American bettors have a new opportunity this football season with the advent of regulated sports betting exchanges in the United States. Experts say that betting exchanges can benefit both professional and amateur bettors, but there are hurdles.
This summer, the New Jersey Gaming Authority approved the Prophet Exchange and Sporttrade betting exchanges. Led by founders with 20 years of experience, the companies opened in New Jersey in September and became the first regulated sports betting exchange in the United States.
Exchanges work similarly to the stock market: customers buy and sell sports scores instead of company shares. The exchange operator takes a commission for brokering a trade, usually around 2% of the net profit of the winning side of the bet. For example, on a Monday night, players could bet on the underdog Minnesota Vikings or Philadelphia Eagles at various prices offered on the exchange and be matched against another player who liked the other side. This is one of the differences between exchanges and traditional bookmakers – in most cases, players are up against other players, compared to a bookmaker with a built-in house edge.
Trading volume on the Prophet Exchange increased 117% from week 1 to week 2 of the NFL season, including $44,000 in Vikings-Eagles transactions, the highest for any game on the new platform.
“It works,” said Jake Benzaken, the 27-year-old co-founder of Prophet Exchange. “We aim to compete the most in these prime time games.”
Exchanges compete with sports bookmakers with their prices. Since the commission is often much lower than 10% or more of the rates charged by bookmakers, bettors find prices on exchanges with a smaller house edge. For example, Sporttrade players only needed to risk $106 to win $100 on the Eagles to cover a 2.5 point spread against the Vikings, while most bookies took $110 to win $100 on spread bets. The money line on Sporttrade – the odds of winning the game – was Eagles -130 and Vikings +127. The betting shops offered bettors around -145 in Philadelphia and +115 in Minnesota.
To the uninitiated, the price difference may seem insignificant, but experts say they add up quickly and can increase the lifespan of a player’s bankroll.
“If you’re betting on five college games and five pro games over the weekend, if you win more or lose less in all 10 of those games, it makes a significant difference at the end of one week, not to mention throughout the game. season,” said Joe Peta, longtime sports bettor and bestselling author of Trading Bases.
But even Peta, who is a strategic adviser to Prophet Exchange and has a background on Wall Street, admits that new U.S. betting exchanges face tough challenges, including getting enough liquidity in an ultra-competitive market, as well as helping clients navigate the learning curve that proved difficult to overcome in other jurisdictions. In addition, the exchanges must do all this while facing stiff competition from betting operators who have been flooding the public with ads for four years now.
“[Exchanges] are a low margin product, so they will never hire Jamie Foxx or the Manning family,” Peta said, adding that using an exchange is “not the same as looking at a whiteboard.” [at a sportsbook].”
“Everything is different and change is hard for everyone,” he said.
Working with probabilities
Philadelphia-based Sporttrade is trying to simplify the equation for new players by betting on probabilities. The Kansas City Chiefs’ outright win over the Los Angeles Chargers in Thursday night’s game was valued by Sporttrade at $65.50, a 65.5% chance of winning. The asking price for the underdog chargers was $36. The winning result is worth $100.
Alex Kane, the 28-year-old founder of Sporttrade, collaborates with market makers who work behind the scenes to create probabilities and provide liquidity across the various markets on offer. He calls them partygoers.
“You solve the liquidity problem by bringing in market makers,” Kane told Sportzshala. “They provide the momentum to start the party.”
If liquidity is available, professional players will find ways to participate in exchanges due to prices, but attracting casual players is another problem. Longtime professional player Bill Krakomberger is a fan of exchanges and is rooting for them to gain a foothold in the US, but he is also worried about the size of the markets that will be available.
“The #1 hurdle for them is seeded markets,” Cracomberger said. “I just hope they do it. Usually only smart guys are interested in this. It’s not a square consumer because they don’t get bonuses, there are no parlays, and it’s a bit more difficult to navigate.”
In addition to better prices, exchanges can give you an idea of which team the professional players are backing by looking at how much liquidity is offered on each side.
“Sharp Groups will bet on the exchange and bet $100,000 on Side A while Side B has nothing available. In the long run, Party B is right,” Krakomberger said.
Betting exchanges of the future?
Other types of betting exchanges are also entering the new US market. For example, New Jersey launched Mojo on Monday, which makes it easy to buy and sell shares of NFL career statistics. Mojo co-founder Vinith Bharara says his platform gives fans the ability to “bet on the entire outcome of an individual athlete’s career, with the ability to enter and exit that position at any time at the latest market prices.”
The NFLPA is an investor in Mojo.
“The Mojo sports stock market is truly the first of its kind, and we are incredibly excited to join as an investor,” said Steve Scebelo, president of NFL Players, Inc. “We see a huge opportunity for Mojo to transform sports fans by bringing fans closer to the players they know and love.”
Prophet Exchange entered the UK market at the end of 2018 with a slightly different product before deciding to cease operations in March 2020 when the coronavirus pandemic hit.
“That’s when we put all our chips into doing it in the US,” said Ding Xisun, co-founder of Prophet Exchange.
“I think there is a lot of noise and a lot of doubt that the exchange cannot be the dominant player,” Sisun added. “I think the reason is that a lot of people look at it through the lens of what the bookmaker has to offer. 3.5 gears. But what the exchange is doing is that we will dominate the bookmakers on the money line, spreads and totals, and in any case, that is the essence of the volume.”
Exchanges such as Betfair and Smarkets have been part of the sports betting market in the United Kingdom for over a decade but have struggled to compete for market share with traditional bookmakers. Jason Trost, founder of Smarkets, estimates that betting exchanges attract 10% of the betting amount in the UK.
“Exchanges are a fundamental part of the ecosystem, but with [business-to-customer] From a perspective perspective, they have not reached their full potential in the UK,” Trost said.
However, Trost believes that the exchange model is the future of sports betting in the US.
“My hypothesis is that a simplified version of an exchange, also known as a bookmaker, will not be flexible or powerful enough for the next generation of sports betting,” he said. “And out of necessity and competition you’ll have to have an exchange.”