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The Closed World of Conventional Sports Betting and How BlitzPredict and Augur Can Change the Game

July 12th, 2019, 10:00 am

Modern sports betting is a world of walled-off fiefdoms, whose only shared goal is to separate customers from their money — as quickly as possible. This fragmented, inefficient marketplace benefits incumbent operators at the expense of the end user.

But this could soon change.

Decentralization can help move the industry into a new era of global, liquid markets. In this post, we will look at some rampant but little-known problems in the world of sports betting and how companies like BlitzPredict can utilize Augur to make the marketplace more open and efficient.

Winners Banned

The most common business model for sportsbooks, and one which sites like William Hill and DraftKings employ, is to ban winners or impose tiny limits like $20 per bet. By restricting winners, sportsbooks can offer skewed odds on public teams like the Patriots, knowing that their user base will pay extra to bet on popular teams, further enhancing the sportsbook’s edge.

Front Running

Many sportsbooks and exchanges operate their own trading desks and tend to be some of the highest volume traders in the world, a clear conflict of interest with their customer base. Some exchanges front run their own users, waiting to see which side the sophisticated bettors land on and then cut them in line. Other methods of limiting winners include throttling API calls, banning automated tools (while the exchange desk uses automation), and encouraging losing bettors to bet directly with the trading desk.

Line Movement

The few sportsbooks who allow winners will use the winners’ information to adjust their lines, affecting how much volume a user can bet. A sportsbook may allow a sophisticated bettor to bet something like $5k, but the sportsbook will adjust the line immediately after to reflect the information they received. So if the bettor wishes to bet an additional $5k, it will be at worse odds. For bettors who wish to bet large amounts, betting through these channels is a non-starter, as the line will move before they can get enough volume down.

Siloed Liquidity

Sportsbooks and exchanges do not share liquidity, each site operating its own siloed liquidity pool. This leads to diminished liquidity and efficiency throughout the marketplace.

Counterparty Risk

So-called “offscreen betting” takes place in channels such as bookies or offshore sportsbooks, with the intention of camouflaging your position from the public markets, so you can bet without moving the market. While there are obvious benefits to this type of betting, bettors frequently get stiffed, plus it’s time-consuming to set up all these channels. In addition, these accounts frequently get shut down once the bookie realizes a pro is behind the account, so skilled bettors are always looking for additional “outs.”

Withdrawal Issues

While sportsbooks tend to deposit winnings into an account immediately after the game ends, the process of getting money off of the site and into PayPal or a bank can be arduous and expensive. Many sites take days, or even weeks, to process withdrawals, and often impose limits like $2k/week maximum withdrawal. Sportsbooks also generally charge a fee for each withdrawal, either a flat rate or a percentage of the cashout amount. In addition to these issues, there is always the risk of a site defaulting and keeping the customer’s money.

Inefficient Middlemen

The offscreen betting market is built on a system of credit, which introduces counterparty risk, and agents, who connect players to bookies in exchange for fees. There can be multiple agents in the chain from the bettor to the sportsbook, each charging fees and introducing counterparty risk into the equation.

Conclusion

Sports betting is a fractured, inefficient, and sometimes corrupt marketplace. Unlike the traditional stock market, where there is usually one underlying price per asset, the sports betting marketplace consists of walled-off fiefdoms, each with their own rules for who is allowed to participate. This results in a negative experience for customers, who are either taken advantage of by the operators or are forced to play cat-and-mouse games in order to simply bet on a game.

Fortunately, there is a solution. The rise of decentralized technologies can enable more efficient marketplaces where liquidity is shared and bettors aren’t restricted from participating. These technologies can enable the first truly peer-to-peer markets in this space, since there is no central authority with custody of a customers’ funds and no central entity setting odds. All transactions occur between the user’s own wallet and the Augur smart contract, with Augur’s robust decentralized oracle system ensuring that all bets are settled correctly.

We are excited to be building a marketplace where anyone can participate, with the goal of developing global order books on sports, esports, and politics. Winning bettors and automated traders are welcome and encouraged to participate, as they are vital for providing the liquidity necessary for a healthy ecosystem.

We are building a global sports betting marketplace, offering a powerful, developer-friendly experience for traders to interact with these markets. Both Augur v2 and BlitzPredict’s exchange will be launching in Q4 2019 so make sure to join our respective communities and follow our progress!

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