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Market Base Rate (MBR) on Racing NSW

From 1 July 2017, Betfair will increase the Market Base Rate (MBR) on all Racing NSW races from 8% to 10%. The MBR is the maximum percentage Betfair customers pay in commission on winnings.

WHY AN INCREASED MBR?

From 1 July 2017, Racing NSW will introduce a 33% increase to the race fields fees charged to Betfair for its Standard meetings, increasing fees from 1.5% of turnover to 2.0%.

Additionally, some Standard meetings will be upgraded to Premium meetings attracting a higher fee of 2.5%. Racing NSW has a further category, Premier, which has a rate of 3.0%.

The cost of Racing NSW racing was already high. At current MBRs, the fee increase now makes Racing NSW racing the most expensive product in the world that Betfair offers to its customers.

BETFAIR’S RESPONSE TO RACING NSW CHANGES

Given the magnitude of the pricing increase, coupled with the adverse impact of the Turnover Model used by RNSW (more information on this later) unfortunately we have had no choice but to increase charges to customers betting on RNSW product.

This is why, from 1 July 2017 thoroughbred racing in NSW will have a 10% MBR. This will place it at a significantly higher MBR than any other racing and sporting event offered by Betfair worldwide. We will also re-introduce the Turnover Charge, solely on RNSW markets, in order to mitigate exceptionally high race field fees generated by the Turnover Model when customers trade on RNSW markets. We expand on both of these charges below.

 1.  INCREASE MBR TO 10%

2.  RE-INTRODUCE RACING NSW TURNOVER CHARGE

In addition to the increase in MBR, Betfair will also re-introduce a Turnover Charge that will apply only to RNSW meetings.

One of the unique benefits of a betting exchange is the ability for customers to trade in and out (back and lay) as prices on a market fluctuate in the build-up to the jump and then in-play. Unfortunately, RNSW have chosen a race field fee approach (the Turnover Model) where every “back bet” attracts a race field fee, even if a customer is trading and therefore generating very high levels of back bet volume relative to their eventual net customer winning position.

The original Turnover Charge was withdrawn by Betfair in early 2016, when significant movement of racing bodies away from the Turnover Model to the Revenue Model meant that we could encourage greater trading activity without the corresponding cost in fees. However, given the announcement of RNSW, we have had no choice but to re-introduce the Turnover Charge for their product.

The Turnover Charge will only apply when punters have wagered in 1 or more RNSW markets with equal to or over $6,000 in back bet volume during the course of a particular week (Monday to Sunday GMT). In addition, a customer would have to pay less than 1.25% of their Back Bet Turnover in commission to Betfair. Given these high barriers before the application of the Turnover Charge, it is expected the vast majority of customers will avoid ever having to pay it.

BETFAIR'S CUSTOMER OBJECTIVE - LOW COMMISSION RATE

Since its inception in Australia in 2006, Betfair has fought tirelessly to gain a level playing field and negotiate an equitable product fee model for a betting exchange. While Betfair has always advocated the payment of product fees to racing and sporting bodies in return for offering their products, Betfair’s objective is to keep commission as low as possible for its customers. To run a healthy and vibrant exchange turnover is critical, and to foster turnover we need to offer customers attractive commission rates.

While many racing and sporting bodies understand the importance of a vibrant betting exchange in providing customers and the market confidence in “the true odds”, and as an essential tool in fighting corruption in racing and sport, in some jurisdictions, our arguments have not been acknowledged. In 2015 Betfair introduced variable Market Base Rates (MBR) to allow for different product fee models. The MBR represents the highest commission that Betfair receive for winnings on particular markets. Upon launch, the commission ranged from 5% to 8% of a customer’s winnings.

Since launching variable MBRs we have been able to successfully negotiate product fee reductions in key states and territories and as a result, have reduced the MBR where possible. Unfortunately, RNSW has never engaged in constructive conversation with us. The latest fee increase was delivered to us without consultation and as a result, we are forced to introduce pricing changes impacting both us and our customers. These changes don’t sit well with us but are designed to help us achieve our objective of keeping the commission to our customers as low as possible in the long term.

WHY A BETTING EXCHANGE IS DIFFERENT

A betting exchange offers a different way of betting; it is a buy-sell market place where supply meets demand – essentially a platform that matches customers bets of opposing views, backers and layers. This is vastly different from traditional betting via tote operators or with fixed odds bookmakers. Rather than building a profit margin into each market as tote operators (average 15% for tote products) and fixed odds operators (average 10% for fixed odds) do, Betfair charges a commission on a customer’s net winnings on each market.

Betfair is the only legal exchange in the Australian market and services a unique customer segment. Far from ‘cannibalising’ the Tote, Betfair offers the only legal market where you can ‘lay’ against a result, and enable low-margin trading wagering methods, such as ‘trading in and out of positions.’ This can’t be done (legally) anywhere else in the market, let alone with the Tote. Trading attracts a significant amount of activity, and thus turnover, often at a very low margin. We know that many punters are attracted to this type of wagering activity, but the way that some racing bodies charge this type of activity is not economically viable.

DIFFERENT RACE FIELDS FEE MODELS AND RNSW

Racing bodies have commonly applied a turnover based fee model to wagering operators. This makes sense for Totes and Bookmakers who only hold one side of the bet, but not for a betting exchange. Recently, Betfair has been successful in moving more racing bodies to a revenue model which is far more aligned to how a betting exchange operates. Back Bet Turnover Model (RNSW model) RNSW’s race fields model does not distinguish between traditional betting (Tote and Fixed Odds) and the betting exchange and charges us a percentage of Back Bet Volume (BBV) turnover. BBV can be considerable when customers trade frequently.

Betfair views Net Customer Winnings (NCW) as the more appropriate turnover definition for a betting exchange as it is the net impact of all trading activities. The fees charged from July 1, 2017 are as follows: Standard Meetings are charged at 2% of BBV turnover (previously 1.5%); Premium Meetings are charged at 2.5% of BBV turnover, and Premier Meetings are charged at 3.0% of BBV turnover.

RNSW’s model causes a significant disparity when it comes to the payment of race fields fees as a percentage of revenue earned by a wagering operator. Based on a $100 dollar wager on a Standard Meeting, Betfair will pay 53% of its revenue to RNSW as compared to a Fixed Odds operator who will pay between 20%-31% and a Tote operator who will pay 13%. This is before GST, payroll, operating costs and marketing costs.

IMPACT OF MARKET BASE RATES (MBRS)

Due to the already high cost of RNSW racing an 8% MBR was applied. From 1 July 2017, Betfair will increase the MBR on all RNSW meetings from 8% to 10%. The MBR is the maximum percentage Betfair customers pay in commission on winnings.

WHERE TO FROM HERE?

Over the last few years, we have made significant progress in educating racing bodies and governments about the nature of the betting exchange and the unique product that we offer to Australian punters.

We’ve had some significant success in the past, and now have close and beneficial relationships with a growing number of racing bodies. Our agreements with these racing codes have enabled us to pass on cost savings to our customers, which is always our long-term goal. It was with disappointment that we were advised of the decision by RNSW, and frustration that we were forced to pass on some of these costs to our customers.

However, that will not stop us pressing our arguments about the importance of the betting exchange, and benefits it brings to punters and racing participants alike. We know that your passion and loyalty about the Exchange matches our own.