Inside the Trading Room
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What is a Sports Betting Exchange and Why Are We Building One?
July 14th, 2021
By Alex Kane
I’ve been glued to my TV watching the NBA Playoffs this year. As a Philly guy, I was particularly interested in the Philadelphia 76ers, until they unfortunately crashed out after losing to a really impressive Atlanta Hawks squad.
Playoff basketball is a game of runs. Look no further than the multiple blown leads the 76ers had against the Hawks. Knowing this, it’s pretty hard for me to place a bet on the 76ers before the game when I feel pretty confident that at some point the sharpshooters on the Hawks will put together a flurry of 3’s to take the lead and force a Philly timeout.
Think of it this way; if you knew that a team that was favored pregame and at some point during the game would be the underdog, why would you place a bet on them before the game?
Just like the tens of millions of Americans who have traded stocks or cryptocurrencies, I’m pretty comfortable with the concept of buying in at a certain price, and then when that price changes, selling. But trying to do that for sports betting right now is almost impossible.
Nevertheless, I had a feeling the Atlanta Hawks would start Game 6 well, so I embarked on my journey to figure out how to place a bet that reflected that. After a bit of line shopping (looking for the best price), I decided to bet $40 on the Hawks to win against the 76ers, with a plan to try and “cash out” at a later point when I felt they had peaked.
Now, you might be asking, if you thought the 76ers were going to eventually win a game that the Hawks would start well in, why wouldn’t you place a bet on the “Hawks to win the 1st Quarter” or “first to 15 points”? In short, if I wanted to place a more exotic bet like that, the “vig” (the bookmaker’s spread) is closer to 7% as opposed to 4%.
On top of that, what if the Hawks get out to a 10-2 lead (which they eventually did), and I wanted to get out for a profit at that time, thinking the 76ers would start to close the gap then? The cash out opportunities on the non-main markets are even more scarce. In short, placing a bet on the Hawks to win the 1st Quarter was more costly, both in terms of dollars and control.
Despite sportsbooks offering cash out opportunities, they can be quite bad. And my experience was no different. My $40 bet was worth $36 moments after I had placed it, which means I was down 10% before anything even happened.
Imagine being down 10% on a trade moments after you buy Bitcoin.
Trying to stay on top of my sports bet proved difficult; everytime I closed and re-opened the app, I was served a bunch of new betting opportunities, or pushed to spin a roulette wheel, when all I really wanted to do was closely monitor my current bets.
Ultimately, the cash out option ended up being too finicky, or offered too little value (or so I thought) for my bet, that I ended up losing everything. It was in this experience that I painfully learned that trying to trade sports outcomes with traditional sports betting apps is like trying to drive to work with a horse and buggy.
Like the many popular stock and crypto trading apps have proven, there is a way to take something complex and make it simple, approachable, and engaging, and our goal is to borrow some of those principles to elevate the sports betting experience for customers.
What is a Sports Betting Exchange?
A sports betting exchange is an all-to-all platform matching buyers and sellers of sports bets. Think Nasdaq, but instead of buying Apple, you’re buying the 76ers to win, or purchasing Over 225.5 total points. An exchange facilitates trades between you and other participants; i.e. if you bought the 76ers to Win, you will be matched up with a seller of that outcome.
And we’re taking it a step further in building our sports betting exchange to mirror a stock exchange. The instrument that you’re buying and selling on Sporttrade is called a contract, which is like an other asset you would buy on a stock or crypto trading app, except the price of a contract on Sporttrade will max out at $100, because if the underlying outcome occurs, for example, the Hawks beat the 76ers, we settle all contracts on that outcome at $100. If the outcome does not occur, we settle all contracts on that outcome at $0.
Introducing a sports betting exchange as an option to customers is going to be a game changer, just like when the same thing happened in capital markets decades ago. The electrification and democratization of the transfer of risk brings a ton of benefits.
By introducing a sports betting exchange, we democratize the experience to allow anyone to buy and sell outcomes which drastically improves pricing on our platform. Imagine if you were buying shares of Tesla, but you could only buy them from a specific individual.
Think about if you’ve ever been offered a cash out for a bet you placed. Wouldn’t you rather have multiple participants bidding to buy your bet rather than just 1 (the bookmaker)? Contrast that with the experience you get selling your Tesla shares on the stock market, where you always get the best price on your trade. That’s the difference an exchange brings to sports betting.
2. Always On In-Play Betting
Imagine trying to place a stock trade, only to have your brokerage display a lock symbol for the stock you’re trying to buy or sell. As you may recall this happened once this year, and it sent shock waves that ended up in front of Capitol Hill.
Sadly, this happens a lot in sports betting. When the bookmaker doesn’t feel like taking bets, everything shuts off, and no one can do anything.
On an exchange, trading remains open throughout the underlying game or season. If certain market participants (i.e. market makers) offer a wider market or pull quotes entirely, that’s ok, retail participants still have access to trade on the exchange. An exchange thus democratizes access for every participant in the sports betting ecosystem.
3. Trade In and Out
Betting on an exchange feels a lot more like stock trading than it does traditional sports betting. Almost anything you can do on a trading app you can do on a sports exchange.
Once you place a trade, say, you buy the Atlanta Hawks to beat the Philadelphia 76ers at $40, that becomes a position in your portfolio, just like if you buy Dogecoin at $0.25. As trading continues on that instrument, the value of your position constantly updates, creating an unrealized gain or loss on your trade.
If the Hawks open up a 10-2 lead, and are now trading $50 to beat the 76ers, you’ll see that you’re up $10, and that you’ll profit if you close your position at that point.
By seeing your open sports bets like you see positions in your portfolio, you’re going to be able to see your performance at a glance without having to do any thinking. Recall that when you open Robinhood, the first thing you see is your portfolio value, and your gain and loss on the day.
Now imagine it’s Saturday afternoon in the fall. You’ve bought “Clemson to beat Miami”, “Temple to Win by more than 3.5 points over Memphis”, “Over 56.5 Points in the Baylor/TCU game”, and “Penn State to beat Ohio State”.
Each time you open your account, you’ll see your portfolio value of all of your positions, with a gain/loss on each according to the market price. You won't have to navigate through an app to then see your bets and try and add up the cash out value of each to tell how you’re doing.
Why We Are Building Sporttrade
Thanks to unprecedented innovation in capital markets, both in the electrification of markets and the innovation of trading apps like Robinhood, Public, and Coinbase customers expect a certain level of approachability when making decisions about their money - whether it's investing or gambling.
And while trading on sports outcomes is not investing, we still believe customers should have a simple, engaging, and fair experience, just as they do trading any other asset.
By building a sports betting exchange, our goal is to bring customers a simple, easy way to place bets in the same way they trade any other asset class, bringing the liquidity, efficiency, and dynamism of stock trading to sports betting.