted pre-match or early on during live play, and the trader will be looking to make a number of small profits by backing and laying at a small difference. For example back at 2.4 and lay at 2.35, thus securing a small but guaranteed profit. This approach has become increasingly popular since the inception of betting exchanges and has proved to be very profitable for serious traders.

Live betting is where betting exchanges truly shine. Odds update instantly at betting exchanges like WBX, with odds movement every time someone bets or changes their price. This lends to a more dynamic and exciting form of betting where trading opportunities can present themselves multiple times throughout a single match.

Differences between traditional bookmakers and exchanges
Exchanges are often billed as having “much better odds” and in many instances this is correct. However, it's not quite that straightforward and statements such as “betting exchanges always have better odds” can be a little misleading. Using horseracing as an example, you will often find that on the exchange, the odds of the shortest priced horses are very similar to the odds offered by bookmakers. In fact when it comes to favorites and short priced runners, traditional bookmakers will often offer similar prices to the exchanges.

It is the longer priced horses where exchanges offer the potential to become much more lucrative. It is common to see bookmakers offering 33/1 on a selection that is priced at 80/1 on the exchange. Similarly a 50/1 shot with bookmakers, might be priced at odds of 100/1 or even 150/1 on the exchange. When using an exchange, the runners at the lower end of the market, e.g. the lesser fancied horses and the rank outsiders can almost always be found at substantially larger odds than those offered by bookmakers. The reason for this is that the odds on the exchanges are much more likely to represent the real price of the selection, whereas bookmakers will not want to go out anywhere near as much in order to maximise and protect their profits. They may feel that those betting on long priced entrants aren’t as price sensitive and therefore do not need to offer such high odds.

The reason for discrepancy in prices is that bookmakers effectively make money by balancing their books in a way which theoretically allows them to make money irrespective of the result. The operation of a betting exchange differs considerably as profits are generated from commission payments and as a result do not rely on overrounds. This is the edge that a bookmaker includes in their odds. For instance in a perfect world when two teams are evenly matched you would expect them to have odds of 2.00, however bookmakers will normally offer 1.91 odds for each entrant or less. Not relying on overrounds allows exchanges to offer a much fairer representation of each runner’s real chance.

All winning bets that are placed using an exchange are liable to a commission deduction. The commission charged varies depending on the exchange used. WBX offers a maximum commission rate of 5 percent, however, this rate differs from most competitors as it is dependent on the number of entrants. For example, let’s say in a particular horse race there are 5 or more entrants, the commission rate is 5 percent, but if there are only 4 entrants, the commission rate becomes 4 percent. Three entrants or less and the commission is only 3 percent. These include markets such as soccer, tennis, cricket and basketball. Further, WBX does not invoke a premium charge upon any of their customers, regardless of their winnings. There is a loyalty discount based on their betting activity whereby members can reduce their commission rate by up to 60 percent, meaning commissions may be as low as 1.2 percent on soccer, tennis, cricket and many other sports.

At betting exchanges, winning punters do not have their stakes limited to small amounts, or require manual approval for bets to be processed. It is easy to see how using an exchange like WBX can be advantageous for punters.

Another distinction between bookmakers and exchanges like WBX is the guarantee when it comes to paying out on a winning bet. You will not find any instances where WBX does not honor bets matched by its members.

Unfortunately it is common to have your bets cancelled with traditional bookmakers. Punters can have their winnings refused by bookmakers citing incorrect prices relative to the market, something that does not occur when using an exchange. The closure of winning betting accounts goes hand in hand with this practice. There have been numerous reports of punters having betting accounts closed by bookmakers, based on large winnings or the regularity of winnings. Exchanges are able to offer the assurance that, regardless of the size of their winnings, a customer's account will not be closed.

Betting exchanges can also be safer for deposits and withdrawals. Exchanges do not face any risk on the outcome of any bet since members bet against each other, so there is no chance that high rollers can go on a winning streak and cause financial instability that would affect pay-outs. In fact, it is not possible for a WBX member to fail to withdraw winnings due to the existence of ring-fenced accounts. Member funds are held within a separate company, WBX Member Funds Limited, to safeguard. This account can only be used to pay out member winnings with the funds held subject to a trust deed and quarterly external financial audit results published on the website.

