Ponzi schemes in the age of matched betting
Six years ago a technique called matched betting made its appearance on sports betting forums and a relatively small number of online bettors started using it to make some extra money, taking advantage of the free bets offered by online bookmakers.
The competition amongst online bookmakers guaranteed they all offered free bets to attract new customers. Then the growing popularity of betting exchanges and online betting in general made possible for an increasing number of people to take on matched betting, often without having any interest in sports betting.
As some of the forums and message boards discussing best buy deals and money savings opportunities effectively turned into bonus offer linkfarms, matched betting became an everday activity of thousands of fans for whom the chance to make some steady money using a technique apparently foolproof was simply irresistible.
Soon enough a lot of "matched bettors" realized that bonuses and free bets could be extracted to guarantee a profit as many times as the number of friends each of them had. And a new version of the bonus whore that in the early 2000s created lots of problems to the pioneer online casinos and sports books was born.
But on the other side of the counter this time there were (and still are) underfunded and clueless (about bookmaking) operators that entered the online sports betting market thinking bookmakers cannot lose irrespective of what they offer and do.
Greed (on the player's side) and naivety (on the bookmaker's) made up for the rest of a combination that resulted in almost 20 online bookmakers in the last 3 years alone disappearing without paying their customers (in very few cases the players have eventually been bailed out by other site operators).
And a lot more are struggling to remain afloat as I write, while others just launched or will launch in the coming months offfering all sort of promotions. Apparently all had gone (and are still going) after the same customer demographics, the forum players, making the mistake of thinking that by offering them a free bet, they would try their services and eventually stick around as recreational customers.
The reality is that the online bookmakers that went belly up in recent years simply didn't have particular reserve of funds beside the money they had invested to get started. Most were counting on making the business pay by winning the money from the players rather that by managing the book.
And when making money from bonus whores (and forum players in general) turned out to be a mission impossible, the online bookmakers, without proper funding and unprepared to sustain large losses from their promotional activities, effectively became Ponzi schemes.
In the early 1920s Charles Ponzi offered extraordinary returns to investors in his postage stamp arbitrage system, only to end up diverting new members' funds to pay the promised interests to earlier investors.
Online bookmakers in the age of matched betting use generous bonuses to attract new player deposits to be able to pay old customers' winnings.
Ponzi used both his charm and a number of agents to attract new investors.
In the age of matched betting, gambling affiliates and online bettors themselves do most of the leg-work to promote new and unproven bookmakers.
In the late nineties and early 2000s when a new bookmaker appeared out of nowhere or an established site introduced a new bonus offer, discussions on specialized betting forums centered around "Are they reliable? Are they still OK?"
Now this type of discussions are few in between lots of others listing bonus offers and their terms. These days every time a new unproven bookmaker goes online with a free bet or sign-up bonus, links to the promotion are (within days) posted on all the message boards dedicated to betting bonuses.
Just like entering a Ponzi scheme early has its rational, taking on a bonus offer from a recently launched bookmaker may be worth it. But enter the scheme too late or open your account several months into the online bookmaker's launch and you may be left holding the bag.
And again: like certain Ponzi schemes manifestly built around non-sustainable business models made very clear to their initial investors that they had to recruit new participants to get paid their high returns, internet bookmakers know how to prey on forum players to promote their offers.
A question I've been asked before on forums goes: Are fellow players that post links to free bets from new or unproven bookmakers effectively soliciting new deposits to guarantee their withdrawals will be paid?
I personally don't think so, at least not for most of them.
Nevertheless, if we consider that the majority of customers who lost money in each and every bookmaker failure in recent years were forum players - matched bettors, bonus whores and arbers - many of whom have lost money in two or more occasions, it is kind of hard to imagine that nowadays those who are posting links are not aware of the risks.
While I always invite players to take their responsabilities in sending funds to new and low-rated bookmakers (as I don't know of anyone who has ever been forced to send his money to a bookmaker), I also understand how the mechanics of online communities make it easier for people to be influenced in their decisions.
So when you see a link to a new bookmaker or a new generous bonus posted on a forum by a fellow player and you can't say for sure whether he's just trying to be nice or he is making sure new deposits will come in to cover the payment he just asked yesterday, this is where risk vs reward must be considered.
How long has the bookmaker been around? And the bonus offer? Is the offer too good to be true?
Think before opening any account. Make an educated decision, not a guess.
Do not open an account just to follow others who are likely to be at least one step ahead of you. And the chances you will not be left holding the bag will improve notably.
Date published: 22 May 2010