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exchange betting in California doesn't guarantee Betfair a start

Much has been made this week of the Californian government passing legislation to allow exchange wagering on horse racing in the state. With Betfair already having a presence in California as owners of broadcast network and pari-mutuel operator TVG, and sponsoring the bill, the easy conclusion is that Betfair will start up in the USA. But a lot of water still has to pass under the bridge before a Betfair-run exchange can be licensed.

This bill also allowed pari-mutuel operators to raise takeout on Californian racing pools... so where is the logic in pushing rake up to over 20% on one hand, and bringing in a foreign company to run a business on 2-5% commission at the same time? Of course there's no guarantee Betfair would use (or be allowed to use) the same business model as they have in the UK, a market subject to far more competition.

Politicians have a history of making half-baked decisions, particularly when they are desperate for cash (the state of California is as financially healthy as Greece at the moment) and it involves gambling, a sector which invests obscene amounts into lobbying. Horsemen's groups have plenty of influence and are likely to demand either unviable rates of commission, or that a Californian racing exchange is operated by the local racing industry. That's despite Betfair having all the expertise in the industry, and access to solid liquidity from experienced exchange users. If you open an intra-state exchange only, where nobody has ever used an exchange before and there is no history of fixed-odds wagering, it will struggle. It's the chicken and egg thing - without liquidity, you can't get punters. Without punters, you can't get liquidity.

All this bill has done is opened the state up to the opportunity of exchange wagering on local racing. There's still a lot of debate and lobbying to go before punters can get excited. After all, they haven't even had the tired old debate about the ethics of laying horses to lose....

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