Preparations are firmly underway for the US to welcome its first regulated and licensed sports betting exchange. With sportsbooks currently legalized in 30 US states, there has not yet been an exchange to rival the bookmakers – until now that is. Prophet Exchange is on the verge of launching in the state of New Jersey, bringing its peer-to-peer betting exchange to sports enthusiasts in the Garden State.
Betting exchanges are a popular facet of sports betting culture in other parts of the world. In Europe, betting exchanges allow sports bettors to become their very own sportsbooks, offering prices to back and lay sports teams and athletes. Backing is the same as betting with a sportsbook, granted. However, lay betting is an altogether different ball game. Laying a sports team or athlete allows you to bet against them winning a game or competition.
The presence of Prophet Exchange in the regulated sports betting market of New Jersey opens a new world of opportunities for sports bettors here. In other parts of the world, betting exchanges are used to lay off free bet promotions from the major sportsbooks in a process known as matched betting. A customer claims their free bet by backing an outcome with a sportsbook and subsequently lays off the risk on a betting exchange. The difference between the back and the lay price is the profit locked in, regardless of the outcome.
Although no-risk matched betting is rare in the US due to the lack of betting exchanges, it’s by no means illegal. Matched bettors simply lay off the risk of their free bets on an exchange, foregoing the full potential profit with their chosen sportsbook to lock in a smaller guaranteed payout.
Why have sports betting exchanges failed in the US before?
Sports betting exchanges have been active in regulated European sports betting markets since the turn of the new millennium. Multiple betting exchanges have successfully established themselves as alternative betting platforms to conventional sportsbooks. The exchanges make their money by taking a small commission on every bet placed through its platforms. The commission is typically charged only on winning bets and weighs in between 2%-5% of total winnings.
Although this might sound like a lot to pay per winning bet, the exchanges typically offer much more competitive odds than conventional sportsbooks where the juice is so much higher, so it still works out as a more sensible place to bet for value.
Why have sports betting exchanges in Europe failed to gravitate towards the US market in the past? Of course, the federal laws that used to prohibit lawful sports betting caused a major roadblock for European exchanges to make the move across the Atlantic. Betfair is one such exchange that did manage to obtain a license to operate in New Jersey before. However, Betfair struggled with the lack of liquidity which is so essential for peer-to-peer betting exchanges to thrive. If there is an imbalance in the number of backers and layers on an exchange, it can be difficult to get wagers matched at value odds.
To combat the lack of liquidity and the low volume of trades matched on New Jersey’s Betfair exchange, the platform hiked its commission to as high as 12% in some niche betting markets. This was the death knell for the platform, as anything higher than 10% commission typically made licensed sportsbooks an equally attractive proposition. The juice of most sportsbooks is approximately 10% lower than the available exchange odds.
The challenge for new exchange arrivals like Prophet is to drive sufficient liquidity. With most US states licensing sports betting within their own state boundaries, it’s hard to imagine there will be enough liquidity in smaller US states to operate exclusively within their state lines. New Jersey, with its 8.9 million citizens, will certainly be a great chance for Prophet to prove its concept and potentially strike a multi-state licensing arrangement to help exchange betting fly stateside in the years ahead.