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Betting exchanges make complete sense. Set an initial line on a game, then let the bettors make offers to each other. The book takes no risk, makes a small commission, and everyone is happy.
Given this, why haven't exchanges taken off? Well, in Nevada, the Gaming Commission really wants people to bet against the books, not each other. So that's something that has to be addressed and amended in the future. The offshore books have no such limitations, however, so why haven't they caught on? A few reasons.
1. People are used to doing what they've always done. Heck, some were actually reluctant to lay -108, -107, and -105 at reduced-vig shops -- they were used to that good ole -110!
2. The market has to be liquid. You want to be able to point and click to get down. This is doable on any day of NFL play, but it's not so easy to find a reasonable exchange bet offer on, say, a college basketball total.
3. Betting exchanges often have high (and hidden) fees. A 5%-commission exchange is actually not a good deal, because you have to pay that commission win or lose. Effectively, you're laying about double what's portrayed, so a 5% commission is close to just laying the standard -110.
4. Even when commissions aren't too high, the exchanges still aren't administering them the right way.
The wrong way to charge is to hit all bettors with the same commission. The player who puts up the offer first is setting the market. He's taking the risk that the market suddenly moves against him, then an opportunistic acceptor immediately gobbles up his offer. With that in mind, the successful exchanges of the future won't charge anything to the bettor putting up an offer (or even pay a small commission for setting the market on each accepted offer), then charge the acceptor the commission. But the charge needs to be limited to 3% maximum, and preferably 2%.
Given the holes that still exist, exchanges don't work well right now. However, 30 years from now there will be a huge exchange that will charge 2% commissions and it will do more NFL business than any of the old dinosaur books charging -110. No sharp bettor is going to pay -110 when he can effectively lay -104. That's the future of sports betting.
Certainly books like William Hill and Cantor, who've made their bones with Internet operations, see this future and having them in Nevada may hasten it. But many Nevada books are in a position to make lots and lots and lots of money when Nevada legalizes Internet sports betting for all U.S. customers, and they'd better plan properly. Their -110 model will get tremendous volume initially, but the most lucrative approach is clearly the exchange. It just makes too much sense.
