Sport in the City
Until recently sports betting has been dominated by the traditional walk-in bookmaker. Now, Intrade, a sports trading exchange, claims to have brought the sophistication of the financial markets to sports wagers, says Toby Poston

What do shares, Tiger Woods, derivatives, futures, commodities and David Beckham all have in common? Answer? They are all traded on financial exchanges. And if Ron Bernstein, chairman of Intrade, the recently launched sporting exchange, has his vision realised the names Beckham and Woods will be as common on the trading floors of stockbrokers and investment banks as dollars, British Telecom or gold.

"We recognised the need for a properly structured exchange which would allow sports events to be traded in exactly the way as stocks and shares, futures, derivatives and commodities," says Bernstein.

"We are taking sports trading to the City and ultimately to the international financial community. Trading in Tiger Woods has to be taken as seriously as trading in three-month options or Tesco shares; buying or selling Sampras should be as simple as buying or selling sterling or Shell."

Members of the Intrade exchange will be able to buy "contracts" based on their opinions on the results or performances of teams or individuals in all major sports, including football, golf, motor racing, American football, tennis, rugby, cricket and horseracing.

The exchange offers a transparent view with the prices and volumes of both the bids and offers available on a variety of sporting outcomes. All the contracts can be traded at all times, from the first listing until the completion of an event, including during the actual running of the event, whether it is a 90-minute football match or a four-day golf tournament. Intrade gets its money by charging a small fixed exchange fee for each contract traded.

Bernstein believes that this style of sports betting will appeal to a wider audience than the bored City worker who already understands how exchanges work.

"Online sports trading is much more fluid than regular betting - you can even take part during an event," says Bernstein.

He accepts that sports trading can be a bit complicated to understand, but points to the huge growth in the number of individuals trading on stock exchanges from home and the fact that working out the fraction-based odds of a traditional bet are actually harder than doing it the Intrade way.

"What is easier to understand - the fact that Manchester United has a 15% chance of winning a match, or an 11-2 chance?"

If Intrade can seduce non-City types to the joys of sports trading, the odds are that his company will meet its target of 10,000 members and a positive cash flow by the end of 2003. Membership currently stands at around 500, who are wagering an average of £250 - not bad considering that the company only launched in August.

"I like how our business has come together, it has the potential to become very lucrative," says Bernstein. "If we can become the dominant marketplace for sports trading, intrade could end up with the same market capitalisation as the other exchanges. You only have to look at the success of EBay, which has revolutionised classified advertising and garage sales - we could do the same for sports betting."

How it all began
Ron Bernstein was one of a dying breed of private floor traders in London and New York up until 1998, when he joined the Internet bandwagon. From 1998 until the autumn of October 2000, he established and then sold an online auction site, gomainline.com.

In late 2000, he was invited to help out friend and fellow trader John McNamara, who had been working on the concept of a sports trading exchange for a number of years. With the help of some of Bernstein's investor contacts, Intrade sourced $2.5m of first round funding in December 2000, followed by a further $11m in May 2001. Internet sports betting is illegal in the US so the company decided to set up in Europe, eventually choosing Dublin due to the tax and regulatory incentives.

A proprietary trading platform was then built by chief technology officer Nick Berry and a team with plenty of experience working on various other financial exchanges. Intrade now has 46 staff split between offices in London and Dublin. Bernstein says the company has enough funding to see it well into 2002.

What is sports trading?
A sports trade is the backing of an opinion on the outcome of a sports event or performance with real money. The Intrade trading model is based on the same methods used in the City's futures markets, where standardised contracts are bought and sold between exchange members. Short- and long-term contracts can be bought to cover one-off events such as a football match or the football team that scores the most points in a season. Trading can take part before and during an event, at various odds. Trading is on a number line from 0-100, using the concept of percentages instead of the fractions associated with bookmakers. If your opinion on a result or performance is right, your contract goes to 100, of you're wrong, it goes to 0. Members of the intrade exchange bid against each other, with intrade charging a fixed fee per trade, win, lose or draw.

Email Alerts

Register now to receive ComputerWeekly.com IT-related news, guides and more, delivered to your inbox.
By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

This was first published in December 2001

 

COMMENTS powered by Disqus  //  Commenting policy