Posts Tagged financial
A question of scale (part one)
Posted by Peter Webb in General, Trading strategies on February 4th, 2012
I got a phone call from the Financial times the other week about the collapse of Centaur. They wanted to know how I knew it would collapse long before it did, they originally phoned me for an opinion when Centaur first started up and I told them then what I repeated recently.
When you looked at the proposition there were in fact many, many flaws in there; but the top one for me was one of scale. Mainly because I’ve experienced that first hand.
The betting market is like a financial market in some ways but in other ways it is definitely not. In financials you can scale to billions over many years, the sky literally is the limit in a global economy worth trillions. The sports market is no where near that, but it’s scale will typically suffice for most individuals. The key problem you find in a betting market is that when you increase stakes you actually end up influencing the outcome, especially on exchanges. This puts it off limits to institutions unless you run the mechanism and are guaranteed a profit, like err.. a bookmaker / exchange.
In a market of limited scale the more money you have the less likely you are to see a return. More money equals less chance of a positive outcome, not more. So this was a key reason why I felt something set up to raise money to use in a betting market would fail. That much money would be a burden, not a benefit. Anybody who has uncovered something that works will confirm exactly the same finding. On betting exchanges I touched my limits some time ago with a relatively small bank, that’s why I’ve continued to invest in financial markets for years; as I am some what below the scale where diminishing returns kick in. With a lack of core growth on exchanges it wasn’t difficult to bump up against those limits. That’s not a problem for individuals but I failed to see where that sits for larger forms of activity.
There’s your starter for ten, I’ll explain more tomorrow after I clear the forecast snow from the drive!
It's easy to choose the wrong scale
Betfair revenue down 7%
Posted by Peter Webb in Bet Angel on September 6th, 2011
Full regulatory news release available from the following link: -
http://www.investegate.co.uk/article.aspx?id=201109060700136723N&fe=1
Betfair’s LMAX loses £13.2m in first year
Posted by Peter Webb in Bet Angel on August 15th, 2011
Betfair’s majority owned financial trading product LMAX recorded pre-tax losses of £13.2m for the year ended 30 April, Betfair’s annual report has shown. Full story: -
http://www.egrmagazine.com/news/
I think LMAX is going to continue to be a burden for Betfair. There are already very good solutions in place in this market and despite the suggestion it’s a new way, most new users have found that the markets are heavily seeded and the fill rates poor. It’s got a long way to go to get to viability. The morphing of Betfair’s core sports exchange model away from its origins isn’t helping either I suspect. Some of the big financial traders I have spoken to have expressed concern with this and are sticking to their well established providers in financials where they feel they know and understand their relationship with their provider.
From a markets view point I am aware that activity is always higher in buoyant markets as people are net long in general. When the market is in turmoil, as recently, people become overtly risk averse and less enthusiastic for this sort of medium. Overall not an ideal environment for a new venture.
A sea of red
Posted by Peter Webb in Bet Angel on August 9th, 2011
Fortunately this doesn’t reflect my betting exchange activity, tepid though it is this week. The title refers to the chaos in financial markets. As a lot of your know I am heavily invested in financials and it’s part of my grander plan to eventually sit on my bottom each day doing nothing. I’ve been actively investing since 1990 and messing around for longer than that. It was gambling that lead me to the great casino of the lot, the stock market.
The recent market falls illustrate a nice point about the difference between financial markets and betting markets. At the moment financial markets are swooning in unison, everything is getting marked down with little exception. All the good stuff is getting beaten up and dragged down along with the dross. On betting markets it’s impossible for prices to move up or down in unison, impossible. So this leads them to be bounded by strict upper and lower limits. Both markets however, do have a wonderful propensity to overshoot in either direction dragging prices up or down (individually) beyond their ‘true’ value. If you can learn to be contrary in manner you will have no problem finding opportunities.
At times like this I’m actively buying carefully selected stocks. To understand why have a read of the following, which I think is one of the best summaries I have seen on what I believe are the core ‘keys’ to successful investing: -
http://www.franklintempleton.co.uk/ft/max?page=maximsPublic
Betfair premium charge & earnings soar
Posted by Peter Webb in Bet Angel on June 29th, 2011
As we are all aware now, Betfair pleaded poverty and an imbalanced business model again yesterday, when announcing another new charge. This time hitting consistent earners for up to 60% of their profits. We heard the similar stories for data charges, transaction charges and the premium charge part one and all the other various amendments over the years to their charge structure.
This didn’t stop them from announcing record revenue and earnings a few hours later. Earnings per share are up 56.2% on the year before. So on the face of it, it looks like profitability isn’t a problem. See the full announcement here: -
http://corporate.betfair.com/media/press-releases/2011/2011-06-29.aspx
Given the apathetic response to the first premium charge I always guessed that Betfair would go for an increase at some point. The thing I didn’t guess was that it would triple! I pencilled in a worst case scenario of 50% but never thought a figure above that was feasible, rational or viable. It seems I was wrong. It remains to be seen what impact this will have on Betfair’s ‘We like winners’ stance.
The curious thing about this new charge is that it makes sense, at 60%, for me to teach others how to do it and not to do it myself. This doesn’t really solve Betfair’s ‘problem’ if they are concerned with the cost of servicing my account? It also means if I can earn 40% of my Betfair total on Betdaq then I should switch, and this is perfectly possible to do.
On the positive side Betfair just confirmed by imposing this charge who are the most successful ever users of Betfair. So I should be pleased with that as I am in that group. It also means that increased competition in the market is now almost a nailed on certainty, which we should all welcome.
At the lower levels of the market there is still room for newbies and aspiring super users. Unfortunately it is now unlikely they will reach the same heights as people that have gone before them, but there is still plenty of opportunity there. You will just have to stop when you get to £250k!
Ladbrokes results
Posted by Peter Webb in Bet Angel on February 17th, 2011
There is a summary here: -
http://www.bbc.co.uk/news/business-12490900
Or the full detail here: -
http://www.ladbrokesplc.com/media-centre/press-releases/releases-2011/2011-02-17.aspx
A mixed bag of results, but pretty good given the underlying weakness in core markets. Labrokes is still 3-4 times the size of Betfair depending on how you measure it.
Bookmakers still alive and well
Posted by Peter Webb in Bet Angel on January 19th, 2011
William Hill came out with a year end statement today and the headline results were pretty good. Net revenue is expected to come in up 7% on the year delivering EBITDA of around £275m up from £258m in the prior year. Online revenue has grown 24% with sportsbook turnover up 57%.
One other note from the statement was that 47% of scheduled UK racing meetings were cancelled in December.
Full results will be out in late February. It seems traditional bookmakers are coping quite well in the modern marketplace.