The ordinary player’s interest Essay

It’s an age-old story. Two men in a bar arguing about the outcome of the U. S. Residential election. One believes the Republicans will win, and the other thinks the Democrats will do it this time. If they simply bet against each other, one will be at a disadvantage and the other will enjoy an edge, because the reality of the situation is that the outcomes of events such as elections are very rarely akin to flipping a coin.

If they were in the United Kingdom, they could go too high street bookmaking firm such as Coral,l William Hill,2 and Leaderless. 3 On October 26th 2004 the best odds that they could obtain from any of these would have been 8/1 1 on the Republican Party 1 2 www. Coral. Co. UK www. Willful. Com 3 www. Leaderless. Com www. Beefeater. Com: World Wide Wagering by L. F. Pit, R. T. Watson, and D. M. Shapiro 150 Communications of the Association for Information Systems (Volume 1 5, 2005)149-161 and 23/18 on the Democrats (and these odds would not both be offered by one bookmaking firm, they needed to “shop around”).

If they logged on to Beefeater,5 however, on the same day, they would have been quoted the equivalent of 78/100 Republicans and 128/100 Democrats, which a little arithmetic will show are slight, but significantly more favorable, odds to both players. 6 Both might also notice that by the 26th of October, players on the Beefeater web site traded more that GAP 2. 9 million on the outcome of the U. S. Presidential election – or around USED 5. 5 million at January 2005 exchange rates.

Elections, major horse races, golf tournaments, and soccer matches inevitably trade more than GAP 3 million at a time. Yet Black, co-founder De Wary, and the senior management of the firm face a number of dilemmas. Topics that dominate management meetings include: Who is our competition, how should we react, and where might new competition come from? How should we grow Beefeater into a truly global firm, what challenges can we expect, and how do we deal with vested interests and governments in countries where betting exchanges are seen as a significant challenge to the status quo?

Will experiences in some countries better prepare us for entering others? With whom should we align ourselves? Is there a standard procedure we can follow in entering a market, or must we to start again each time? How can we grow the Beefeater business model? Are we a gambling and wagering company, or do our competences and processes allow us to grow into other markets and businesses as well? How do we deal with a diversity of governments that control gambling? Which countries and markets offer the best prospects for growth?

Pair-mutual systems (Figure 1) deduct a percentage of all bets (normally around Figure 1. Idealization System 15 percent), and winners are then paid as a ratio of the remaining pool to their stake. The disadvantage for bettors is that as the weight of none for their selection increases after they placed their bet, so their odds, or payoffs, decrease. This uncertainty meaner that it is difficult for players to use any kind of betting system to maximize profits or minimize losses. A player at a racetrack might, for example, be $100 down by the last race, and place a bet of $100 on the favorite in an attempt to recoup his losses.

At the time of placing the bet, the horse is showing a $2 payout for a $1 bet on the idealization board. At these odds, our player will indeed recoup losses if the horse wins. However, the subsequent sheer weight of none then reduces the payout on the horse to $1. 50 by the start of the race. If the horse wins, our player will still be $50 down for the day, and there are no rewards for skillfully placing the bet early. The idealization can never lose – much like a lottery; it simply takes as its income a fixed percentage of all funds wagered.

Bookmakers (Figure 2), like those in Lass Vegas and in countries such as Australia and Great Britain, offer fixed odds on the outcome – odds of 6/1 ($6 to $1) for example, meaner that the bettor will be paid $6 plus her $1 stake should her selection win the event. The advantage to the bettor is that the odds are fixed, and will not be reduced by the subsequent weight of money for her choice, as in the idealization case. On the other hand, however, if the bookmaker later increases the odds, the early bettor does not benefit from this change.

The disadvantage to the gambler, in this case, is that bookmakers, like casinos, obtain a significant edge because they offer odds shorter than the true probabilities in order to profit in the long run – typically around 14 percent of turnover. In many countries, bookmaking is banned. In those in which it is to illegal, bookmaking is strictly controlled and licensed, because of instances of unethical bookmakers influencing the outcome of sporting events for personal gain. For example, bookmakers have been accused of fixing races, bribing Jockeys, and other corrupt actions, and this is not in the ordinary player’s interest.

