Betfair Starting Prices (SP) / BF update 28/11/07
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e-mail from bet angel:
You may be aware of a stirring of activity at Betfair towers. There has been a lot
of rumours floating around about new goings on at Betfair and what this means for
existing customers. Depending on who you listen to, this was either a dramatic shift
in direction or a subtle change. As always, rumour never quite describes reality and
this week Betfair started releasing details of exactly what has been going on under
the bonnet.
On Wednesday evening I visited Betfair to learn about a number of things, but top of
the list was the much rumoured SP markets. A chunk of people huddled in the room to
listen to Betfair announce their intention to create an SP market and give some
detail behind that move. As always, it's always interesting to see who isn't there.
No doubt that won't stop them from dispensing advice on what was said! As somebody
who did make the trip, let me give you an overview.
For those that are not familiar with the term, SP it stands for starting price. For
many years, traditional bookmakers would let you place a bet "at SP". You could call
into the bookmaker at lunch time and place a bet for much later in the day. You
would do this by saying, "£10 to win on horse XX in the 18:20 at Wolverhampton". At
the time of placing the bet you wouldn't know what price you were going to get but
the betting market would define that.
This probably feels a million miles away from the current betting market and pretty
incomprehensible for people who are used to asking for a price and getting it. Not
knowing what price you may get seems madness. However, there is method in the
madness.
People who want to place bets in a volatile market like horse racing often couldn't
be around to place them just before the off so the SP system made sense, as long as
it worked well. For years though, bookmakers used on course representatives to
attempt to influence the SP and reduce their total liability and questions were
always raised about this influence. A major problem occurred when betting exchanges
were born as this influence waned and SP was no longer such a great proposition.
Margins for SP bets shrunk in response. Direct comparatives between the SP and the
exchange were also difficult. Therefore the SP system eventually changed in an
attempt to repair some of the damage: -
http://sport.guardian.co.uk/horseracing/story/0,,1970690,00.html
Now Betfair has decided to tackle this established ground by launching an SP model
of there own. This will obviously benefit people who wish to place a bet on a market
well before the off without the need to be on Betfair or near a computer at that
time the market warms up. I guess the benefit to the whole market is that it will
bring new liquidity.
How will it work?
Betfair will continue in exactly the same manner as you see now but in addition to
the normal market an additional, separate, betting option will be displayed. Because
the starting price will not be known till the start of the event only an estimated
SP will be available at any one time. The SP will be formed from the differential
between backers stakes and layers liability. When an order is entered into the
market you will enter a stake for a backer and a potential liability for a layer.
This effect frames both side of the market and forms the SP. Bets placed in the SP
market are irrevocable, they can not be cancelled. Betfair intend to show the amount
of money waiting to be backed and laid at SP, this is also how the provisional SP
will be calculated.
When the market is about to start Betfair will suspend the market and the starting
price will be 'created' before the market is turned in play. To try and understand
how SP is likely to be formed you need to look at the current market. Backers will
put for a nominated stake at SP and layers will have to specify a liability. In the
current market if you back 4.00 with £1000 a layer has to put up £4000 in to cover
your stake and potential liability. SP is expected to be derived from the inverse of
this function. There are likely to be some subtleties to this before it is launched
and some were discussed on Wednesday night, so I wouldn't treat this summary the
definition of Betfiar SP but this is the "general" concept.
How will it affect my activity on the market?
I guess a lot of this depends on the type of money that SP attracts and when it is
used. Because SP can't have a price until it's defined, some punters will hate that
level of uncertainty. You also have to consider if a horse is not behaving itself.
That will be reflected in the immediate market but probably not the SP, trading in
the active market appears to offer better value. You also have to ask what will
happen if the SP is somewhat adrift of the main market near the off? You would
expect people to come in and correct that balance in either market. In short, it's
difficult to predict exactly how the market will be affected but once launched I
guess there will be a period of settling down before the SP really begins to be used
in earnest.
I guess the big question is what will happen to money in the market, will some of it
migrate to SP or will SP encourage new activity on the exchange? As I have detailed
knowledge of the market I should be able to let you know fairly soon after the
changes take place. As you know, I watch the market intently six days a week so I'll
be one of the first to pinpoint any changes in the market characteristics.
Subject to how the launch of the SP market goes Betfair expect to extend this
concept to other markets over time. So as long as there is no failure of the concept
its something you will see expanded over time.
Anyhow, there are other changes in the pipeline but I hope that's given you some
background to this major change. Launch date is expected at some point in December.
