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How Good are Betfair Exchange Odds Really?

It's commonly assumed (and advertised) that because Betfair exchange doesn't have any margin, they offer superior odds to bookmakers. It is certainly true that for highly liquid books like the Premiership match odds for home, draw and away will be very close to offering 100% value.

This is to be expected give the peer to peer nature of and exchange where punters bet against punters, there is no third party taking a position and wisdom of the crowd has ample opportunity to take effect. As a consequence, a market like Betfair Exchange exhibits little or no favourite-longshot bias. And unsurprisingly Betfair exchange outperforms all online bookmakers by a distance.

Of course, Betfair don't offer their services for free. Rather than applying a margin, they passively take a share of a customer's winning by applying a commission to all profits. For the vast majority of bettors that is 5%. Only the most active and high staking customers can reduce this to lower levels.

To investigate the impact of Betfair's 5% commission I have dug out an old dataset of closing match betting odds for the 2016/17 Premiership season which I had previously collected. I have calculated the average margin for each bookmaker, the margin for Betfair Exchange prices and the effective margin for those exchange prices with 5% commission applied to them. I have also calculated the theoretical returns one would have realised backing every 380 winner to a unit stake. Bookmakers are ranked in the table below by winning returns.

Whilst I always knew that having to pay a commission on Betfair exchange prices meant we wouldn't be getting quite the generous value their prices offer on first impression, I was surprised quite how significantly the commission has an impact. Far from offering competitive value, a 5% commission applied to this set of betting odds sees Betfair's exchange relegated to marginally above the average bookmaker (104.0% overround).

Of course there are other reasons why bettors (including myself) might still choose to use Betfair's exchange. Most bookmakers on that list will restrict or ban winning customers. The two at the top of the list - Marathonbet and 1XBet - are particularly pointless. The former restricted me to £1 stakes with a handful of wagers. Pinnacle is the obvious exception, but sadly is not available to UK customers unless they go via a broker. As a peer to peer betting platform, being restricted by Befair exchange is effectively an impossibility. The only problem will be sufficient availability of liquidity, but in a market like the Premiership that will typically not be an issue. Betfair also has an excellent reputation for withdrawal customer service.

Nevertheless, this analysis should act as a reminder that exchange commission will significantly eat into the value of advertised betting odds. Given the nature of the way the commission is applied the longer the odds, the greater the impact on theoretical value. From my data set, typical returns from the shortest prices (less than 1.25) were about 97.5% of those achievable from best bookmaker prices (once exchange commission has been applied.) In contrast, this fell to 95% for prices around 2.50 and 92% for prices above 10. As such, the nature of Betfair's blanket 5% commission to any winning price introduces a favourite-longshot bias of its own.