The Who's, What's, and How's of Bookies

Hello World!

This piece will serve as an informal introduction to Bookies, the first on-chain permissionless sports betting exchange. Using less than structured format, I’ll do my best to address the why, what, and how’s of the project. Before I dive into it, I imagine a lot of readers are coming from Warpcast and are primarily interested in Frames, Farcaster, and the social betting thesis. If the value proposition of a community-owned sports betting exchange built fully on-chain doesn't peak your interest, skip ahead to the Social Betting via Frames section near the bottom.

In an attempt to help frame (no pun intended) this write-up such that the reader can better follow the syntax (or use a quick TLDR), here are the 4 pillars that the vision for Bookies is built on:

1) Peer-to-peer betting via a sports betting exchange model

2) Immutability & Permissionless settlement

3) Democratized, community-owned platform

4) Frictionless social betting

If the business model of payday lenders is built on the back of the financially desperate, the business model of the traditional sportsbook is built on the back of the compulsive gambler. While society has expressed a need for both services, the misaligned incentives create negative externalities for the buyers not limited to debt spirals or settlement disputes. Like payday lenders, sportsbooks provide easy access to liquidity by playing the role of counterparty to all bets and take hefty margins in return. Sportsbook margins, often referred to as the “vig” or “juice”, are cleverly baked into the odds and allow the book to make a profit regardless of the outcome in any given match. If you’ve ever wondered why a sportsbook is offering -110 odds ($110 wager to win $100) when each team has an equal likelihood of winning, this is the vig! The sportsbook is charging you over 9% for the processing of your bet without ever needing to explicitly mention a fee. As you can imagine, this business is incredibly lucrative.

Estimates of sports betting revenue in the United States alone range between $9 and $15 billion dollars in 2023 on a total handle (amount wagered) of well over $100 billion. Worldwide, those numbers are over double. While punters (your average losing bettor) will win big once in a blue moon, it’s clear that they stand no chance against the house in the long run.

Introducing the sharp bettor. Tasked with the uphill battle of consistently beating a house designed to thwart them, these quant-heavy individuals will use a multitude of different strategies in attempts to achieve positive expected value (+EV), which in this context refers to a situation where probability of an outcome occurring (return) is greater than the odds a sportsbook offers implies (risk). While you can obviously still lose when placing a +EV bet, the idea is that in the long run, you can make a profit beating against sportsbooks by identifying stale (mispriced or outdated) lines.

This sounds great! So long as you understand the game, you can beat it! Sigh, if only it were so simple. As you might imagine, sportsbooks and sharp bettors don’t get along well. As the direct counterparty to all bets on their platform, revenue generated by sportsbooks is directly linked to the loses of their users. As such, they are incentivized to maximize volume from square punters and minimize volume from sharp bettors. Centralized systems give the operators of these platforms root access and as a result, profitable bettors are often throttled by betting limits and in some cases, outright bans. If you don't believe me, one Google search querying for "sportsbooks banning winners" should do the trick.

Even your average sports bettor has to worry about these limitations. If you have a parlay that hits for a crazy multiple, be careful. Sportsbooks will fight tooth and nail against the settlement of that bet, often using carefully crafted fine print and legal pressure to ensure that the settlement of the bet is disputed. In the end of the day, sportsbooks are for-profit entities that are in the business of making money, not honoring or paying out their clients.

Enter the sports betting exchange. Instead of laying bets, these platforms allow bettors the ability to play the role of the bookmaker by offering their own odds (laying a bet) and taking a commission fee from the winner of bets matched on their platform. This represents a revolution in the sports betting model, as it solves the inherent conflict of interest associated with traditional sportsbooks. Exchange platforms do not have a vested interest in the winner of a given bet and are only incentivized to maximize volume transacted on their platform. This shift in structure allows for platforms to provide in-depth market insights, data streams, and advanced analytics on their platform without having to worry about sharp bettors affecting their bottom line. The decline in information asymmetry and price discovery that a two-sided market facilitates create a highly efficient market for betting odds. The need for a built-in margin of safety (the “vig”) falls to the wayside and as a result, bettors get a better bang for their buck at exchanges.

Without bans, settlement disputes, and high fees, sports betting exchanges should dominate betting volume and put the predatory sportsbooks out of business!

Not so fast. Nearly all of the top sports betting platforms by market cap use the sportsbook model and with many major media companies stumbling over themselves to get their own sportsbook out, the dominance seems poised to continue.

This phenomenon begs the question: If these exchanges are supposedly the holy grail of sports betting, why do sportsbooks still dominate betting volume?

Before diving into the hypotheses, I want to take a step back and explain why the aligned incentives associated with sports betting exchanges are true in theory but fall short in real economic environments. While the exchange model does solve for the bans and limits that sportsbook use to maintain their edge, it does not solve for the extractive nature of a single operator profiting directly from users losses. With a mandate to compete with the highly profitable sportsbook model, centralized exchanges end up raising their commission fees until they converge upon the rates seen at sportsbooks. As a result, bettors on exchanges are faced with similar fees on a platform with less consistent liquidity and a more complicated UX.

