A betting exchange is marketplace that allows bettors to wager against each other at lower fees than those offered by a traditional sportsbook.
Two customers agree on the odds and stake for a given game, and bet against one another.
I may offer a $50 bet on Packers -3 against the Cowboys, and another user on the exchange can accept my offer and bet Cowboys +3.
Betting exchanges have low overhead because they don’t need expansive oddsmaking teams, so they charge a small fee on each bet — much less than the 5-10% a traditional sportsbook takes.
You won’t be betting NFL point spreads at -110 at an exchange; you can effectively get them closer to -101 or even money.
Some exchanges also promise a more user-friendly experience by using simple percentages and not American odds. And exchanges excite high-stakes, professional bettors because they won’t be limited. The exchange doesn’t care how good a bettor is — it makes money by taking a cut of transactions, not beating its customers.
Why Are There No Betting Exchanges in the United States?
Prophet and Sporttrade are coming to New Jersey in the fall of 2021 and hope to quickly expand to other states next year. It’s a very differentiated product from DraftKings or FanDuel, and they hope the lower vig will bring in customers without as much traditional marketing.
But the barrier to entry for an exchange in the U.S. has always been liquidity. Exchange operators are limited to running separate exchanges in each individual state, thanks to the Federal Wire Act of 1961, which does not allow the transmission of gambling info across state lines.
Anyone wagering on a New Jersey betting exchange could only bet against other people in New Jersey, and that’s an issue because the pool of users and money would be too small. Even if an exchange operates in New Jersey and Pennsylvania, those customers could not bet against each other.
That means there wouldn’t be enough money in the pot to make an exchange work — or that’s the perceived challenge. New exchanges will likely have to use their own cash to pump liquidity into the markets so users’ bets will get matched.
Mark Miscavage, an executive at London-based betting exchange Smarkets, told Casino.org that the Wire Act is the biggest hurdle to creating an exchange in the U.S. because it limits the size and liquidity of the betting pools.
“The biggest hurdle for us would be able to pool liquidity, in this case, between all the states,” he said. “I don’t know that there is one state that’s quite big enough to provide the liquidity and volume needed to run an effective exchange just for one state.”