Best Regards,
Peter Webb
e-mail from bet angel:
You may be aware of a stirring of activity at Betfair towers. There has been a lot
of rumours floating around about new goings on at Betfair and what this means for
existing customers. Depending on who you listen to, this was either a dramatic shift
in direction or a subtle change. As always, rumour never quite describes reality and
this week Betfair started releasing details of exactly what has been going on under
the bonnet.
On Wednesday evening I visited Betfair to learn about a number of things, but top of
the list was the much rumoured SP markets. A chunk of people huddled in the room to
listen to Betfair announce their intention to create an SP market and give some
detail behind that move. As always, it's always interesting to see who isn't there.
No doubt that won't stop them from dispensing advice on what was said! As somebody
who did make the trip, let me give you an overview.
For those that are not familiar with the term, SP it stands for starting price. For
many years, traditional bookmakers would let you place a bet "at SP". You could call
into the bookmaker at lunch time and place a bet for much later in the day. You
would do this by saying, "£10 to win on horse XX in the 18:20 at Wolverhampton". At
the time of placing the bet you wouldn't know what price you were going to get but
the betting market would define that.
This probably feels a million miles away from the current betting market and pretty
incomprehensible for people who are used to asking for a price and getting it. Not
knowing what price you may get seems madness. However, there is method in the
madness.
People who want to place bets in a volatile market like horse racing often couldn't
be around to place them just before the off so the SP system made sense, as long as
it worked well. For years though, bookmakers used on course representatives to
attempt to influence the SP and reduce their total liability and questions were
always raised about this influence. A major problem occurred when betting exchanges
were born as this influence waned and SP was no longer such a great proposition.
Margins for SP bets shrunk in response. Direct comparatives between the SP and the
exchange were also difficult. Therefore the SP system eventually changed in an
attempt to repair some of the damage: -
http://sport.guardian.co.uk/horseracing/story/0,,1970690,00.html
Now Betfair has decided to tackle this established ground by launching an SP model
of there own. This will obviously benefit people who wish to place a bet on a market
well before the off without the need to be on Betfair or near a computer at that
time the market warms up. I guess the benefit to the whole market is that it will
bring new liquidity.
How will it work?
Betfair will continue in exactly the same manner as you see now but in addition to
the normal market an additional, separate, betting option will be displayed. Because
the starting price will not be known till the start of the event only an estimated
SP will be available at any one time. The SP will be formed from the differential
between backers stakes and layers liability. When an order is entered into the
market you will enter a stake for a backer and a potential liability for a layer.
This effect frames both side of the market and forms the SP. Bets placed in the SP
market are irrevocable, they can not be cancelled. Betfair intend to show the amount
of money waiting to be backed and laid at SP, this is also how the provisional SP
will be calculated.
When the market is about to start Betfair will suspend the market and the starting
price will be 'created' before the market is turned in play. To try and understand
how SP is likely to be formed you need to look at the current market. Backers will
put for a nominated stake at SP and layers will have to specify a liability. In the
current market if you back 4.00 with £1000 a layer has to put up £4000 in to cover
your stake and potential liability. SP is expected to be derived from the inverse of
this function. There are likely to be some subtleties to this before it is launched
and some were discussed on Wednesday night, so I wouldn't treat this summary the
definition of Betfiar SP but this is the "general" concept.
How will it affect my activity on the market?
I guess a lot of this depends on the type of money that SP attracts and when it is
used. Because SP can't have a price until it's defined, some punters will hate that
level of uncertainty. You also have to consider if a horse is not behaving itself.
That will be reflected in the immediate market but probably not the SP, trading in
the active market appears to offer better value. You also have to ask what will
happen if the SP is somewhat adrift of the main market near the off? You would
expect people to come in and correct that balance in either market. In short, it's
difficult to predict exactly how the market will be affected but once launched I
guess there will be a period of settling down before the SP really begins to be used
in earnest.
I guess the big question is what will happen to money in the market, will some of it
migrate to SP or will SP encourage new activity on the exchange? As I have detailed
knowledge of the market I should be able to let you know fairly soon after the
changes take place. As you know, I watch the market intently six days a week so I'll
be one of the first to pinpoint any changes in the market characteristics.
Subject to how the launch of the SP market goes Betfair expect to extend this
concept to other markets over time. So as long as there is no failure of the concept
its something you will see expanded over time.
Anyhow, there are other changes in the pipeline but I hope that's given you some
background to this major change. Launch date is expected at some point in December.
Best Regards,
Peter Webb