Which is the best choice? Bookies or exchanges?
In choosing which is better between bookmakers and exchanges, one might lean toward betting exchanges, because they often offer better odds. This being said it really comes down to personal preference. If your primary focus is trading or only laying bets, then a regular sportsbook would be of no interest. For those who focus their betting activity on the juicier priced selections, the exchange is strongly recommended.

Casual punters who are only looking to place a few fun bets and are not interested in trading or laying may be content to stick with bookmakers, or simply sign up at an exchange and view it in the sportsbook view, using it like any other bookmaker site.

In the end, a bettor’s decision will likely be swayed by the type of punter they are and how open they are to trying a betting exchange, making the leap from backing bets to laying bets and trading. Ultimately the best answer may be to hold accounts at multiple sites, bookmakers and exchanges alike, factoring in the commission at the exchange and take the best odds available.

Betting exchange vs. bookmaker affiliate programs
Bookmakers and exchanges differ with most aspects of their operations, and the nature of the affiliate programs offered by the two is no exception.

The number of online betting companies is seemingly never ending and all boast their own reasons as to why you should sign up to their program. With so many choices it can make selecting the right ones a daunting task for new affiliates. To help make the decision regarding who you should promote, it is important to understand the key differences between a regular bookmaker affiliate program and a betting exchange affiliate program.

Earning structures and revenue share
There are several earning models used in the gambling affiliate industry.

Cost per acquisition (CPA) offers affiliates once-off payments, a flat fee/tenancy that can be offered in exchange for premium placements.

Revenue share is considered the most common earning structure, where the affiliate receives a recurring percentage of the earnings generated.

Some programs offer hybrid deals, or a combination of CPA and revenue share, however most sports betting affiliate programs offer revenue share as their standard plan.

The first and perhaps most significant difference between the way bookmakers and exchanges calculate revenue share is that standard bookmakers offer their affiliates a percentage of revenue on losses from the monthly profit and loss (P&L) of all members who sign up through that affiliate. In contrast, most exchanges pay their affiliates a percentage of the commission they earn from members net winnings on each market.

In terms of the percentage given to affiliates, most bookmakers pay 25-30 percent revenue share on the total loss from all referred members monthly P&L. Most exchanges also offer 25-30 percent revenue share on every referred member’s net winnings on each individual market. WBX exceeds this with a unique offering of 50 percent revenue share.

A model that generates affiliates earnings on each individual bet can offer affiliates a distinct advantage. Consider the following example of a referral’s betting P&L to see how one might fare using the two different types of affiliate programs (bookmaker/exchange):
Day 1 = -£2000
Day 2 = -£2000
Day 3 = +£3000
Day 4 = +1000
Day 5 = -£2000
Day 6 = +£1000
Day 7 = -£500

End of 7 day P&L = -£1500

In this instance, a typical sportsbook affiliate receiving a revenue share of 25 percent would have earned £375.

Using the same figures, a WBX affiliate would earn a 50 percent share from the commission on each of the three winning days, totaling earnings of £125 (50 percent revenue share of standard 5 percent commission). Although arriving at a somewhat lower figure than the sportsbook affiliate earnings, it is important to keep in mind that there is no chance of the commission earned from the exchange being lost. For instance, sportsbook affiliates can have their earnings reduced or completely wiped out as the following example shows. Continuing the hypothetical P&L, we look at a different end result over the next seven-day outcome:

Day 8 = -£2000
Day 9= +£500
Day 10 = +£1000
Day 11= -£5000
Day 12 = +£5500
Day 13 = +£1000
Day 14 = +£500

End of next 7 day P&L = +£1500

Here we can see that if this was the case, the sportsbook affiliate’s earnings would be back at £0. The referred punter has broken even, thus negating the £375 accrued during the first seven days.

This is where the exchange becomes particularly advantageous for affiliates. The reason is simple: the change in P&L does not have effect on an affiliate’s earnings. Based on this example, a WBX exchange affiliate would earn the same 50 percent commission share, with earnings for the second week totalling £212.50 (50 percent revenue share of standard 5 percent commission).

