The NSW Pricing Effect: How It Affects Winx, Betfair & Punters

Like any business, Betfair’s main priority is survival and, hopefully, financial success. However, knowledgeable voices in the betting industry know it’s a crucial part of the wagering ecosystem. Arguably, significantly more so than any individual corporate bookmaker.

For that reason, Betfair does its best to work with industry bodies so that the unique low-margin model is understood. How its pricing model is fair. How it’s often the best value product for punters:

Current US Masters outright via odds com au

Betfair 115%
TAB 130%
BetEasy 146%
Bet365 153%
Sportsbet 157%
Ladbrokes 159%
PointsBet 172%
Unibet 221%

— Mark Haywood (@hayw0od) April 9, 2019

(Betfair’s Masters market is currently 110.7%)

These conversations are usually well received by industry partners, such as racing or sporting bodies. And an agreement between how much Betfair pays these organisations to manage bets on their sport or racing code is balanced. Every party, including the punter, is considered.

Winx: NSW vs Victoria

Sometimes, racing and sporting bodies struggle to understand Betfair’s value in the industry and create product fee agreements that overlook the unique model.

One of the best ways to illustrate disproportionate agreements is to look at the Betfair agreements with Racing Victoria and Racing NSW.

We alluded to this on Twitter after Winx won the George Ryder:

When #Winx won last wk, Betfair paid 8x more in product fees to @racing_nsw than commission.

Before paying:
POC tax
GST
Staff
Marketing
Licensing

That's like selling coffee for $4 & paying $32 for beans.
We'll continue to pay if punters have a chance to win w/o being banned.

— Betfair Australia (@Betfair_Aus) March 26, 2019

We’d like to expand on this and be fully transparent with our customers.

Back Bet Volume vs Revenue Sharing

Despite Betfair’s pleas, Racing NSW has implemented a Back Bet Volume model. This means Betfair pays 2-3% (depending on the race day) of every ‘Back’ bet to Racing NSW, which is incredibly challenging for a low-margin business.

The Back Bet Volume method is in stark contrast to the Revenue Sharing model that most other racing and sporting bodies use.

By sharing revenue, as the name suggests, both Betfair and the industry body benefit from growth. They are incentivised to grow the popularity of a sport, as well as the betting turnover. A Back Bet Volume method leaves Betfair with little alternative but to raise prices (Racing NSW has the highest commission rate at Betfair).

The agreements can be best illustrated by looking at what happens when Winx runs in New South Wales vs Victoria. Back Bet Volume vs Revenue Sharing.

The table above show that Betfair is charged between 175.7% and 1,061.7% of its TOTAL revenue by Racing NSW when Winx wins. That’s BEFORE paying GST, Point of Consumption tax, staff, marketing, rent and licensing fees.

On the other hand, when Winx runs in Victoria, Betfair and Racing Victoria share in the revenue generated and neither partner makes a loss.

HARNESS RACING NSW BACK BET VOLUME PRODUCT FEE MODEL ANALYSED

Despite Betfair’s negotiations to work towards a mutually-beneficial revenue-based Product Fee model, Harness Racing NSW has remained with a Back Bet Volume (BBV) model. This means Betfair pays 1.5%-2.5% (depending on the race day) of every ‘Back’ bet to Harness Racing NSW, which is incredibly challenging for a low-margin business that doesn’t profit directly off of losing back bets, unlike corporate bookmakers.

The BBV method is in stark contrast to the Revenue Sharing Model that most other racing and sporting bodies use.

By sharing revenue, as the name suggests, both Betfair and the industry body benefit from growth. They are incentivised to grow the popularity of a sport, as well as the betting turnover. A Back Bet Volume method leaves Betfair with little alternative but to raise prices (Harness Racing NSW has the equal highest commission rate at Betfair).

The flaws of a BBV model on Harness Racing NSW markets are evidently clear when we take a look at in-play markets on Betfair.

Across Harness Racing NSW markets for the month of July 2021, the weighted average odds of a runner were 2.55, compared to thoroughbred markets where the weighted average odds of a runner were almost twice as much. This is drastically lower (approximately half) on in-play markets due to the nature of the way that harness markets trade.

Across in-play Harness Racing NSW markets for the month of July 2021, Betfair did not make a profit from offering the markets when product fees were taken away from commissions paid. A total of 7.4% of the volume bet on Harness Racing NSW markets doesn’t produce an incremental revenue for Betfair.

That’s BEFORE paying GST, point of consumption taxes, licensing fees, and other expenses.

After these additional costs, this jumps up to an astounding ~30% of volume on Harness Racing NSW markets that don’t produce any revenue for Betfair.

For several months, Betfair has seen ever-increasing costs for providing NSW harness racing markets on the Exchange due to abnormally high product fees imposed on Betfair. We have been negotiating a better long-term outcome with Harness Racing NSW for some time but to no avail.

Standardised net rate of Back Bet Volume paid in product fees after commission.

(based on an 8% MBR, the average product fee rate imposed on Betfair and a July 2021 race data sample)

So What Does This Mean?

These product fee relationships ultimately impact the punter.

Harness Racing NSW and Racing NSW are the equal-most expensive betting products for Betfair, and it’s why the Market Base Rate is 10%. We have to pass that on to customers or we can’t offer betting on their products at all, which we believe impacts the entire industry.

NRL vs AFL

Another example of short sighted pricing agreements is occurring with Australia’s two primary football codes.

The betting turnover on AFL, our cheapest betting product, is growing at 19% after three rounds. While the NRL, based in NSW, is declining at 13% after four rounds.

We acknowledge that this is a small sample size and NRL had an MBR of 2.5% (instead of 6%) in 2018. However, we’re confident this betting trend will continue. In fact, we forecast the betting popularity gap will increase rather than decrease.

Punters want to bet on, and watch, the sports that give them a better chance of winning in the long term.

You can see that from the early betting turnover in the images below.

Betting turnover, at 10am on 10/4/19, is 1,954% bigger per game on AFL than NRL.

Total AFL betting turnover, to this point, is $180,883. Whereas the NRL is $7,827.

conclusion

Betfair works hard to convey its unique business model to racing partners. Sadly, that can be overlooked by some industry bodies who don’t understand that Betfair is significantly different from corporate bookmakers. Bookies profile their customers, ban winners and operate with significantly more margin in their markets.

And despite these disproportionate agreements, Betfair is still committed to offering markets that cost them over 10x more to operate, before double tax and additional expenses, than they generate in commission. Like Winx in the George Ryder Stakes.

We’ll continue lobbying industry bodies so that they can see the benefit of Revenue Sharing models. Using examples like the AFL and Racing Victoria, where both parties are committed to growing the audience, the profile and the betting turnover. And ultimately, this helps the punter. As you can see in 102.5% AFL markets and 106% Victorian racing markets, which have no peer.