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The exchanges offer new opportunities for American bettors of all levels

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 obstacles exist.

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

Exchanges work similarly to the stock market, with clients buying and selling sports scores instead of company stocks. The exchange operator takes a commission for trading the trade, usually around 2% of the net profit on the winning side of the bet. On Monday night, for example, bettors could have taken a position on the Minnesota Vikings or Philadelphia Eagles, at varying prices offered on the exchange, and been matched with another bettor who liked the other side. This is one of the differences between exchanges and traditional sports betting – bettors are matched against other bettors, in most cases, versus a bookmaker with a built-in house edge.

Prophet Exchange saw 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 of any game to date for the new platform.

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

Exchanges rival sports betting with their prices. Since the commission is often much cheaper than the vigorish 10% or more charged by sportsbooks, bettors find prices with less internal advantage on the exchanges. For example, Sporttrade bettors only had to risk $106 to win $100 on the Eagles to cover the 2.5 point spread against the Vikings, while most sportsbooks charged $110 to win. $100 on spread bets. The money line at Sporttrade – the odds of winning the game straight – was Eagles -130 and Vikings +127. In sports betting, 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 of a punter’s bankroll.

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

But even Peta, who is a strategic adviser to Prophet Exchange and has experience on Wall Street, acknowledges that new betting exchanges in the United States face tough challenges, including securing sufficient liquidity in an ultra- competitive, while helping clients navigate a learning curve that has proven difficult to conquer in other jurisdictions. Moreover, the exchanges have to accomplish all of this while facing fierce competition from deep-pocketed sports betting operators, who have been hammering the public with advertising for the past four years.

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

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

Dealing with probabilities

Sporttrade, a Philadelphia-based company, attempts to simplify the equation for new bettors by dealing with odds. A Kansas City Chiefs outright victory over the Los Angeles Chargers in Thursday night’s game was priced at $65.5 on Sporttrade, which represents a 65.5% probability of victory. The asking price on the Underdog Chargers was $36. The winning result pays $100.

Alex Kane, the 28-year-old founder of Sporttrade, has teamed up with market makers, who work behind the scenes to create the odds and provide liquidity in the various markets on offer. He calls them party starters.

“You solve the liquidity problem by using market makers,” Kane told ESPN. “They give the impetus to get the party started.”

If liquidity is available, professional bettors will find ways to participate in exchanges due to pricing, but engaging casual bettors is another challenge. Long-time professional bettor Bill Krackomberger is a fan of the exchanges and wants them to come to the US, but he’s also worried about the size of the markets that will be available.

“The No. 1 hurdle for them to give in is having seeded markets,” Krackomberger said. “I just hope they do. Usually it’s only the sharp guys who are interested in it. It’s not the square consumer, because they don’t get a bonus, there’s no parlays and it’s a little more difficult to navigate.”

In addition to more advantageous pricing, exchanges can provide a clue about the team of professional bettors that is backing by looking at the amount of liquidity offered on each side.

“Sharp groups will bet on the exchange and put $100,000 on side A, while side B has nothing available. In the long run, side B is right,” Krackomberger said.

Exchanges the future of betting?

Other types of betting exchanges are also entering the new US market. Mojo, a platform that makes it easier to buy and sell career statistical performance stocks for NFL players, launched Monday in New Jersey, for example. But only time – and money – will tell if the US betting market is ready.

Prophet Exchange entered the UK market at the end of 2018 with a slightly different product, before deciding to cease trading in March 2020 when the coronavirus pandemic took hold.

“That’s when we pushed all of our chips to do this in the United States,” said Dean Sisun, co-founder of Prophet Exchange.

“I think there’s a lot of noise and a lot of doubt that a swap can’t be a dominant player,” Sisun added. “I think the reason for that is that a lot of people look at this with the lens of what a bookmaker is offering. There’s no way any exchange can compete with this when it comes to parlays and teasers. and whether the Raptors’ seventh player will get 3.5 assists. But what the exchange does is we’ll dominate the sportsbook in terms of money line, spreads and totals, and that’s where that’s the meat of the volume anyway.

Exchanges, such as Betfair and Smarkets, have been part of the UK sports betting market for over a decade, but struggle to compete with traditional sportsbooks for market share. Jason Trost, founder of Smarkets, estimates that 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] prospect that they have not reached their full potential in the UK,” Trost said.

Still, Trost thinks the exchange model is the future of sports betting in the US

“My assumption is that the simplified version of an exchange, aka a sportsbook, will not be flexible or powerful enough for the next generation of sportsbooks,” he said. “And out of necessity and competition, you will have to have an exchange.”