It is difficult enough to find a winner without the odds being unfairly stacked against one by cheating. Where bookmaking is legal, Jurisdictions often taxed winning bets as a form of state or provincial revenue, thereby increasing the odds against players. In some cases authorities tax the stake, which creates a further disadvantage. 152 communications AT teen Escalation Tort International systems (Volume 1 Figure 2. Bookmaker Unlike idealization systems, bookmakers can and do lose on some events.

For example, when they misjudge the probabilities and the odds that they offer are too generous, or when some of the potential outcomes do not attract the anticipated volume of bets. While the models for the idealization and bookmaker differ in many ways, their basic premise is the same. Use the money taken from losing bets o pay winning ones, and allow for a percentage “rake-off’ before doing so. When Beefeater launched in 2000 with GAP 1 million raised from Blacks and co-founder De Wrap’s (a former vice-president of JP Morgan) network of contacts, it was taking less than GAP 50,000 a week in bets.

This number began to climb gradually and within nine months, Beefeater exceed GAP 1 million a week in turnover. Significant investors began to acquire stakes in the business, including Benchmark Capital, UBS Capital, and JP Morgan Chase. Beefeater. Com, located in the United Kingdom, turned over GAP 1. Billions in 2002, and won a Queen’s Award for Innovation in 2003. To give a better indication of the volumes of cash being turned over by mid-June 2004, Beefeater did a bigger turnover on the Kentucky Derby than the idealization on the track at Churchill Downs,9 the race venue.

More than GAP 4 million was wagered on the 2004 U. S. Open golf tournament, simply on the final outcome (and not taking novelty bets into consideration, such as would Tiger Woods make the cut, and who would be the top European player). A week before the Men’s Final at Windblown in 2004, more than GAP 3 million had been wagered on the overall outcome, and wagering on each individual match inevitably exceeded GAP 200,000 (more than GAP 1 million was wagered on the third round men’s singles match featuring Briton Tim He-man).

Because it is a British firm, most financial figures on Beefeater are quoted in Great Britain pounds sterling (GAP). However, players in different countries can choose to see and play in the currency of their choice – e. G. , Americans can see markets in used, Australians can see markets in ADD. 9 8 www. Churchliness. Com 149-161 153 Beefeater provides an opportunity for speculators to bet on events that range from the ore conventional sports such as horse and greyhound racing at tracks around the world, football, soccer, baseball, golf, and tennis to more exotic activities such as knurling, carts, Ana snooker.

I nee Tell also offers teen opportunity Tort wagers to De lava or taken on non-sporting events such as the outcome of presidential and political elections, Big Brother competitions, and the Oscar. The company also offers a range of financial bets on most of the world’s major markets (turning over more than GAP 100,000 daily simply on whether the fifties will rise or fall). A particularly popular vent in 2003 turned out to be the California Governor election, featuring movie star Arnold Schwarzenegger, and more than used 1 million was wagered on the nomination of the Democratic Party candidate for U. S. President in 2004.

Beefeater 10 www. Fetes. Com. FETES stands for Financial Times and London Stock Exchange. It is an index, similar to the DOD-Jones Industrial Index in the United States, that provides a single number for the trades on the London Stock Exchange. 154 race, lost $5 on one and won $20 on another, then a commission would be taken on the net winnings of $15. Similarly if a player accepted a bet of $5 against Tiger Woods winning the 2003 U. S. Open, and laid him at odds of 3/1, the player would have won $5 (because Tiger Woods lost) and paid a small percentage commission to Beefeater accordingly.

