If you are a beginner bettor, this is the place to start. Follow how a marketing guy with no betting experience, zero sports knowledge, and only 1,000 euros started his journey in value betting.Read More
Imagine you were to bet on the toss of a coin. Assuming the coin can’t land on its rim,
there is a 50 % chance of heads, and 50 % chance of tails. Now, imagine you were to
bet on the outcome , and had two people offering you the following odds:
This article explains what expected value is. Obviously, you choose the bet with the highest odds, since the probability of each outcome is the same. Now, let’s see what happens if you place a bet on heads at 2.10. Half of the time, you’ll lose your $10 bet, and half of the time you’ll earn $11. From
this, we can calculate the expected value of your bet to be $0.5.
After one toss, you won’t have profits of $0.5. You will either be $10 down or $11 up.
However, if you increase the number of tosses, your average earning per bet will
theoretically converge towards half a dollar per toss. This means that if you toss the coin 1000 times, you should expect earnings of $500. Whether you end up a bit above or
below $500 is a matter of luck, but it is skill that landed you there in the first place. You can read more about what happens if you increase your number of bets in this article on the law of large numbers and how it applies to sports betting.
Finding Value in the Odds
It doesn’t require much skill to realize that 2.10 is a good odds on the toss of a coin. In
fact, since odds = 1 / probability, fair odds would be 2.00. Because the odds offered is
higher than what the underlying probability suggests, it is a good bet.
So why don’t we do the same in sports? Why don’t we use the probability of each
outcome to calculate the corresponding odds, and in turn distinguish a good bet from
That’s exactly what we do. Welcome to value betting.
How value betting works and how value occurs in betting markets
The next article covers how value betting works and this article shows an example from a game between Chelsea and Manchester City.
Proportional or Flat stake sizing
Bet sizing plays an extremely important role in any profitable betting strategy, and in this article I'm gonna try to give some insight into exactly how important it is.
In the sports betting community, there are mainly two general staking strategies bettors use. A flat stake, and a proportional stake. With a flat bet size, you either put the same wager on every single game, or you put the same wager on games that have the same odds and edge. Flat bet sizing is fairly easy to use, but it's hard to select a proper size. A size too big will increase the chance of going broke, while a size too low will not yield big enough profits.
As an alternative to this article, you can watch this video. Or you can do both:
The Kelly Criterion: A Proportional Stake Sizing Strategy for bankroll management
A proportional strategy is where you place a certain percentage of your current bankroll on each bet. Kelly's Criterion is a formula that maximizes the growth rate of your bankroll. The formula for the Kelly's Criterion is
where P is the probability of success and G is the odds you're given. Let's take an example.
If you were to bet on a coinflip - in a fair world you'd get an odds of 2. If you were to get odds of 2.1, you would've had an edge (you can read more about how edges occur here) of 2.12=0.05=5%2.12=0.05=5% and kelly would suggest
This means you should bet 4.545% of your current bankroll. Let's take the scenario where this is ran 2 times with a starting bankroll of $100, you win one and lose one.
- You bet 0.04545∗100=4.5450.04545∗100=4.545 and lose, now you've got $100−$4.545=$95.455$100−$4.545=$95.455 left.
- You bet 0.04545∗95.455=4.3380.04545∗95.455=4.338 and win, now you've got $95.455+$4.338∗(2.1−1)=$100.227$95.455+$4.338∗(2.1−1)=$100.227 left. (4.338 * 1.1 is the net return of the bet)
The interesting thing, is that the order of the bets does not matter. You would've ended up with $100.227 if you'd won the first one and lost the second one.
example of Results Distribution with Different Kelly Percentages
Now over to a practical scenario. The example written over is not exactly representative for the common bettor, because it assumes that you know the outcome of the previous bet before placing the next one. In the sports betting world, one would usually have between 5-50 open bets at the time. This obviously affects the bet sizing. If you were to place 10 bets in a row with similar odds and edge, the bet sizing would decrease as your current bankroll decreases with each bet. If every single bet were with the odds of 2.1 and edge of 5%, you would expect to win 50% of the bets. This gives you the possibility of losing all your biggest bets and winning all your smallest bets - hence ending up in the negatives after placing nothing but profitable bets. It's worth noting that the other way around could occur, you could win all your biggest bets hence flipping a huge profit.
Here is a distribution of all possible combinations of bets with odds of 2.1 and edge of 5%, giving a win rate of 50%. There are 20 open bets, and it randomly picks 10 winners and 10 losers, so it's running perfectly every time - and only a matter of how the wins and loses are distributed. The x-axis shows the bankroll after the bets are settled relative to the starting bankroll, and the y-axis shows the number of occurences (out of the 184756 possible combinations). It follows the kelly bet sizing, so the bet size decreases for each bet as it's always placing 4.545% of its current bankroll. The blue shows the results for 100% of kelly, the orange for placing 50% of kelly, and the green for placing 30% of kelly.
As we can see from the plot, the 100% of kelly (blue line) yields the highest possible return, and the highest average (~1.03). However the spread is huge. One could end up with everything from 88% to 117% of your starting bankroll. As you decrease the fraction of kelly to 50% and 30%, the spread gets alot smaller. The probability of ending up in profit skyrockets, where as the average return gets lowered ever so slightly. It's very important to note that by betting a lower fraction of kelly, you risk less money. By betting 100% of kelly, you risk ~60% of your bankroll to grow it to an average of 104%. By betting 50% of kelly, you risk ~37% of your bankroll to grow it to an average of 102%. By betting 30% of kelly, you risk only ~24% to grow your bankroll to an average of 101%.
You can read more about what you can expect from your results as your sample size increases in this article on the Law of Large Numbers and how it relates to sports betting.
Stats for 3 Different Kelly Settings
Betting less than full kelly to reduce variance
There is no doubt that following full kelly is the strategy that would maximize the growth of your bankroll. Many people will tell you to bet less than the Kelly formula tells you to. Two reasons are generally given for this.
- The edge may change. If you place a bet 10 hours before kick off, the odds can swing both in and out of your favor. By placing a fraction of kelly, let's say 50% you have more rooms for error if the edge slightly decrease. If it increases, you can simply place more money on that bet.
- The Kelly formula leads to extreme volatility, the probability of being badly down for an unacceptable long strech may occur (You can read more about variance here, and how to reduce variance here).
