Let’s take a look at a real life example of Premium Charges and how it works in reality. Whilst being profitable on Betfair the introduction of the two iterations of the Premium Charge had zero impact on me. I didn’t start making decent profits until 2011/2012. I was well aware of the Premium Charge obviously and all its various nuances. I always used to think, well if I end up paying it, I will have done pretty well. It was something I didn’t give huge consideration to in the early days. My focus was on being profitable and having an edge.
However, as the success continues you soon hit the dreaded Premium Charge. At this stage my natural reaction was to shift as much to Betdaq as possible and was putting some decent volumes through there. That doesn’t really solve the Betfair problem though. It ended up that I was offered a choice. I could pay normal Premium Charge rates or I could try a different system that they were experimenting with. I would pay a higher standard commission rate than the one I was naturally on. Lets say it was 4.6% instead of sub 3%. This is what they had worked out, based on previous history and would mean I was in essence paying the Premium Charge slowly rather than in one large lump.
I took that deal as the idea of being stung by huge Premium Charges after a big win on a sport like golf was too much to bear. As a consequence whilst I was making decent profits I was also paying an awful lot of commission/premium charge. The rate was adjusted over time, usually six months at a time. There was then a situation where it was not adjusted for quite some time. It was maybe two years after the previous adjustment and I suddenly noticed that my commission rate had increased. I asked Betfair what was happening and I was told that I was no longer on the trial. No warning. Back to the normal commission structure that relied on volume. I spoke to Key Accounts and said that I felt I should be entitled to a refund for the difference between the fixed rate number and the rate I had been paying. I was told to **** off. It summed up Betfairs attitude to the charge. They knew people had nowhere else to go.
So I was back in a situation where I was having to generate volume to try and keep my commission rate down. I remember having a bad year and suddenly I had a decent cushion between the p/l on the account and the commission paid over the lifetime of the account. In an ideal world I would have wanted the commission rate as low as possible until those numbers became closer again. No chance. I was offered the chance of doing things like pricing up NBA and that would be PC exempt. It just wasn’t what I wanted.
As we currently write this today we are sat at having paid 49.68% of profits in commission/charges. So if you make £1 million on the exchange, Betfair would want you to pay £400k in charges in essence (40%). At the rate I am going, per million, I am paying £496,800 in charges. It means I have a significant cushion until paying Premium Charges again. The big con of course is that Betfair don’t refund that difference. In reality they should be giving me £96,800 back as a rebate per £1m made. To take that number back to the 40% that they are charging.
Where Betfair have been really clever is that it forces you to play with them. It’s really monopolistic behaviour. Let’s say I want a £5k bet on a football match. I would be silly to place that bet elsewhere, on another exchange, even if the commission rate is lower. The reason is that if the bet wins then you are paying the commission rate and with Betfair now 2%, its no more than the other exchanges anyway. The benefits come from the losing bet where it can be set off against potential future wins.
It should be noted that other exchanges like Betdaq introduced their own version of the Premium Charge. It does point to how tricky the exchange model is to get right. And just how good some of the best players on it are.
I often talk about the need to scale if you want to be successful at this game. Part of it is with Premium Charges in mind. The best way I found to cope with Premium Charges was to adapt a very high turnover model where you would be generating large amounts of commission paid. There are no ways to avoid it. I know someone who had an account that was linked to Premium Charge avoidance and whilst tough to prove Betfair kept the significant balance that was there. I have heard that type of thing a few times.
I think if you are new to Betfair it really depends on what your intentions are. If you want to be a serious player then it is something to think about and know it is a factor down the line. If only a smaller recreational player, just don’t worry about it. It’s just not likely to be a factor.
These are just my thoughts on it and how it affected me. Am sure others will have different stories to tell. Have done things differently. What never fails to amaze me though is how poor the customer service is despite paying incredible sums of money. Such disdain for their customers.
ProPunting 