For events, Beefeater shows the possible outcomes (for example, horses or dogs in a race, the players in a golf tournament, or the two teams in a game, which may also include a draw or tie), and columns entitled “Back” and “Lay. ” The “Back” column shows the odds available to a player who wants to back an outcome and how much money a player can place on those odds. So for example, if the “Bet” column showed a price of 4. 00 and $100 available, then a player will get odds of 3/1 (the price represents the payout plus the stake).

By wagering $100, a player would receive $300 plus the stake of $100 back if the selection won. 11 Likewise, the “Lay’ column shows what players want as odds, and how much they wish to bet. So a “Lay’ price of 3. 00 and amount of $200 meaner that someone who thought the outcome might lose could take up to $200 on the outcome at that price. For example, if one took $10 of the $200 (leaving $190) at these odds, one would keep the $10 if the outcome lost, and lose $20 s well as forfeiting the stake of $10 if the outcome won (for a net loss of $30).

Even for those not inclined to gambling, but nevertheless interested in the mechanics of mar test t K , I Is worth vaulting Beatable Just to see now narrow are teen Territories between the “Back” and “Lay’ columns on the larger markets (such as horse races and golf competitions). Prices are inevitably made and taken, and the margins are minuscule, much smaller than those of even the most generous bookmaker. It is worthwhile observing the “book percentage” on the “Back” and “Lay’ sides of each event that is displayed. For an example see the screen capture (Figure 4) from Beefeater for betting on the 2005 Super Bowl.

The book percentage is an indication of how much net profit or loss a player would achieve if he either backed every outcome or laid all. A percentage higher than 100 percent meaner that an odds maker would make a profit by laying every outcome up to a given amount, and that a taker would lose by backing all the possibilities. A percentage under 100 percent would mean the opposite. When one considers that traditional bookmakers bet to a percentage of around 114 percent, that meaner that the player is facing a book of only 86 percent (in impel terms by backing all the possibilities he would be returned 86 cents on the dollar).

The percentages on major Beefeater events rarely exceed 105 percent for odds makers (and they are not guaranteed of laying bets at these prices), and are almost always under 100 percent for the backers (although again, they are not guaranteed of getting these odds). The betting on the Super Bowl (Figure 4) is at January 17 2005, and one might speculate that by the time of the final game, the “Back” percentage would reduce to Just more than 100 percent, and the “Lay’ percentage to Just under 00 percent, as more money is wagered on the event.

In simple terms, this meaner that players can generally obtain better prices on Beefeater than they can from either bookmakers or a idealization. 11 The $100 available indicates how much can be wagered in the outcome of odds of 3/1 . If a player wagered only $20 then there would still be $80 remaining. Once this amount is taken, the next (shorter) odds in the “Back” column would move forward, and so forth. 155 Figure 4. Superpower (as of Jan 17, 2005) Rather than profit by taking a percentage of losing bets, Beefeater profits by taking a small percentage of net winnings.

Therefore, the greater the turnover on events, the more revenue Beefeater will generate. It is successful if it can assemble large numbers of customers – and provide a market for them to interact with each other. Customers place funds with Beefeater by making an online deposit through a credit card (or by check or bank draft through special arrangement), and Beefeater then maintains a record of the account’s balance and transactions.

The balance is reduced every time a customer makes a bet (e. G. Backs a horse), and is also reduced on reserve every time a customer lays a bet (I. E. , incurs a toenail laterally Day laying an outcome at 00 s) when a player walls, teen net winnings are credited to her account. Customers with a positive balance can withdraw at any time and request all or part of their positive balance re-credited to their credit cards or bank accounts. The company also allows customers to make payments in advance by check, or to receive checks by mail or by deposit into their bank accounts by prior arrangement.

A feature of Beefeater is that it permits players to bet “in the running” – that is, after a race starts until a winner eventually crosses the finish line. In the event of a very close photo-finish, or an objection, Beefeater will also reopen in-play betting so that bets can be taken on the outcome of the photo-finish or the objection. Players can also bet on games and matches while these are “in play,” a particularly popular feature in sports such as football, soccer, golf, cricket, and baseball.