Additionally, placing a lower fraction of kelly would generally decrease your bet size, making the probability of getting limited by the bookmakers smaller. You can read more about how bookmakers profile winning players here, and how to avoid bookmaker limitations here.
Do not bet more than Kelly suggests, so if you chose to go high risk (100% of kelly), do not over-bet. That will actually decrease the growth of your bankroll - as the full kelly value is a maximizer.
I really hope this gave some insight into how important bet sizing is. Additionaly, I want to point out that there are no perfect bet sizing that fits all. The fraction of kelly you're comfortable with placing depends on your personal risk profile. Do whatever you're comfortable with. In Trademate Sports - you can now select between 3 different betting sizes, 100%, 50% and 30%. Just go to your profile, and it'll be an option.
What is sports value betting? Learn the essentials to understand how it worksRead More
No one is able to perfectly predict the outcome of every sporting event. However, this
does not imply that it is impossible to become a profitable sports bettor, nor that those
who are profitable are merely lucky.
The goal is not to win every bet, but to make +EV bets.
The goal when betting is not to win every bet you place, but to make decisions
that have a positive expected value (+EV). In other words, you want to place bets
that have a larger chance of winning than implied by the odds you paid for.
Beating the closing line equals + EV
As previously described, the sharp bookmakers’ closing lines are considered to be the
expected value. This means that If you traded at higher odds than the closing line, you
have made a +EV bet. On the other hand, if your odds are lower than the closing
line, your bet has a negative expected value (-EV). In that case, it’s time to revise
your strategy. You can read more about the closing line in this article.
Successful sports betting is a long run game
Over a small sample size of bets, variance will have a dominating impact on your
results. In other words, anything can happen. However, over a large volume of bets,
the variance will even out and luck is replaced with skill. In the end, only sports bettors
who are able to consistently beat the vig-free closing lines at the sharp bookmakers
will be profitable.
How can I make money from sports betting? Can I make a living from it? This article is for you! Start here!Read More
PART 2: SIMULATIONS & THE VARIABLES INVOLVED IN MAKING A LIVING FROM BETTING
THE STARTING BANKROLL
An important element is your starting point. Just like with more traditional forms of investing such as stocks or real estate, if one already has money it becomes easier to accumulate more of it. A common comparison in the stock market is to benchmark results versus an S&P 500 index fund. The S&P 500 is viewed as the market. Historically the average annual return of following the S&P 500 has been around 7-8%. Or in other words, if you are able to get a higher avg. ROI per year than 7-8%, then you are beating the market. If I had $1M to invest in an S&P 500 fund and given an 8% ROI I would make $80 000. My bankroll in October, when we launched Trademate was only $6000, so if I had invested it into the S&P 500 I could expect to make $480 in 1 year. The point being that the difference in starting bankroll on the results is quite significant. The good thing about value betting or sports trading as we also call it, is that it is possible to start out with a relatively small bankroll and build it upwards. Since October, I’ve made a $5,7k profit, or a 95% ROI in just 9 months. Because sporting events are a lot shorter than the horizons in the stock market, one can achieve compound growth a lot faster.
For the remainder of this article we will use 3 fictive characters with different starting bankrolls to examine what is possible to achieve with value betting. I will also factor in that they are Trademate customers in this analysis, and thus have to pay for a subscription.
Arnold is betting on the Europeans markets only. Starting bankroll $1 000. Using a Trademate Core subscription
Bob is betting on the European markets with a goal of eventually transitioning into the Asian markets. Starting bankroll $5 000. Using a Trademate Core and later a Trademate Pro subscription
Charlie is betting in the Asian markets. Starting bankroll $20 000. Using a Trademate Pro subscription
If I were to start over as a new customer I would go for a quarterly package, because that would bring down my avg. monthly costs. From a psychological perspective, it also forces me to commit to getting in enough trades that I can both cover the subscription costs and make a decent profit. Or in other words making sure I get value for my money.
HOW TO CALCULATE EXPECTED THEORETICAL EARNINGS BASED ON YOUR EDGE
The way to calculate expected theoretical earnings would be: Expected earnings per month = ( Starting Bankroll * Avg. ROI per trade ^ number of times the bankroll is turned over)
Trademate users have beat the soft bookmakers with an avg. flat ROI of 2.6% per trade from a sample size of +200 000 trades. Note that we do not consider using flat stakes as an optimal strategy when trading. But as part of the analysis to see whether we actually have an edge over the market it is important to remove the effects of stake sizing. The stake sizes inside Trademate are calculated based on the the Kelly Criterion, a proportional staking strategy. Following it 100% gives the highest potential profit growth, but the variance gets rather crazy You can read more about the Kelly Criterion here or watch this video. So in practice 30-50% is better. I use 30% myself. Now, by following a proportional staking strategy it is possible to achieve a higher avg. ROI per bet, than with a flat stake sizing strategy. Currently I’m running at 5.1% flat and 8.2% actual ROI per bet from a sample size of 1783 trades. My average closing edge is at 2.6% Read more on the closing line and why it is the most important benchmark in sports betting here. As a benchmark for what to expect, one should compare the avg. flat ROI vs the avg. closing edge. I’m running roughly 2x better than expected (5.1% / 2.6%). I have achieved an additional effect of 3.1% avg. ROI per bet from my stake sizing (8.2% - 5.1%). What we can deduct for this is that a) I’ve had some luck as I’m running better than expected and b) stake sizing strategy is very important and can have a large impact on the actual results.
RISK AND AVERAGE STAKE SIZE
If I know that I have a 2.6% edge on the market on average, my turnover will affect how much I can expect to earn. E.g. for every $100 bet, I could expect to make $2,60. However with regards to the stake size, there is a tradeoff between turnover and risk. To stay within reasonable risk levels, while still getting a decent turnover I would aim to on avg. place 0.5% of my total bankroll on a bet.
Assuming 0.5% of the total bankroll.
Thus a $20 000 bankroll would imply an avg. stake size of $100.
Thus a $5 000 bankroll would imply an avg. stake size of $25.
The smallest bankroll would have to go for it more aggressively for the results to be interesting, so let’s assume a 1% of the total bankroll in the beginning.
Thus a $1 000 bankroll would imply an avg. stake size of $10.
