Exchanges provide new opportunities for American bettors of all levels

by David Purdum, ESPN

American bettors have a new opportunity this football season with the arrival of regulated sports betting exchanges in the United States. Experts say betting exchanges can benefit both professional and recreational bettors, but hurdles exist.

This summer, the New Jersey Division of Gaming Enforcement approved betting exchanges Prophet Exchange and Sporttrade. The companies, which are both led by 20-something founders, launched in September in New Jersey, becoming the first regulated sports betting exchanges in the United States.

Exchanges operate similarly to the stock market, with customers buying and selling sports outcomes instead of shares of companies. The exchange operator takes a commission for brokering the transaction, typically around 2% of the net profit of the winning side of the wager. On Monday night, for example, bettors could have taken a position on underdog Minnesota Vikings or Philadelphia Eagles at varying prices offered on the exchange and be matched with another bettor who liked the other side. That’s one of the difference between exchanges and traditional sportsbooks — bettors are up against other bettors, in most cases, compared to taking on a bookmaker with a built-in house edge.

Prophet Exchange experienced a 117% increase in volume from Week 1 to Week 2 of the NFL season, including $44,000 in trades on the Vikings-Eagles game, the highest volume on any game so far for the new platform.

“It’s working,” said Jake Benzaquen, the 27-year-old co-founder of Prophet Exchange. “We aim to compete the most on those prime-time games.”

Exchanges compete against sportsbooks with their pricing. Since the commission is often much cheaper than the 10% or more of vigorish charged by sportsbooks, bettors find prices with less built-in house edge on exchanges. For example, bettors at Sporttrade only had to risk $106 to win $100 on the Eagles to cover the 2.5-point spread against the Vikings, while most sportsbooks were charging $110 to win $100 on bets on the spread. The money line at Sporttrade — the odds to win the game straight up — was Eagles -130 and Vikings +127. At sportsbooks, bettors were offered around -145 on Philadelphia and +115 on Minnesota.

To the uninitiated, the price differences may seem inconsequential, but experts say they add up quickly and can extend the life expectancy of a bettor’s bankroll.

“If you’re betting five college games and five pro games over a weekend, if you win more or lose less on all 10 of those games, it makes a material difference at the end of one week, let alone over the course of the season,” Joe Peta, a longtime sports bettor and author of best-selling sports betting book, “Trading Bases,” said.

But even Peta, who is a strategic advisor to Prophet Exchange and has a background in Wall Street, acknowledges that the new betting exchanges in the U.S. face difficult challenges, including gaining sufficient liquidity in an ultra-competitive marketplace, while also helping customers navigate a learning curve that has proven tough to conquer in other jurisdictions. In addition, exchanges must accomplish all of that while facing stiff competition from the deep pocketed sportsbook operators, who have been hammering the public with advertising for four years.

“[Exchanges] are a low margin product, so they will never be hiring Jamie Foxx or the Manning family,” Peta said, adding that using an exchange is “not like looking up at the board [at a sportsbook].”

“It’s different, and change is hard for everyone,” he said.

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