This summer, the New Jersey Division of Gaming Enforcement approved the Prophet Exchange and Sporttrade betting exchanges. The companies, both led by 20-year-old founders, launched in September in New Jersey, becoming the first regulated sports betting exchanges in the United States.
Stock exchanges work in a similar way to the stock market, with customers buying and selling sports scores rather than company shares. The stock trader takes a brokerage fee for the transaction, typically around 2% of the net profit of the winning side of the bet. On Monday night, for example, bettors could have taken a stand on losing Minnesota Vikings or Philadelphia Eagles at variable prices offered on the stock exchange and be paired with another bettor who liked the other party. This is one of the differences between traditional exchanges and sports betting: bettors are faced with other bettors, in most cases, compared to facing a bookmaker with a built-in house advantage.
Prophet Exchange recorded a 117% volume increase from week 1 to week 2 of the NFL season, including $ 44,000 in trading on the Vikings-Eagles game, the highest volume on any game so far for the new platform.
“It works,” said Jake Benzaquen, the 27-year-old co-founder of Prophet Exchange. “We aim to compete more in those prime time games.”
Exchanges compete with sports betting with their prices. Since the commission is often much cheaper than 10% or more of the stamina charged by bookmakers, bettors find prices with a less integrated house edge on exchanges. For example, Sporttrade bettors only had to risk $ 106 to win $ 100 on Eagles to cover the 2.5 point spread against Vikings, while most bookmakers charged $ 110 to win $ 100 on spread bets. The money line on Sporttrade – the odds of winning the game up – was Eagles -130 and Vikings +127. On sports betting, bettors were offered around -145 on Philadelphia and +115 on Minnesota.
For the uninitiated, price differences may seem insignificant, but experts say they add up quickly and can extend a bettor’s bankroll life expectancy.
“If you bet five college games and five pro games in a weekend, if you win more or lose less on all 10 games, it makes a substantial difference at the end of a week, not to mention the season course.” said Joe Peta, a longtime sports bettor and author of the best-selling sports betting book, “Trading Bases”.
But even Peta, who is a strategic advisor to Prophet Exchange and has a background in Wall Street, recognizes that new betting exchanges in the United States face tough challenges, including obtaining sufficient liquidity in an ultra-competitive market, while also helping clients to navigate a learning curve that has proved difficult to conquer in other jurisdictions. Additionally, exchanges must accomplish all of this by facing stiff competition from deep-pocketed sports betting operators, who have been pounding audiences with advertising for four years.
“[Exchanges] they are a low-margin product, so they will never hire Jamie Foxx or the Manning family, “Peta said, adding that using an exchange” isn’t like looking at the board. [at a sportsbook]. ”
“It’s different and change is difficult for everyone,” he said.
Face the odds
Sporttrade, a Philadelphia-based company, tries to simplify the equation for new bettors by dealing with the odds. An all-out win for the Kansas City Chiefs over the Los Angeles Chargers in Thursday night’s game was valued on Sporttrade at $ 65.5, which represents a 65.5% chance of winning. The asking price for the underdog Chargers was $ 36. The winning result pays $ 100.
Alex Kane, the 28-year-old founder of Sporttrade, has partnered with market makers, who work behind the scenes to create odds and provide liquidity on the different markets on offer. He calls them party appetizers.
“Solve the liquidity problem by involving market makers,” Kane told ESPN. “They give the momentum to start the party.”
If liquidity is available, professional bettors will find ways to participate in trading because of the price, but engaging casual bettors is another challenge. Longtime professional bettor Bill Krackomberger is a fan of exchanges and cheers for them to catch on in the United States, but he is also concerned about the size of the markets that will be available.
“The number one hurdle to surrender to is having sown the markets,” said Krackomberger. “I just hope they do. Usually, it’s just the smart guys who are interested in that. It’s not the square consumer, because they don’t get bonuses, there are no parlays and it’s a little harder to navigate.”
In addition to the most advantageous price, exchanges can provide a clue as to which team are supporting professional bettors by looking at how much liquidity is being offered by both sides.
“Sharp groups will bet on the trade and put $ 100,000 on side A, while side B has nothing on hand. In the long run, side B is right,” said Krackomberger.
Trade the future of betting?
Other types of betting exchanges are also entering the new US market. Mojo, a platform that facilitates the buying and selling of career statistical performance shares for NFL players, was launched Monday in New Jersey, for example. Vinit Bharara, co-founder of Mojo, says his platform offers fans the ability to “bet on the entire professional performance of a single athlete, with the ability to enter and exit that position at any time at the latest market prices. “.
The NFLPA is an investor in Mojo.
“Mojo’s 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 fandom. bringing fans closer to the players they know and love. “
Prophet Exchange entered the UK market in late 2018 with a slightly different product, before deciding to shut down in March 2020 when the coronavirus pandemic took hold.
“That’s when we pretty much pushed all of our chips to do it in the US,” said Dean Sisun, co-founder of Prophet Exchange.
“I think there is a lot of noise and a lot of doubt that an exchange cannot be a dominant player,” added Sisun. “I think the reason is because a lot of people look at this with the aim of what a bookmaker offers. There is no chance that an exchange can compete with that when it comes to parlays and teasers and if the seventh Raptors player gets to get it. 3.5 assists. But what the exchange does is that we will dominate online sports betting of money, spreads and totals, and that’s where the meat of the volume lies anyway. ”
Exchanges, such as Betfair and Smarkets, have been part of the UK sports betting market for over a decade, but have struggled to compete for market share with traditional bookmakers. Jason Trost, founder of Smarkets, estimates betting exchanges attract 10% of the amount wagered in the UK
“Exchanges are a fundamental part of the ecosystem, but from a [business-to-customer] prospects that have not reached their full potential in the UK, “Trost said.
However, Trost believes the exchange model is the future of sports betting in the United States
“My guess is that the simplified version of an exchange, also known as sports betting, won’t be flexible or powerful enough for the next generation of sports betting,” he said. “And out of necessity and competition, you will have to make a trade.”