The actual stake size would vary if one follows the Kelly Criterion, e.g. one would place a higher stake on a 2% edge with 2.0 in odds than a 5.0 in odds. Defining an avg. stake size in this article is useful as it enables us to play around with the numbers to see what happens.
DISTRIBUTING THE BANKROLL
In practice, I would spread my bankroll over as many bookmakers as possible with a few constraints which are covered in this article. Especially for Arnold who starts out with a low bankroll of $1000, taking advantage of the signup bonuses to boost the bankroll is beneficial. If one has a very large bankroll one can increase the % of the bankroll distributed to the lower volume bookie by having more of them.
I use a password manager to save me time whenever I log in, as it saves my username / password. (I’m using Lastpass, but there are plenty out there).
NUMBER OF TRADES
Having a sufficient amount of bookies affects how many edges occur in the feed inside Trademate, which again affects the number of trades that one is able to get in on.
A casual Trademate weekend user might average about 100 trades per week. (8-10 hours). This adds up to 400 trades per month.
An active Trademate user average anywhere between 200-400 trades per week. (+20 hours). This adds up to 800-1600 trades per month.
The most hardcore Trademate users have done +600 per week. (+40 hours). This adds up to 2400 trades per month.
So with these numbers as our basic assumptions, I’ve run some simulations as to what the results might look like. The purpose of these simulations is to show what results are possible if these targets are achieved. There are no guarantees that this is what the actual results will be like. Variance and timing of swings will make the actual profits deviate from the theoretical profits. Stake sizing will also have a large impact. In our opinion these numbers are realistic as they are based on what our most successful customers have been able to achieve. In the simulations I have assumed that Arnold, Bob and Charlie have been putting in the time required to get a high number of trades, which really is what is required in order to make money from betting.
INTERPRETING THE SIMULATION RESULTS
First off, the starting bankroll has a very large impact on the results. This is particularly true for the Asians, given that the number of trades + potential ROI is relatively fixed or has limited room for improvement. Also, having a high starting bankroll enables a higher avg. stake size and thus higher turnover. Obviously you as a user of Trademate need to make sure that you have the appropriate bankroll to clear our subscription fee and get results that you are satisfied with.
A second aspect is that obviously the actual results and ROI will vary from month to month. In the simulation we have used 0.6% as the average results. So one month one could be running at 1.2%, another month at -0.8% and so on. When swings occur will have an impact on results. E.g. if they happen early it will have a larger impact on growth than if they happen later. Also note how the effects of compounding increase with time, so that even if one is getting in the same number of trades at the same avg. ROI, the results will improve thanks to compounding, and potentially quite dramatically so.
Third, if one is able to run at higher average ROIs than 2.6% like I have been doing, it will have a large impact on the results.
Fourth, note that if you can it is ideal to combine trading on the sharps with the softs, because the higher ROI on the softs can really have a huge impact on building the bankroll needed to make a successful transition versus just going straight into the Asian market.
Fifth, to make a living in 1 year one will need to have an even larger starting bankroll or take larger risks. Still I’d be pretty satisfied with a $20k profit in year 1. The next year I would keep going.
Finally note that turnover is key, especially in Asia. If one wants to make a profit in the millions one needs a turnover in the 10s of millions. If one wants to make a profit in the 100k class, one needs a turnover of millions and so forth. Turnover is impacted by the number of trades, stake size and starting bankroll.
You can make a copy of this spreadsheet and play around with the inputs to see how it affects the potential results.
In the 3rd and final part of this article series we will compare the results from the simulations with Jonas Gjelstad’s results in his $10k to $1 million run. We will also cover some further thoughts on what is required to make a successful living from sports betting.
How can I make money from sports betting? Can I make a living from it? This is the third part and final part of a series of three articlesRead More
This is not an article about HOW to do arbitrage betting (sure betting) or value betting. You can read more about what arbitrage betting and value betting is and how they are different in this article. If done right, both ways are betting methods that will quickly multiply your initial investment and these can be a carried out by someone with little or no experience with sports betting. For more information on arbitrage betting (arbing), I suggest an internet search, there are numerous good articles out there. For value betting, I recommend Trademate Sports’ free value betting lessons, which have a solid scientific approach. This article may guide you in case you want to start making money in sports betting, or if you’re already making money but consider changing your strategy from arbitrage to value. This article is about the pros and cons for each of the two strategies based on my personal experiences on the first two years of sport betting. All data presented in this article is real.
Although it sounds nice to multiply your investment, there is no such thing as guaranteed easy money (as far as I know). Being profitable at sports betting requires you to spend many hours with your computer/cell phone/tablet or at the local betting shop. If you already like spending time with video games and watching sports, this may even be appealing to you. There is another thing: due to limited liquidity in the betting markets, you can only invest up to a certain amount. Hence, if you are already a millionaire, it might be unrealistic to believe that your millions will multiply in a short time via sports betting.
Until August 2015, I had never before placed a sports bet, so I am no experienced bettor. I started with very small investments, in the hundreds – as things were starting to progress, I began to invest more, but I have never had more than EUR 5.000 invested. Today I have cashed out the initial investment plus another EUR 9.000 in profits. My overall profits have grown steadily, approaching EUR 22.000 and I even had months where I did not bet at all. This may seem like much money to some people, few money to others. It really does not matter, wealth is relative and up to a certain limit, one can choose any size of starting investment. I know that there are arbitrage bettors and value bettors who make much more money, people who have more money and more knowledge. In fact, there are sport bettors who make a living out of it. I am not of this kind and I still have my regular job, but sports betting has provided me with a solid second income and thanks to this, the balance of my family’s overall wealth has grown significantly and I have rewarded us with several extra vacations, instead of just being able to balance income with expenses without luxury.
I did arbitrage the first year, but then I transitioned to value last year. Today I am only value betting for numerous reasons. This does not mean that arbitrage is a worse strategy – in the end, the strategy of choice is probably whichever strategy is a good fit to your personality. Both strategies will give you a positive return in the long term. I will now go into reasons for choosing the right strategy.
First, let us have a look at my betting history, which will be the case study when evaluating both strategies. The overall profit chart provides us with an overview.
- Turnover / 10: The turnover divided by 10 for illustration purposes.
- Sum: The overall profit. Sum of Value, Arbitrage, Bonuses, Errors and Expenses.
