Betfair: the reduction factor

The Exchange does not use Rule 4. It uses a reduction factor, and on the same bet it can pay noticeably less.

How it works (from Betfair's own rules)

• When a horse is withdrawn, Betfair reduces the matched price of earlier bets on the other horses by the withdrawn horse's reduction factor. It applies to the whole price, not just the profit.
• Example from Betfair's rules: a 25% factor turns a traded price of 8.0 into 6.0.
• No reduction is made if the factor is under 2.5%. Prices cannot fall below 1.01. Bets struck in-play are not reduced.
• In the place market the reduction is made to the potential winnings only, not the price. Betfair's example: £10 matched at 8.0 would win £70; with a 25% factor that becomes £52.50, a price of 6.25 (a win market would give 6.0). In place markets every factor is applied, even those under 2.5%, because one horse matters less and the factors can add up to well over 200%. Unmatched lay bets are cancelled only if the factor is 4.0% or more.
• It applies to backers and layers alike, so that layers are not left exposed when the other horses' chances improve.
• Each-way market: the reduction is made on the traded win price, and the advertised place terms then apply to the new price. Betfair's example: 8.0 becomes 6.0 at a 25% factor, and with 1/5 odds for 3 places the place part drops from 2.4 to 2.0.
• Reduction factors are not applied to bets struck in-play. Non-runners are removed in the order they are brought to Betfair's attention. If a runner is removed in error, the reduction is reversed and the original prices stand again.
• Betfair Sportsbook (the fixed-odds side) uses ordinary Rule 4, based on the last Betfair price at the moment of withdrawal. Only the Exchange uses the reduction factor.

Same bet, two answers

£100 at 4/1 (5.0 on the Exchange) with an evens horse withdrawn (estimated factor 50%): the Exchange price becomes 2.5, a profit of £150, while the bookmaker scale (45p) would leave £220. The calculator on the front page puts the two side by side for your bet. Remember that the Exchange price you took may have been longer than the bookmaker's, and that Betfair charges commission.

What punters report

Users on a racing forum posted bets where £1,000 at 1.24 became 1.01, and £500 at evens settled at 1.727 (about £363 profit, against about £450 under a 10p bookmaker deduction). These are user reports, not Betfair figures. Betfair says it sets the factor from a forecast price and only changes it in exceptional circumstances late on. Some punters say they find it harsher than Rule 4; Betfair's position, as relayed by community members, is that the method is fair.

The formula is in Betfair's help page and Exchange rules: (decimal price / 100) x the withdrawn horse's factor is taken off the matched price. Its example: £10 matched at 8.6, factor 16.2%, comes off by 1.39, so the new price is 7.21. It applies to backers and layers, and not at all under 2.5%. Several withdrawals: the rules say the traded price "may be further reduced" if another horse is later withdrawn, so each reduction is applied to the already-reduced price, one after another, which is what the calculator does. The factor itself is Betfair's own figure for each horse, set from a forecast price when the market is loaded and changed only in exceptional circumstances in the last 15 minutes or so; you can see it on the market's "info" page. The calculator estimates it as the withdrawn horse's chance with no margin (100 divided by its decimal price), so type in the real factor if you have it.

Sources: Betfair Exchange horse racing rules, Betfair Community, Racing Forum.