18th February 2002 - issue 12

With the loss of Flutter and the 2.5% commission which applied on the site it's a good time to look at the differing commission rates charged on the various sites, how these impact on your profits and how you can reduce their impact. In this issue we will look at the commission systems that apply on each of the main sites, and how much of your winnings you get to keep when making bets at various odds on each of the sites. Part 2 in issue 14 will look at the impact commission has on taking advantage of arbitrage opportunities resulting from different odds on the different sites, plus profiting on market movements from the same site.

1. Betfair

The commission on Betfair operates on a sliding scale ranging from 5% down to 2% the exact level of which is determined by your level of betting activity. For each event in which you participate you accrue 1 point for every £25 that you win or lose on a bet by bet basis. The number of points you have accrued in the past, with particular weighting given to the last seven days determines your level of commission. The more points you have the lower your commission rate. However, a quick look at the commission rate structure explanation under "My Account" shows that unless you are a big player you will be betting at or near to the maximum of 5%. To get down to 4% for example you need over 1000 points, indicating weekly betting losses plus winnings of £25,000+.

However, the really significant thing about Betfair is that you only pay commission on your profits from a particular market, not winnings. As a standard feature this is currently unique to Betfair. This is a very powerful selling point of Betfair and will be explored in detail in Part 2 in the next issue of Bookie Free News.

2. Betdaq

Betdaq have a strategy of high volume, low commission which generally means great value for members. Betdaq's administrative charge is a very attractive 1%, however, it is important to understand that this is payable not on winnings but on the total bet value, including your opponents stake. The impact that this charge has on your winnings depends on the odds at which you are betting, the longer the odds you are receiving, the lower the % of your winnings go on commission. This is great for backers at long odds, but not so good for those laying these bets. Take a $100 bet at 20.0 which if successful would win $1900. The total value of both players' stakes is $2,000 therefore the commission payable by the winner whether it is the backer or layer is $20. If this outside bet comes in then the backer pays $20 on winnings of $1900, which is less than 1.1%. However, if the selection loses the layer pays $20, but on $100 winnings, a much less attractive 20% commission to winnings ratio.

3. Play121

Play121's published rate is 5% which is payable on winnings not event profits. This rate is however negotiable if you are a high stake or volume player. For example to any guest depositing £2,000 in their account by cheque (not credit card due to the charges) they would make a commission rate of 3% available. Chris Dearling also told me that for a small number of really big, reliable customers they make a monthly commission charge of 10% of net profits over the whole month. If you are able to negotiate this arrangement with Play121 then you should do so because it offers exceptional value.

In the comparison table below all calculations are based on the standard commission rate of 5%.

4. Intrade

Intrade operates in a completely different way to the other p2p sites. Their system known as Sports Trading is explained in full in Issue 8. Unless you are familiar with Intrade you may struggle with some of the terminology in use here, therefore I recommend that you have another look at the review. If you are a recent subscriber that hasn't seen issue 8, let me know and I will email it to you.

On Intrade every time you trade you pay a fixed fee of 6p per contract. You then have the option of closing out your position or letting it expire at which point, in either case, you pay an additional fee. You close out your position by buying or selling enough contracts to cancel out your previous trades, ie if you bought 100 contracts you would close out your position by selling 100 contracts in the same market. When you close out your position you pay an additional 2p per contract making a total of 8p per contract. The alternative is to let your contracts expire. Each contract expires at a value of £10 or zero when the event is finished and the result known. An additional fee of 4p is payable on all contracts which expire, making a total of 10p per contract.

In Part 1 I am focussing on the situation when you let a contract expire, as this is equivalent to a conventional win/lose bet that you would place on the other sites.

On Intrade you have to pay the fee whether you win or lose, which makes calculating the impact of commission more complicated than elsewhere. Effectively you need to add on the value of Intrade's charges to your stake to establish the amount you are gambling. The impact of this is not immediately obvious and was something I failed to take into consideration in the review in issue 8. As a result the analysis of the commission in issue 8 was incorrect and I'm now happy to put it right. The true situation is probably best understood with an example:

Take a trade with a current price of 50 (£5) which is equivalent to evens. If a member was to buy 100 contracts, this would cost £500. Assuming that the contracts will be allowed to expire, the total fees which would be payable on this are 100 x 10p ie £10. Added to the cost of the contracts, this makes the total amount you are risking £510. In the event of a positive outcome the total return would be 100 x £10 = £1,000. Therefore the situation is:

£1,000 (Total potential return) - £510 (Total amount risked ie stake) = £490 (winnings)

If this £510 could have been staked at evens in a commission free environment the player would have won £510, therefore the impact of the commission in this case has been

£510 stake - £490 winnings = £20 impact of commission

£20 expressed as a % of £510, the profit that would have been made in a commission free environment is 3.92%

I have chosen the words "impact of commission" very carefully, because this amount does not reflect the amount that Intrade actually charge. Instead it reflects the reduction in profits which result from having to allow for fees.

5. Comparison table

The following table details the impact that each site's charges has at a variety of different odds.

6. Important note

One thing this table shows quite clearly is if you can place the same bet at a bookies at the same price then you should always do so, but of course the whole appeal of the p2p sites is that the odds available are generally much better than the bookies. Commission is an important factor, but in most cases a difference in odds more than outweighs the impact of comparative commission rates.

Take the evens example where Betdaq's commission is the most attractive by some way. If the odds at all p2p sites were the same, on a £500 bet you would make £15 more profit on Betdaq than on Betfair. However, if you managed to place the bet on Betfair at 2.05, the next increment up, your profits would be £498.75, which is £8.75 more than Betdaq at 2.00

More details about the impact of commission will follow in Part 2 in issue 14.