Study is Positive on U.S. Exchange Betting

Study looked at wagering trends in U.S., United Kingdom, and Australia.

The outcry among pari-mutuel bettors in the United Stakes for lower takeouts and the growth of online consumer spending make the U.S. an ideal market for exchange wagering, concluded a study commissioned by TVG, a subsidiary of Betfair, the world’s leading exchange wagering operator.

“The conclusions are fairly clear,” said Eugene Christiansen, the head of by Christiansen Capital Advisors, which spent more than a year looking at wagering and economic trends in the United Kingdom and Australia, where betting exchanges have been available for several years. “People like exchange betting. Exchange betting appeals to people who were not currently involved in fixed-odds betting, or bookmaking, or pari-mutuel betting. It seems to have reinvigorated betting in the UK and Australia. We have no reason to suppose it would have a different effect in the United States.”

The study released April 25 is entitled “Exchange Betting and the United States Thoroughbred Racing Industry.” Among the factors examined were the business cycles of wagering in the U.S., United Kingdom, and Australia over two decades; the maturation of wagering initiatives like offtrack betting and full-card simulcasting; the introduction and expansion of alternative gambling options, including state-run lotteries, casino games, internet gambling, and offshore rebate shops; and the demographics of the wagering public.

Betfair began offering exchange betting 10 years and now handles over five million transactions a day. Exchange betting is essential an online trading system that matches two people who want to wager on the outcome of an event. They could be betting on a horse to win. They could be betting on a horse to lose.
Exchange wagering has been criticized, particularly in the UK, for taking money away from bookmakers and not returning enough to the racing industry through the levy, which contributes to purses.

The study's positive conclusion was challenged during a media press conference by Carlo Zuccoli, former consultant for the European Pari Mutuel Association.

“In England, they are struggling for prize money,” Zuccoli said. “The levy has gone down 40%. Betfair is draining a huge amount of money from the tote and the bookmakers.”

Betting exchanges also generate fears of corruption. Zuccoli said the latest scandal in Europe involves six UK jockeys that were allegedly being paid 5,000 pounds per race by a big player betting on horses to lose (also known as layers).

“Corruption and peanuts and prize money going down,” he said.

Christiansen responded to Zuccoli by saying the UK has adopted fundamental structural changes as of 2009 in how purses are funded by the UK levy.

“The shock waves from these changes are still working their way out,” Christiansen said. He added that Betfair has been working actively with regulatory agencies to ensure the integrity of the sport.

A key criticism of the study was that it did not assess how exchange wagering might impact U.S. purses or affect wagering through the existing pari-mutuel system. Christiansen said, while important, this issue could not be adequately addressed because Betfair doesn’t know how its product might be priced in the U.S. As of now only two states have legalized exchange wagering—California and New Jersey—but it has not been implemented yet.

“We did not have a price model to analyze,” Christiansen said. “If we listen to what the U.S. consumer has been saying, that he wants lower prices—and we really can’t read the numbers in any other way—then the only way to address that concern is to bring the price of wagering down. That is a serious statement. If you cannot at the same time grow the pie, then the long-term outlet is simply not good. This is a serious situation that cannot be addressed with rhetoric.”

In looking at U.S. purse and handle trends for the first quarter of the year, Christiansen said he noticed purses were up 5.3% but handle is down 8.5%. Because casino gaming (slot machines, video lottery terminals, and card games) contributed 30% to Thoroughbred purses in 2009, the upward trends in purses indicated that people were spending money, just not directly on horse racing.

“Something has to be done,” he said. “Exchange wagering is extremely important since it is something the consumer has said very clearly in the UK and Australia that he likes.”

Christiansen Capital Advisors has made the 150-page report online.