- Sum of soft books: If there had been no bets on sharp books, the sum curve would look like this.
- Value bets: Profits from value betting.
- Arbitrage bets: Profits from arbitrage betting.
- Bonuses: Profits from bonuses.
- Bank balance: The balance of how much that has been invested (negative) or cashed out (positive).
- Errors: Balance of wins/losses due to wrong arbitrage bets, calculation errors and misplaced value bets.
- Expenses: Cost of odds arbitrage and value services, transfer fees and commissions.
The overall sum (solid blue line) shows a steady growth of overall profits from sports betting. The three contributors to profit are Arbitrage betting (dotted purple), Value betting (solid purple) and Bonuses (solid green). Errors (dotted red line) and Expenses (solid red line) detract from the profit.
The sum of soft books (dotted blue line) is a hypothetical case to show the potential profit had I not been betting on the sharp books (more on this below).
I have been using 4 sharp books and 18 soft books for the betting. For arbitrage betting, there has been one sharp book and one soft book involved in almost every bet. For value betting, there has been only soft books. A more detailed presentation of this is located in the table below.
I am not naming which soft books I use, as I would not like it to be possible for any soft book to identify me as the author of this article. Generally, for the case of my betting, soft books are profitable and sharp books are unprofitable as expected. There is an exception with SBObet, generally considered as a sharp book, which has been profitable to me. Maybe this is due to variance, since I have not placed many bets there, only 159. Book5 is a soft book exception. This one has not been profitable even after thousands of bets, but very close to break-even. This soft book is probably not so soft after all, but it is a rather rare case among soft books.
ROI, TURNOVER AND STAKE SIZE
When looking at the overall profit (Sum) in the graphic presentation earlier, it seems that it has been quite steady, resembling a straight line, except from a dip and a rise this year. When looking at the columns for turnover however, it seems evident that there is more wagering during arbitrage, than with value betting. The following schematics confirms this.
Obviously, there is a high ROI for betting involving getting your bonuses, but these are only initial and not expected to give you continuous profits. Value betting seems to give you much higher ROI than arbitrage betting. The reason is simple: when an arbitrage opportunity occurs, one part has usually not adjusted the odds according to market value. In almost every case, this is the soft book, so during arbing profits at the softs starts to increase while deficits at the sharps start building up. These deficits are the price to pay for having guaranteed profit in every bet. So betting on sharp books in arbing is a sort of insurance to avoid losing money in the short term. In the long term, this becomes very expensive. Today I am simply betting on the soft side of an arbitrage bet. This is my value bet. Had I had the confidence and knowledge to do this right from the beginning I would have had 50 % more profits today, as seen in the graphic presentation earlier (dotted blue line). However, in sports betting variance is huge, so it takes some time to realize that you are pumping money into the sharp books. Look at the Pinnacle balance for instance:
Relying on the data alone, I would still be in doubt after 1000 bets, whether Pinnacle is profitable when arbing. Ultimately, after a sample size of 1500 bets, I am convinced that Pinnacle is sharp, and I have the feeling that I have spent 5.000 EURO at Pinnacle for the sake of my own comfort, money that I wish that I had not spent. It would be great to be part of the elite that bets on Pinnacle and is profitable in the long term, since Pinnacle does not restrict winners. However, this is does not seem possible with regular value betting and definitely not with arbing.
In summary, arbing comes at a price. You need larger turnover and stakes to compensate for the price of the insurance. The soft books will eventually limit or exclude any person who is profitable in the long term. They may do it based on “inappropriate betting pattern”, “suspicion of arbitrage play” or anything else written in their terms and conditions. These are all just phrases with one common goal: to reduce your possibilities as a profitable bettor, so that you are no longer a threat to their business. I do not blame the soft books, in fact their behavior is quite rational. The betting industry is funded only by people losing while (hopefully) having a good time, so any consistent winners are counterproductive and must be stopped with any means before they grow too big.
From the perspective of the soft books, it makes no difference whether a player is arbing or value betting, both methods bet on favorable/wrong odds and this is unprofitable for the bookmaker. In case of limiting, value betting has an advantage. Larger turnover and larger stakes will get you limited faster. So value betting with smaller stakes, while achieving the same ROI will keep you longer in the game. Once limited, you can continue to value bet, with smaller stakes close to max limit. It is still cost effective, since arbing takes much more time to do. My average stake size for value betting is only a quarter compared to arbitrage for that particular reason, but profits are at least the same. On average, it would take me 2 minutes to do an arb, because I would need to calculate stakes and bet at 2-3 different places, and many confirmation steps. It takes me only 20-30 seconds to do a value bet, because it is one bet and just a short mental calculation of the stake. Value betting can be done anywhere, for instance via the cell phone when waiting for the bus, it is like playing a video game on the cell phone, which most people do anyways. This is not so easy with arbing. If you use a betting service such as Trademate Sports it is really easy to register the bets you placed and keep track of your betting history.
The main reason why many people choose to do arbitrage is to avoid the unpleasant feeling of losing money. Arbitrage betting, or “surebetting”, gives you guaranteed profits on each bet regardless of the outcome. Well, this is not the same as completely risk-free, as surebets are quite sensitive to errors. Errors may occur when I accidentally place two bets on the same losing outcome without noticing, or when I cover one side of the bet, but the other bet has vanished in the meantime, when one bet is voided by the bookmaker, etc. Usually, arbing has larger stakes to compensate for the low ROI, so when something goes wrong it has a large impact. This happened to me 5 times in January 2016. Each time I was unlucky to lose money and each time I had the feeling that many hours of betting was lost. It took around 40-50 surebets, several days of work, to make up for one error. Still, for the experienced arbitrage bettor who makes fewer errors, the arbitrage strategy is quite risk-free.
In value betting, one has to accept, that although the overall tendency is upwards, there may be swings up and down, just like an index at the stock market. It is great when things go in your favor, you may get the feeling that you are on the road to become a millionaire next month. When things go bad you may get the opposite feeling, that this activity will eventually bankrupt you and you seriously start doubting whether there is something fundamentally wrong with your strategy. In both cases, emotions (rather than rationality) may have taken over. While emotion may be what motivates and drives people, it may be your enemy when you hit the winning streaks and losing streaks. You have applied a money management strategy, but still these unpleasant emotions may hit you, although you already knew that this is part of the game.
