What Is a Betting Exchange and Why Are There None in the United States Yet?

What Is a Betting Exchange and Why Are There None in the United States Yet? article feature image
Credit:

Photo credit: Matt Thomas/San Diego Padres/Getty Images

A betting exchange is marketplace that allows bettors to wager against each other at lower fees than those offered by a traditional sportsbook.

Two customers agree on the odds and stake for a given game, and bet against one another.

I may offer a $50 bet on Packers -3 against the Cowboys, and another user on the exchange can accept my offer and bet Cowboys +3.

Betting exchanges have low overhead because they don’t need expansive oddsmaking teams, so they charge a small fee on each bet — much less than the 5-10% a traditional sportsbook takes.

You won’t be betting NFL point spreads at -110 at an exchange; you can effectively get them closer to -101.

Why Are There No Betting Exchanges in the United States?

Sporttrade aims to be the first U.S. exchange (coming to New Jersey in 2021). It’s a very differentiated product from DraftKings or FanDuel, and they hope the lower vig will bring in customers without much traditional marketing.

The barrier to entry for an exchange United States has always been liquidity.

The Federal Wire Act of 1961 prohibits gambling across state lines, and it’s still in effect today. The Supreme Court’s repeal of PASPA in May 2018 allowed states to create their own sports betting framework, but it’s contained to only that state.

Exchange operators are limited to running exchanges in each individual state, and there wouldn’t be enough money in the pot to make an exchange work — or that’s the perceived challenge.

Anyone wagering on a New Jersey betting exchange could only bet against other people in New Jersey, not a sportsbook, and that’s an issue because the pool of users and money just wouldn’t be big enough. Even if an exchange operates in New Jersey and Pennsylvania, those customers could not bet against each other.

Mark Miscavage, an executive at London-based betting exchange Smarkets, told Casino.org that the Wire Act is the biggest hurdle to creating an exchange in the U.S. because it limits the size and liquidity of the betting pools.

“The biggest hurdle for us would be able to pool liquidity, in this case, between all the states,” he said. “I don’t know that there is one state that’s quite big enough to provide the liquidity and volume needed to run an effective exchange just for one state.”

Will We Ever See a U.S. Betting Exchange?

Sporttrade is the first to really try, and we’ll learn a lot about the viability as it enters New Jersey and looks to expand quickly in 2022.

Smarkets is entering the United States market with a traditional sports betting product. And the parent company of Betfair — the largest exchange in the world — owns FanDuel.

These companies surely want to bring exchanges to America because they’re successful and popular in Europe.

But there are two massive hurdles: The Wire Act, and existing casino lobbies who don’t want to see it happen because they’ll lose customers for their traditional sportsbooks.

The creation of a sustainable, successful betting exchange would likely require getting past the casino lobbies to overturn The Wire Act, which seems unlikely in the near term.

Pros of Betting Exchanges

  • Lower fees. Because you’re betting peer-to-peer, there are no sportsbooks to take their large cuts. You’ll be paying a few cents per dollar as the winning bettor instead of 10 cents. Exchanges are very customer-friendly.
  • Everything is a two-way market. Traditional sportsbooks will often offer only one side of a bet. When you want to bet on the Chiefs to win the Super Bowl at +700 at an exchange, there has to be someone on the other side to take -700. That gives you the option to take “yes” or “no” of pretty much every bet type.
  • You can’t be banned or limited (at least not by the operator). If you’re a professional bettor who has been limited at every traditional sportsbook, you might have more luck at an exchange. You just need to find someone to take the other side of your action. The operator itself won’t limit you, because it isn’t affected by your success. Safeguards for manipulation are another worry for betting exchanges.

Cons of Betting Exchanges

  • You won’t always get your bets matched on smaller sports. On a popular, liquid betting exchange, you can always find someone to take the other side of a $100 NFL point spread bet. But if you’re trying to bet obscure sports or bet types, your bet may not always get matched.
  • Lack of bonuses. Betting exchanges don’t offer the same free-money or free-bet promotions that traditional sportsbooks do.

How would you rate this article?