This is always a pretty emotive subject as it has had such a big impact on the Betfair ecosystem and despite being first introduced in 2008 it still has a huge and lasting impact today.
Let’s look at its history and why it was introduced. I was working at Betfair when it happened. The first iteration of the Premium Charge in 2008 was 20% and there was a pretty simple reason it was introduced. Betfair crunched all the numbers and decided there was a subset of customers who were simply winning too much. Taking too much out of the ecosystem. Betfair saw certain customers winning millions whilst they were paying tiny amounts of commission and decided that they wanted a piece of the action. Whilst they had the casino by then, the sportsbook didn’t come until 2012.
There were four types of players who were winning at insane rates that were causing most of the issues. Courtsiders. Those beating TV delays. Those with better information especially on sports like horse racing. Big syndicates. I have talked about courtsiding in other tweets but in these days there was huge liquidity and little competition. Those who were doing it successfully were winning fortunes with very few losing markets. I will talk about TV coverage and delays in a different tweet. Information was even more important back in 2008 than now, as sites like Twitter were very much in their formative stages. Syndicates are self explanatory.
All these groups were winning time and time again. Market after market. Some rarely losing. Utterly unrelenting. The big problem though was that when it was introduced it was based on all previous behaviours rather than just future behaviours. This left a lot of big customers in a huge pickle. They were instantly being hit by Premium Charges going forward.
I literally saw overnight a huge switch in sentiment towards Betfair. It wasn’t just from your normal customers. It was also from liquidity providers. People who would ask us to offer markets so that they could seed them suddenly became difficult and understandably so. They wanted to know why they should put in all the effort and Betfair just cream off the profits. At 20% though, whilst losing some customers, most simply had no option but to continue and accept the Premium Charges as a cost of business.
You have to remember the context for Betfair at the time. They had talked about floating the business for many years previously. Its why they added the casino products. They wanted to increase the numbers to make the business as attractive as possible. Adding Premium Charges overnight was great for the bottom line. That was particularly the case in the short term. Decent six figure sums (profit) added each week with a click of the fingers. Betfair floated on the LSE in 2010.
In 2011 the second iteration of the Premium Charges arrived and this time it was even more penal and more convoluted. A common theme with the Premium Charge is that it is complicated with all the various provisos within it and I think it was intentionally done like that. This time there were different bands ranging between 20% and 60%. Absolute outrage followed as expected . But we will spend the money getting new customers for you….We will continue the story about Premium Charges on the next set of tweets.
ProPunting 