This is what happened to me when I first started betting. I had actually considered both strategies and I decided to value bet. Things were going great, but as soon as I got some downward swings after 50 bets in late August 2015, I felt uncomfortable and decided to begin my betting career doing arbitrage instead.
This behavior was emotional, because I was abandoning a strategy I had already chosen, which had even given me two-digit ROIs, for a less profitable strategy, which I initially had decided not to do. I was definitely not losing at the time, but the motive was still to remove the uncomfortable feeling of losing a bet.
I later switched back to value betting. Since then, I have punched the pillow and slammed the door during some of my losing streaks, but when looking at the overall profit graph in the first chart (solid blue line) some losing streaks are hardly noticeable, they are very small dips in the overall picture. Some people are naturally adept in being rational, while I am not. The cure for me is exposure, which in return gives me robustness. I have also found out that a method that works for me is to glance at my profit graph every now and then. That is where I realize, that although I just lost wagers during the last four days corresponding to half a month of salary on my regular job, this is just part of the game and the tide will turn eventually. I could also stop following the games, just bet and forget - but on the other hand, I like sports and the games are quite exciting to watch, especially when you have bets on them.
As goes for any other profitable bettor, every soft book will eventually give me ridiculously low limits or exclude me, so I am continuously considering the step of the evolution as a sports bettor. Luckily, some soft books are quite winner friendly and do not shut you down immediately and new companies emerge all the time, so value betting on soft books may continue for some time.
The logical next step will be value betting on Asian bookmakers. These bookmakers have much sharper odds, but do not have a reputation of systematically excluding winners. To my knowledge, there are little to none arbitrage opportunities here, but there are still value bets to be found. The Trademate Sports Pro product find value bets by comparing the Asian odds to the true probability of an outcome. Obviously, with sharper odds, ROI is lower, but a larger bankroll and larger stakes compensate for this.
When it comes to profitability, value betting is superior to arbitrage betting, since there is no “insurance fee” to the sharp books. If there was no such thing as limits, arbitrage betting could be more profitable, since stake sizes can be larger than with value betting, when there is no such thing as variance to compensate for. However, stake sizes are not scalable towards infinity, limits exist and they will happen to any successful sports bettor, so this makes arbitrage harder to do in a limited environment.
As both strategies are profitable, one then has to consider whether the reduced profits and much accounting on arbitrage is worth it, in order to avoid the unpleasant and inevitable losing streaks. This would be up to each individual to evaluate and experience. The choice of strategy will probably have to do with the sports bettor’s personality.
Written by a guest contributor who calls himself Vida in the Trademate Slack. If you have any questions, you can ask him there.
Sports Betting 101
Understanding the Kelly Criterion is key for any bettor with a goal of becoming a professional sports bettor and do sports betting for a living. This video explains the following topics
What is the Kelly Criterion?
- How to apply it when trading sports and betting.
- How it relates to profits and risk.
- Why the Kelly Criterion is superior to flat stake sizing for bankroll management.
It is hosted by Marius from Trademate Sports.
This post originally appeared at www.daily25.com and has been reposted here with the permission of Steve from the Daily25 blog. It is written by Matthew Trenhaile who has worked as an odds compiler for many years and is now out on his own taking on the bookies. You can follow Matthew on twitter @CrazedAlchemist and he also has his own blog. Over to Matthew.
In this article I am going to look at the subject of profiling. I am not going to discuss it from a business sense perspective or from a moral one but simply to look at it from the perspective of analysing the process and how it has changed over time. I will tackle the subject of account restrictions and closures in my fourth and final article once I have looked at all the relevant elements of the problem. I will also look at in this article the subject of tipsters and how they influence bookmaker trading decisions and their risk management. Bookmakers will often find themselves profiling tipsters to an extent rather than individual clients.
Profiling in the olds days
Bookmakers have always profiled bettors and do not let anyone tell you otherwise. At the racetrack bookmakers could turn you away, offer you different place terms, offer you an amount that they felt comfortable with or lay off your bets at other on course bookmakers if they didn’t fancy the liability on their books. Of course different racetracks and regions will impose different rules on the behaviour of on course bookmakers but they could still of course offer you less attractive odds in the hope of getting you to move on. Knowing who the smart punters were was as vital then as it is now. They also had to become familiar with those who placed bets for the smart punters because of course using another person to place your bets is nothing new. It is possible that historically it was easier to place a smart bet of decent size because of the attitude of at least some bookmakers as to how to handle that sort of bet at the track. They could use that information to not only shape their own book at the cost of the liability of the accepted bet but also over hedge the bet with another bookmaker on course before they got wind of the smart money and could slash their odds. In that way it made sense to try and get the smart money in manageable size early on rather than get picked off further down the line when you could only hedge at a price much shorter than you laid yourself. At some point this mind-set dissolved in western bookmakers barring a very select few while still remaining prevalent in the Asian bookmakers. If anything as the betting volumes around the world have risen the appetite for early smart money in Asia has only grown as the race to be smartest fastest has become ever more important to them. So what did everyone else do?
Profiling with The Rise of Online Betting
The western bookmakers found that with the rise of online betting there was even more money to be made but also that as with all industries where there is a gold rush the space became crowded very quickly. The online betting boom went stratospheric with the rise of online poker and soon everyone was making so much money that it was possible to make money sharp betting or bonus bagging or arbitrage betting for quite some time before anyone even noticed and limited or closed the account. Sadly when the market settled and then was crushed by the collapse of the US poker market it became just a bit harder for betting firms to make money. The cost of acquiring new customers rose, as there were so many operators competing for the clients and all of them desperate to fill holes created by lost poker revenues. Don’t get me wrong there were still account closures and restrictions due to some basic profiling before this point but nothing like there is now. Profiling at this point was largely driven by the odds compilers who would be able to see all the bets they laid thanks to improvements in technology and also in real time. I can’t speak for other odds compilers in the industry but at times the relationship between compiler and punter would get personal and the compiler would push for an account to be closed or at least restricted. This actually worked the other way as well if the client was sharp and bet once the market had settled and in moderate size on a decent market. As a compiler you even at times became fond of these gentle nudges from clients who seemed to be smart yet playing “honest” with you. For the online industry the rise of arbitrage trading and bonus exploitation as they saw it was becoming epidemic and running a successful bookmaker became about how many you turned away as much as how many you got through the door.
