At last week’s iGaming Super Show, Guy Harding Head of Commercial for Oddschecker gave an extensive presentation on the issue of price and margin controls and their impacts on a bookmaker’s bottom-line.
Harding refers to the dynamic as the ‘overround erosion’, detailing the imbalance between customer offers/incentives and the impact they have on operators final margin. Put simply ‘overround’ is effectively the margin a bookmaker takes from its price.
Citing a classic coin-flip example, Harding details that if a bookmaker were to price heads or tails, the price would not be evens. Instead, it would likely be priced at 4/5, thus showing the overround achieved by the bookmaker.
Therefore, the overround erosion is exactly the dynamic, of the erosion of a bookmaker’s margin taking on it final customer price.
“Overround erosion can have severe consequences,” explained Harding, who went on to note that “1% erosion is an effective 80 basis point drop on the bottom line.”
Pointing to further examples, Harding uses enhanced place terms in horse racing as a prime example of overround erosion in action. Most firms now have ‘enhanced odds’ or ‘extended place terms’. which simply leaks value to customers, thus detracting from the overall price achieved by bookmakers.
According to Harding and Oddschecker the tussle between trading and marketing teams is clear to see across the industry. And as operators continue to throw enhanced specials and better odds at customers for retention or new traffic purposes, overround erosion continues to happen.
In a graph shown to conference delegates, Harding demonstrated the reduction in overround. Previously, the percentage sat at a peak of around 106.25%, whereas it has since dipped below 104% — a clear sign of erosion.
Although it has recently spiked upwards again, Harding pointed out that it tends to move up every now and then in an almost cyclical fashion, before declining again.
The Oddschecker executive suggested that some of the world’s largest operators are losing market share to price impacts. There are far more enhanced offerings across the market to attract new customers hence the price-margin control has created the ability to grab a ‘degree of market share’, Harding notes.
Overall, when asked if customers are truly price sensitive and thus erosion is necessary, Harding stated: “I think they are to a degree, but not as sensitive as they should be.The hassle factor of having multiple online wallets means people tend not to move between the Big Seven.”
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