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What is Exchange Wagering?

By Aaron Huber

In the United States all wagers on horse races are conducted though the pari-mutuel system. In this betting system all bets are co-mingled into different pools (win, place, show etc…) and the holders of winning tickets are paid out after the track takes its cut, known as takeout. While takeout rates vary from track to track, current average takeout in the US for straight bets is around 18%.

One of the long standing complaints of horseplayers has been that takeout is too high and that it cuts into their bottom line. One possible solution that cuts takeout rates down to almost nothing is exchange wagering also known as a betting exchange.

While exchange betting is in its infancy in the US, experiences overseas have shown it to be extremely popular with horse racing fans and professional sports bettors. In a betting exchange players post their own bets that they are willing to back with their own money, or conversely they can accept bets offered by other players on the exchange. Only winning bettors must pay a small commission (around 5%) to the exchange host. This system already solves two problems with pari-mutuel betting – late odds drops or odds fluctuation and high takeout. The wagers offered on a betting exchange are fixed-odds so if you see someone offering 10-1 on a horse that you feel should really be 9-2 you can take that bet and have the confidence that you’ll be paid 10-1 if your selection comes though.

Because bets on exchanges are posted by individual players they also have more betting options. For example you can bet that a horse won’t win a race, or on a specific horse to finish last. There is also a new feature called in-race betting. So for example, you can bet on which horse will win while the field is passing the 1/8 pole.

So, when will exchange wagering be available in the US? Because racing is regulated on a state-by-state level the availability of exchange wagering is dependent on which state you live in. So far both California and New Jersey have passed legislation legalizing betting exchanges and Betfair, the world’s biggest exchange, has opened an office with 100 employees in San Francisco. While track owners are concerned that the revenues generated by commissions on winning bets won’t be enough to maintain a profitable operation, the expected increase in handle may prove to be more profitable in the long run. If betting exchanges are successful in drawing new fans and new money to the sport of kings, expect other states to follow suit.

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