Risk Management Departments
It actually came as quite a surprise to some bookmakers just how many of their clients were making money or exploiting their bonus offers once they began to actually analyse the figures. It soon became clear that odds compilers either did not have the time (or could not be trusted) to do all the profiling so risk management departments sprouted up everywhere. These are teams of people who are incentivised to root out non-profitable accounts and as always with this kind of motivation there are going to be those who are overzealous. The UK risk managers had the ultimate tool at their disposal in that they had a true market price to hand in the form of Betfair and they quickly decided that odds compilers could not beat Betfair on every market all the time so clients who bet on odds bigger than the Betfair price were by definition sharp bettors. This progressed further to the assumption that odds compilers could not beat Betfair ever on any market. The obsession with arbitrage in the UK betting industry surrounded backing at the bookmaker and at the same time laying on the exchanges rather than say the placing of three separate bets at three different bookmakers to guarantee a return although the latter was still a concern. Odds compilers disliked arbitrage traders and sometimes tolerate sharp bettors because while they work hard to calculate the outcomes of events (unless it makes more sense to simply copy Asia or Betfair) all the arbitrage trader need do is wait for an alert and place the relevant bets. The intellectual competition has been removed in their eyes (sadly odds compilers are being kicked out of the industry as fast as the shrewd punters). Successful long term arbitrage traders will tell you it is actually both mentally and physically taxing but that is for another article. Arbitrage trading did an awful lot to educate the risk management community about how markets work and also made them realise the horrible Pandora’s box that had been opened by odds comparison sites. It also made them realise that copying an established set of market odds was both efficient and reduced arbitrage and some types of sharp betting.
So now we have a situation where you have a team of people constantly crunching data and the remit has come down from above that any client that does not pay for the exorbitant marketing, affiliate (also being abused) and advertising costs and also create a profit for the company is no longer to appear on the books at all. At this point it has been established that beating widespread arbitrage across all markets without moving prices is near impossible so trading arbitrage prices gets an account marked. Of course if you aren’t going to move your prices with the rest of the market there is every chance that when you are best price any outcome it will be an arbitrage opportunity with someone somewhere and you will end up best price even unintentionally if you do not move your prices even when you have not struck a bet. They have rejected the concept of losing money on one client to help make more money on other clients or rather they have rejected the concept of making a book. The truth is without the Pinnacle model in place it is very hard to make a balanced book, as there are simply so many bookmakers to bet with. Often an arbitrage opening and possibly a tipster selection are the only bets struck on a market. Lopsided books are an unavoidable reality for most bookmakers as square money tends to all bet one way and it bets in a different time frame to sharp money and can at times bet the same way as sharp money just at a worse price nearer to the start of the event. These latter bets are better bets to take but they still make for a one sided book however, if you have to always cheer on a particular outcome then better make sure it is one that the very worst bettors have not bet on.
What do they look for when profiling?
Well not all risk teams are the same but here are the things that will most likely be looked at:
- Does the account make money? Sounds ridiculous to highlight this but it is the one thing that you can’t hide no matter whose account you use to place the bet.
- Is the account price sensitive and did the account place a bet via a price sensitive medium such as a price comparison site? Sharp bettors are price sensitive.
- Was the bet placed well in advance of the start of the event? Anything prior to the day of the event in particular can raise questions.
- Is the price an arbitrage price at the time of the bet? Pretty easy this one.
- Did the price shorten significantly after the bet was placed and before the start of the event? The closing price is more accurate than the opening price after all.
- Did the client place only one bet rather than a variety of bets? Contentious this one but bookmakers like to see you place multiple bets on the same match as if you need as much action as possible.
- Do you withdraw your money? Never let money out the door.
- Do you use an E-Wallet when other more direct methods are possible? People who need to move money fast are sharp or arbitrage traders. Or possibly money launderers, which can get your account flagged just as fast whether you are one or not.
- Do you use the online casino? If not then why not.
- Do you bet on niche markets that are not directly highlighted by the marketing team?
- Do you bet in large size? Betting is supposed to be a small stakes social exercise isn’t it?
- Do you bet on mobile platforms? If yes then that is good news. If not how come your IP keeps changing when you login? Are you using a dongle or a VPN to confuse our kindly risk team?
- Are you a woman? They do not conventionally bet on sports unless they have followed an arbitrage e-book or are a bowler account or at least that is the common assumption.
- Are you betting in a size not commonly associated with your demographic? Research of professions and financial standing is becoming more commonplace now. Originally they just wanted to find the rich lawyers, accountants, doctors who are worth offering client entertainment to but now if you find a student betting £1,000 pound a game that is note worthy as well.
- IESnare? Just Google it I guess. There are probably other cookie trackers that are not as well publicised.
- Bet at the same time as several other punters, excluding just before an event starts. Was it arbitrage? Was it a tipster?
- Try never to bet on a fixed match or one that is perceived as possibly fixed intentionally or unintentionally.
- Do not work in the betting or tipster industry, be connected with the betting or tipping industry, friends on Facebook with people in betting or follow people on Twitter from the betting or tipping industry.
I am sure there are other factors but suffice to say if you manage to avoid all the above listed things then maybe your account will avoid being restricted or closed. If ever you find yourself having one bet or even no bets and being restricted or closed just ask yourself whether you can rule out every single one of the above possibilities or being linked with an account that has exhibited some of the above behaviour.
Finally there is the subject of tipsters, which is of course a subject close to the hearts of readers of this blog. For the most part bookmakers are not concerned about tipsters from the sharp betting perspective (hard to believe I know but there are exceptions). Bookmakers will have seen so many lemmings following unsuccessful tipsters off cliffs that they do not instinctively inspire fear. Again Steve has frequently highlighted in his blog that following a given tipster is no guaranteed path to riches. Tipsters do create one-sided books though which can be frustrating, particularly in small illiquid markets. They also can cause bets that overlap with all of the behaviours listed above. Tipsters generally try to tip at best price and well in advance of the event start. Tipsters can often cause prices to collapse and if some subscribers smash in to the exchanges they can make those who are hitting the books look like arbitrage traders. The price collapse can also trigger those who bet dropping prices to push the market even lower and it leaves the bookmakers with one terrible result and no easy way to get out of it if they have been foolish enough to not move the price fast enough. So for this reason compilers like to keep tabs on the popular tipsters of the moment. I personally used to regularly sign up for short periods or free trials to all sorts of services just to see if I could see what angle the tipster was working and whether it was something I felt I generally overlooked. Compilers in general will always respect tipsters who appear to be compiling their own prices more before tipping a selection. Good compilers were never afraid to learn from a tipster or site that had genuine merit. Compilers will be quick to dismiss tipsters without verified results, no clear strategy and inflated ROIs beyond what they deem likely. In other words we were trying to do exactly what the punters are doing more diligently nowadays and in both cases to see who to take seriously. Always of particular interest were any betting related websites, which had useful statistics or model calculations on them although many of those were swiftly dismissed as behind what we had already.