It is easy to envision how affiliates of an exchange such as WBX can gain the upper hand on those of standard online bookmakers, since they are not reliant on referred punter’s making an overall loss before they earn any revenue. It really doesn't matter whether the referred punter is winning or losing overall, since it is highly likely that a regular punter will win their share of individual bets, and it is those winning bets which earn the affiliate a percentage. Admittedly if a member deposits at an exchange, loses all their money and leaves, the affiliate site that referred that player will not earn any revenue. But ordinarily, even losing punters will have their ups and downs with their share of winning bets.

So, for this particular example, over a 14-day period the WBX affiliate would have earned £337.50, compared with the £0 earnings of the sportsbook affiliate. The point here isn’t to illustrate that an affiliate cannot generate revenue from sportsbook affiliate programs, because they certainly can. This example merely illustrates the differences in earning structures. With sportsbooks, referred players need to lose for the affiliate and the program to prosper. With exchanges, when the referral wins each individual bet it’s a win for the member, for the affiliate and also for the exchange.

Earning from every individual bet also means earning from every member without being offset by others. With a bookmaker you could refer 10 customers, and if eight or nine of them lose for the month but one of them can wipe out the earnings from all the others with a great month or a big win. With an exchange, this simply will not happen.

Terms and conditions
Aside from the differences in earning structures, bookmakers and exchanges on the whole don’t differ much in their terms. There are some terms that are considered predatory that are common to both bookmakers and exchanges.

The main terms difference are ‘minimal referral clauses’ and ‘activity quotas’ that have proven to be unpopular with affiliates. For example, ‘refer a minimum of 5 new customers within 3 months or your revenue share will drop to 5 percent’. There are exceptions but generally most betting exchanges do not have terms like this.

Bookmakers often include these clauses as it discourages dishonest affiliate behavior. For example, getting friends to sign up and hedge a large bet on two different sites. In doing so, the affiliate profits from the bet that wins and on the other side recoups a percentage of the losses through the affiliate revenue share, thus guaranteeing a profit.

On the other hand, from the legitimate affiliate perspective, such clauses can make it difficult to maintain a revenue share. If your website is about the Grand National and you wait all year to generate your signups during that one event you may find your site getting very few sign ups throughout the rest of the year. As a result, some bookmakers could reduce your revenue share percentage, close your affiliate account or prevent you from being paid.

Exchanges have no vested interest in the outcome of an event. When someone wins a bet it is the losing member rather than the exchange that faces a loss. With exchanges, punters cannot cheat the system in this way so there should be no need to include activity quotas.

Which is suitable for you?
When it comes to choosing between betting exchanges and bookmaker affiliate programs it is often a good idea to select both, with the level of promotion depending on the type of site that you run and the users you attract. If you run a betting tips site, a betting exchange can be the best option for you because when your tips win, you will see the results in your earnings. If you are selling subscriptions for your tips and earning from the commission on their winning bets on the exchanges, then you are earning twice off the one referral.

For free bet sites that attract members who may not stick around and bet long term, you may find you earn more with a bookmaker on a CPA deal than you do on an exchange. It really depends on how you have positioned your site.

There will always be detractors that claim you can’t earn anything with exchanges since it’s a “commission on a commission.” That, however, is misleading since the statement doesn’t take into account that exchanges rewards every winning bet, not the net position at the end of the month. It is true that bookmaker programs can offer a higher earning potential from single bets, however the risk of a big win wiping out a month’s earnings is also possible.

For a reliable way to earn that can reward you for every winning bet made by every member referred, exchanges are an excellent option for affiliates to consider. If you don’t promote exchanges you are limiting your earnings by cutting yourself out of a growing sector in the sports betting industry.

To chat with Peter find him on the GPWA forum under the user name p.arena, or email him at affiliates@wbx.com with any questions about their program, about WBX or about betting exchanges in general. To learn more about the WBX Affiliates program, visit http://affiliates.wbx.com.
 
About Us | Advertising | Publications | Land Casinos