What Is the Betfair Premium Charge & Who Has to Pay It?

Betfair Exchange screenshot

Betfair Exchange screenshotIf you like placing a bet or two, there is a good chance that you’ll be keen on getting involved in betting on the exchange. Unlike bookmakers, in which the margin is built in to the odds that are offered, it is the punters themselves that choose what odds to offer their fellow bettors and what odds they’re willing to take for the thing that they’re betting on. As a result, Betfair had to find another way to make money, which they do by taking a percentage of the money earned by the person that wins the bets placed on the exchange, essentially helping them to earn a fee for facilitating the betting in the first place.

The good news for most people is that the Premium Charge only comes into play if you are consistently winning decent sums of money via your Betfair account. That means that most customers will never have to worry about it, but for those that do it can be a major hit on their take home pay from their time spend placing bets with the exchange company. For those that long praised Betfair for being a solid alternative to ‘greedy’ bookmakers, the addition of the Premium Charge to their platform has not been a welcome one, but it isn’t going anywhere.

How Betfair Makes Money

In order to understand the Premium Charge put in place by Betfair, it is first important to acknowledge how it is that the company makes its money. When it was first launched, Betfair was purely an exchange platform that made its money by taking a cut of the money earned by winning bettors on its platform. This was usually an amount of about 5%, which was their ‘commission’ that they took for the role of middleman that they played, linking you to other bettors. As Betfair become more popular, it caught the attention of other companies, eventually joining forces with Paddy Power.

The company also launched a regular sportsbook, which worked in the same way as any other bookmaker and allowed them to benefit financially from people who found the exchange a little bit too complicated. When any business begins to grow, the desire to improve margins won’t be too far behind. That is the position that Betfair found itself in, needing to ensure that it made as much money as possible in order to please shareholders and others. After a time, the ‘commission’ taken on its exchange wasn’t enough, especially when it came to people making regular net wins from the platform.

The Betfair Premium Charge Is Launched

Betfair Exchange football

Rather than allow customers to make large sums of money whilst Betfair only took its standard commission, the company decided that the best thing to do would be to alter the way in which money was made from the winners on the Betfair exchange. The notion that there are some customers out there who were doing well from the product offered by Betfair whilst paying relatively smaller fees than others mean that the company felt as though it needed to do something about that. The Premium Charge is only payable by those making the most money from the exchange.

If you’re wondering whether or not you’re likely to have to pay the Premium Charge, think about your answer to the following questions:

Are you in the green over the life of your Betfair exchange account?
Have you paid less than 20% in ‘total charges’ during your time using the exchange?
Have you bet on more than 250 markets in total?

If the answer to those questions is ‘yes’ then you’re almost certainly going to end up having to pay the Premium Charge at the end of any week’s worth of betting in which you paid less than 20% of your net wins in ‘total charges’. If that all sounds a little confusing then that’s because it is, with Betfair almost intentionally making it difficult for their customers to figure out what is going on from one minute to the next.

How the Premium Charge Works

The tricky thing with the Premium Charge is figuring out how it actually works. In simple terms, it is there to bring the amount that you’ve paid in ‘total charges’ to 20%, but it isn’t as simple as that. The amount of Premium Charge that you’ll end up paying will depend on how much you’re winning, whilst you will also be less likely to have to pay it if any single win that you’ve had makes up more than 50% of your gross net wins over the course of your lifetime with your Betfair account, given that it will be excluded from any calculation made on what you owe.

There is also a lifetime allowance of £1,000 of Premium Charges, which are able to be incurred before any Premium Charge will have to be paid. You will be contacted by the company before any fees are charged, with Betfair saying that the Premium Charge is only owed by around 0.5% of the customers that have an account with them. If you meet the conditions then you will be charged one of the following, depending on which one is the lesser amount:

The difference between 20% of the gross net wins that you made the previous week and the total charges that you’ve generated during that week
The difference between 20% of your gross net wins and the total charges that have been generated during the lifetime of your account

In spite of the fact that the Premium Charge is a relatively recent thing, Betfair acts as though it has been in place ever since it first launched in June of 2000. In other words, all customers are considered to have generated charges equal to 20% of lifetime gross net wins at least, as of the 12th of October 2009. That does also mean that some or all of the £1,000 allowance against the Premium Charge will been used prior to that date, allowing it to offset their hypothetical charges. This theoretically allows the Premium Charge a customer might incur to be reduced.

It Is Confusing

Man looking very confused

There is no other way to talk about the Betfair Premium Charge other than to admit that it is really confusing. Imagine that you’ve won £1,000 this week, which means that your Premium Charge would be 20%. That equates to £200, but you’ll also need to take off the commission that you’ve paid. If that is 5% then you’ll have paid £40 already, meaning that you’ll be charged £160 to take the entire amount paid up to that 20% figure. The more that you earn, the higher the amount that you’ll need to pay, with those earning £250,000 net wins having to pay as much as 60%.

What adds to the confusion is the way in which Betfair treats how you’ve paid commission. If you paid 5% commission on your bets, which is likely, then they’ll treat that is you’ve paid 2.5% ‘total charges’. They will therefore at 17.5% charge in order to make it 20%, but that actually ends up being 22.5% in accordance with Betfair’s Premium Charge rules. The most important thing for many is that they almost certainly won’t be eligible for the Premium Charge unless they’re making a lot of money out of Betfair. Imagine, for example, that you’ve done the following with Betfair:

£16,429.31 lifetime net wins
Bet on 3,165 markets
Paid £4,671.32 in total charges

In that instance, you’ll have paid around 28% in total charges, meaning that you won’t need to pay the Premium Charge yet. If you earn a lot more in winnings and don’t pay much in charges on that, however, you’ll soon see yourself needing to pay the Premium Charge if the overall amount that you’ve paid in charges drops below that 20% mark.

Can You Avoid Paying the Premium Charge?

The most obvious question that a successful bettor will ask is whether there is anything that they can do in order to avoid paying the Premium Charge. The short answer is ‘no’. The slightly longer answer is that you can consider trying to change your betting style in order to avoid paying it, but that’s not really the most sensible approach and will require you lose money. Indeed, Premium Charge avoidance is something that is specifically prohibited according to the company’s terms and conditions, so you’ll need to be careful not to be seen to be doing that.

In truth, one of the only things that you can do in order to avoid paying the Premium Charge is to avoid placing bets with Betfair. Obviously this is problematic because Betfair is far and away the exchange with the best liquidity, meaning that the majority of punters will always want to place their wagers there. Other sites can offer better odds, but the lack of liquidity will be problematic. The fact that Betfair have taken some heavy criticism from regular customers by launching the Premium Charge and yet it is still in place means that it isn’t going anywhere. The question is, should you be?

Author: Willie Rodriguez