Let's do a quick summary. Sportsbooks charge high fees in the form of the vig and want bettors to be as dumb as possible. Sports betting exchanges eliminate the vig by facilitating peer-to-peer bets and don't care how sharp bettors are but still have high fees as they are in the business of extracting value. Users flock to liquid, easy to understand sportsbooks and are willing to overlook the fees to do so.

These are the premises that the foundation for Bookies is built on. Our goal is to engineer an easy-to-use sports betting exchange built on a permissionless blockchain where users can partake in the upside growth of the platform. What if an exchange was governed by a token given to users of that very platform, as opposed to an entity focused on extracting value from their customers? Chris Dixon put it best: “As contributors earn tokens and become partial owners, they have an incentive to help the network succeed, by building software, creating content, or helping the network in other ways.”

All of a sudden, the desire to raise fees and dispute settlement of bets vanishes. This is a big deal: Users are powerless in a centralized world and are beholden to the decisions made by the platform provider. Users become two things when they own part of a decentralized platform: 1) cheerleaders who are financially incentived to promote the project and 2) impartial governors of the platform. Fees generated by the platform are no longer extractative, as democratized ownership gives users a claim to a portion of them. Bettors still want fees to outcompete those found at centralized sportsbook, but are more willing to accept them as it means more money in their pockets.

Let's circle back to the question of why sportsbooks dominate betting volume over exchanges. One major advantage to the model is the simplicity of the user experience when interacting with a sportsbook. At a sportsbook, users are faced with a pleathora of different betting options that they can back (bet on). At a sports betting exchange, on the other hand, they are faced with an additional option: the ability to lay (sell) a bet. This added layer of complexity can make a sports betting exchange jarring and confused, even for experienced sports bettors.

Users don't want to think about how to lay a bet and the potential implications of doing so, they want to bet on their team of choice and enjoy the event with their friends. Introducing the Social Betting Thesis: What if players could bet against one another in a social feed without thinking about whether they are laying or backing a bet?

We believe that this dream could become a reality using an exciting new feature known as Farcaster Frames. While diving into frames in-depth is outside the scope of this article, the basic premise is frames are mini-apps that can be embedded directly into someone's feed on a social network. If you want to learn more about frames and their potential as a new primitive, I recommend checking out a great write-up that Packy McCormick of a16z put out recently.

Frames are the building block that Bookies plans to use to facilitate seemless sports betting. Imagine the following scenario: Alice is scrolling through her social feed and sees Bob talking trash about her favorite basketball team, the LA Lakers. Bob is a Celtics fan and believes that the Lakers will fail miserably in their upcoming matchup. Alice takes this to heart and wants Bob to put his money where his mouth is. Using a Bookies frame template, Alice can build a bet in just a few clicks: 1) She decides which team she wants to win. 2) She selects how much she's willing to risk on the bet. 3) She knows that the Lakers are the underdogs, so she adjusts the odds that she's willing to offer Bob. 4) She reviews her betslip, which tells her information about what she's risking and what she stands to gain if she wins.

Bob is notified of the bet and has the ability to review, counter-offer, or accept at the odds Alice proposed. He feels confident about his chances and accepts Alice directly through her frame. Boom. Just like that, a new primitive in social betting is created. The bet is matched using Bookies smart contracts on the backend and both parties are notified that their bet has been created. After the event ends, bets are settled permissionlessly using data feed provided by decentralized Oracles like UMA or Chainlink, completely eradicating the risk of a settlement dispute. Without ever having to leave their conversation on Warpcast, Alice and Bob were able to build and settle a sports bet permissionlessly in just a few clicks.

This simple example is just the tip of the iceberg for social betting using decentralized rails. As bets become transactions on a shared ledger that anyone can access, things like tailing a friend's bet or creating a token-gated betting community become trivial. One could imagine an exclusive March Madness group, where participants need to hold an NFT in order to join. Members could create their bracket using a frame and pool their money in a Bookies escrow contract with trustless settlement via oracles, all the while talking about their picks in a gated group chat on Warpcast (Twitter-Reddit type client on Farcaster). The possibilities are truly endless.

While we are extremely optimistic about building out a novel way for users to sports bet, we understand that there will be a learning curve for bettors adjusting away from the sportsbook model. As such, we have created The Dice Games, a game built via Frames as a proof-of-concept for the vision I highlighted above. In this mini-game, players can claim 'dice' and wager them on sports events without ever leaving the Bookies profile page. I wrote another article covering the rules, timeline, and roadmap of The Dice Games in a previous article, so here's a link to that if you're interested.

Sports betting exchanges will not be able to eat away at the monopoly sportsbooks hold on the industry without major changes in underlying structure. Without these changes, bettors will continue to give their precious dollars to sportsbooks who don't care about them. Bookies is here to change that status quo and build a better way to bet.

We've launched our MVP for this vision, where users can bet on no-vig lines via frames without ever having to leave the app. With permissionless settlement and fair odds, we have facilitated both a cheaper way to place bets and a world where settlement guarantees are placed back in the hands of the user.

We love feedback, suggestions, and pushback! Please head over to our community channel on Warpcast or reach out directly to me @0xcloud. Stay tuned for major upgrades to The Dice Games and future articles covering the broader Bookies vision.