In practice, I would spread my bankroll over as many bookmakers as possible with a few constraints.
I always want to max out a deposit bonus. Deposit bonuses vary from anywhere between $100-$500. Before depositing at a bookie with a $500 bonus, I’d wait until I’m able to max out that bonus.
I want to spread my bankroll disproportionately, where I have a larger % at bookies with a larger number of trades and a lower % at bookies with a lower volume of trades. E.g, I might place 2/5 of my bankroll on higher volume bookies. ⅕ on lower volume bookies. And keep ⅖ in reserve in my bank account or e-wallet until I get a more clear picture of which bookies I get the highest volume of trades in and also in case I run bad at a bookie and tap out there. The goal being to eventually get my entire bankroll in play in order to maximize my turnover.
The bookmaker needs to accept customers from your country. This is something you will have to check yourself.
This post originally appeared at www.daily25.com and has been reposted here with the permission of Steve from the Daily25 blog. It is written by Matthew Trenhaile who has worked as an odds compiler for many years and is now out on his own taking on the bookies. You can follow Matthew on twitter @CrazedAlchemist and he also has his own blog. Over to Matthew.
Matthew's background as an odds compiler
My name is Matthew Trenhaile and I worked as an odds compiler for six years at the UK Sport Spread Betting division of IG Index. Steve has very kindly allowed me to use his blog to showcase some of my writing and I hope to do that in a series of articles from the perspective of someone who has worked in the betting industry. Firstly I would like to go over some of the phrases I will use in my articles as the names for various things change from country to country and era to era. When referring to a favourite I will use the word “Jolly” and “Rag” for underdog, these are very much UK phrases to my mind. To describe smart punters I use “Sharp” and “Square” for losing punters. These are very much Vegas words and will also be used to describe bookmakers which I may abbreviate to “Books” on occasion. For accounts in another name used for putting on bets I rather like the term “Bowler” I assume this is an Australian phrase and I rather like it. When describing odds I will use decimal odds and when talking money it will be in UK pounds and pence just for my own ease. I am seeing more and more articles by industry insiders not to mention television documentaries and they all seem to generate a lot of heated debate. I am all for this if it is good natured but do please remember these are just my opinions and I happily respect those belonging to other people.
An evolving betting industry
In each of the following articles I hope to tackle the subjects from a past, present and future perspective. First I will look at odds compiling and how it has changed over the past fifteen years and also try to tackle the subject of bookmakers copying prices off each other, which seems to be a hot topic. My perspective on odds compiling comes from spread betting and this is important because the spread betting industry is responsible for every significant change in odds creation of the last 25 years. For those of you unfamiliar with spread betting please go to Sporting Index’s website and go to their training section to get an idea of what is involved. You could oppose an outcome in sports spread betting before you could lay on Betfair and you could bet in-running online on the spreads before any of the fixed odds bookmakers. It was also IG Index who first invented the dreaded close out button on the doomed to failure fixed odds betting product Extrabet. While none of this makes me particularly good at odds compiling compared to another it does mean I was constantly at the forefront of technological advancements in the industry. This was true then and the sports spread betting industry still leads the way now either through employees who have gone on to devise the models of other bookmakers or through companies such as Sporting Solutions, a spin off from Sporting Index where they sell in-running prices to other bookmakers. It is with good reason that many fixed odds bettors take a look at the spread betting firms prices as a secondary check before placing their bets.
How Odds Compiling Works
Odds compiling has steadily become more and more about databases, statistics and mathematical models and less about personal experience, intuition and feel. I was fortunate enough to work with men who had watched thousands of hours of racing and could pick out the smallest of nuances about how a horse was ridden or the strategy of a given trainer however, I was also fortunate enough to work with people who were able to break down sports into their fundamental inputs and turn those inputs into probabilities both before and during events. Odds compilers were initially split on the prospects of Betfair and certainly on its uses with regards to compiling prices. I started working at a time when Betfair had just reached significant liquidity levels and could not possibly be ignored if only because of the ever increasing numbers of arbitrage bettors. Within 6 years we used our Betfair API to price up all our horse racing products with a human simply to oversee the process. Contrast this to when I started and we had a trader for each horse racing meeting and a room of 40 traders in a time when the number of sporting events priced was less than a tenth of the number now. The luxury of being a subsidiary of a large financial firm was that we were better paid than the rest of the industry and had greater resources at our disposal whether it be staff or IT support. All resources were increasingly ploughed into trading more events in-running and developing more and more complex models for generating odds in-running. These odds were generated for our clients but also so that we could provide liquidity to the betting exchanges which enabled us to generate a significant secondary revenue stream.
Creating Statistical Models for Sports
Most statistical odds compiling originated with a simple counting of how often an event happened. Two football teams, count how often the home team won at home in the last 20 games, how often the away team lost away in the last 20 games etc. This was well before my time of course and what gave bookmakers an edge back then was studying the sports more than the punter and comparative odds knowledge. What I mean by that is if a bookmaker calculated a team should win 50% of its home games in football and last time these two teams played you put up 1.83 odds and the punters backed it like crazy the bookmaker then records or remembers this and puts out at 1.75 next time and when the punters come back it again and the bookmaker has extracted extra value from his margin simply by knowing what the punters did and what they were willing to pay for it before. Odds compiling was more about knowing the punters and their habits than the actual percentage probability of outcomes. Even now this particular area is the difference between bookmaking and punting. Bookmakers have to anticipate money flow whereas the punter has to determine the probability of outcomes and find value. In an online world the odds have come to reflect real probabilities more and more and less public opinion or the narrative of the event. The emergence of in-running betting is what really drove odds compilation to mathematical modelling, it became too hard for a human to quote prices in multiple markets for multiple events in-running all with pen and paper. Bookmakers needed automation, which meant models.
The Possion Distribution for Modelling Sports
Most sports betting models are easily found online and have been around for a while but with many tweaks and refinements over the years and ever improving levels of data. Poisson distribution won out as the way of modelling football not only because with some refinements it can be very accurate but also because it was easy to add time decay to the inputs.
You have goal inputs for each team and as the match progresses those goals input in to the model slowly decrease meaning as the simulation is recalculated each second it produces a slightly different set of odds. This went from Poisson distribution to custom distributions per league and we went from working out goals for and against to shots for and against and then turning those in to goals. Now compilers are measuring the quality of the shots and the impact of individual players on the shots to create advanced player based shots models. Or are they? All sports have their equivalent mathematical model and all can be tweaked further as more data is recorded and made available. The question for bookmakers is how far do they go down that route? Do you pay to have people maintain huge databases? Do you pay someone else to provide prices? There are already several firms using the same prices from the same company for in-running football for example. Even if you did the odds in house just how good do they need to be to beat the average punter and can good (using sharp bettors positively) risk management hide a multitude of sins simply by letting your good punters move the prices in to shape for you? Sadly few bookmakers allow for that style of risk management or for the investment in better pricing. Odds compilers are finding out that one pound spent on promotions and marketing can generate a greater increase in profit than one pound spent on their salaries or in software development. Bookmakers want to spend just enough to beat the 98% of punters they need to with the minimum number of staff. Analysing in greater detail actually shows them that paying for decent profiling software and young no experience employees to operate it is even more cost effective than training or acquiring odds compilers of almost any skill level.
How Bookmaker's Business Models and Views on In-House Odds Compiling has Changed
Maybe you are thinking that surely odds are a bookmaker’s product and surely they would be better served by developing that in the long run. This is an incorrect assumption for modern bookmaking. You do not choose which hotel to stay in by comparing the cost of a beer in the minibar. And bookmakers see the odds as about as important as the price of that beer. Their product is entertainment and not the selling of an intellectual contest between punter and bookmaker. It is foolish to think this has ever been the product that bookmakers have sold. They sell an adrenaline rush and anyone who thinks great characters pitting themselves against the punters and taking anyone on in horse racing betting rings is what betting used to be about is kidding himself or herself. Everyone has a story of how great bookmaking used to be. The people I speak to remember betting tax in the UK, huge margins, little choice between bookmakers to use, being refused payment and in fact being threatened with violence when trying to get paid out. I have no idea where this image of the gentlemen bookmaker comes from. Throughout time some bookmakers take your bets and some don’t and some allow you big bets and some don’t and some go bankrupt on you and some don’t. This has been true for both sharp and square punters. All bookmakers expect to win almost regardless of the quality of their odds (not a view held by their compilers necessarily) and better to channel their efforts in to getting punters through the door than lowering the price of the beer in the minibar. I do not like this model but I do not see this model going away.
There can only be one Pinnacle
Now for the obligatory Pinnacle paragraph. Why can’t all bookmakers be like Pinnacle? The answer to this is simple and it is that there can only be one Pinnacle business model at a time. Others can take bits of it here and there but the exact Pinnacle model can’t be easily duplicated. Pinnacle’s tagline is that they welcome winners and simply put that is because they want to beat all the square books with the greatest sports proprietary trading scheme in the world. By employing the best odds compilers, betting to tiny margins, allowing all arbitrage and sharp bettors and moving your odds in accordance with how sharp they are your odds become the truest representation of the probability of sporting outcomes. You start limits low at your most vulnerable and increase them as your price improves. You spend nothing on marketing but allow absolutely anyone to use affiliate banners and give your API out to anyone you can especially arbitrage and odds comparison services. Your low margins mean you are the other side of arbitrage trades all day and all night and the square book your price is against is so bad at pricing you must be getting the value side of the arbitrage trade. In fact you are getting it over and over again but always moving your price to capture that small bit of value every time. You become the single largest punter that Bet365, Ladbrokes, William Hill etc has and all without opening a single account. Your risk management must be largely automated and you must have the servers of an investment bank. Anyone else trying to setup this model and succeed must do so with smaller margins and better risk management and not to mention a lot of capital. The only one I see really trying this is Marathon and they have not got to the point where they will not close accounts, in fact far from it. What about all those Asian bookmakers accepting winners? Well they are happy to take them on events where they see a huge volume of square money, which are of course all football matches and some US sports and maybe decent level tennis matches. The Asian Handicap model is designed to be low margin, fast moving and high volume and the sharpness of the money once close to the off is almost an irrelevance in some cases and early on limits are low like Pinnacle while the market forms so the risk is low. They are not however running a Pinnacle model but simply have got a large enough square volume to adopt certain aspects of it and are more comfortable to have loss making areas as long as the book as a whole is profitable.
The Future of Odds Compiling
So where do I see the future of odds compiling? Ultimately I believe that odds compilation will become an entirely outsourced function for bookmakers (are they still bookmakers if they don’t make the book?). There will be specialised companies whose primary function is providing odds both pre-match and in-running. There are already several companies that do this and there have long been companies who made it their business to provide liquidity to betting exchanges. You are going to see even more homogenised pricing than you do now. The reason that you see so much “copying” of prices is that the liquidity is such now in certain sports betting markets that there is now what can be deemed a market price much like in the financial markets. In top-level football there is very little incentive for bookmakers to deviate heavily from each other. Believe me when I say that extensive studies have been done that show trading against the market in liquid sports is a loss making proposition in the long term as bookmaker, not necessarily as a punter but when you have to provide thousands of prices across so many events you are better served by following the market. There are increasingly companies that will look at the market and say that a combined price from Pinnacle, IBC, SBO, Betfair (when liquid) and Bet365 for football for example can easily be concocted from API and will be more than solid enough. These operations aren’t going anywhere and see a staggering amount of bets, which keep the prices true. So why do they put arbitrage opportunities up all the time even in liquid markets I hear you cry. The answer is we are still in a period of transition in the industry and some are still coming to terms with the idea of a market price that should just move on weight of money and not a trader’s opinion.
I actually envisage growing confidence from bookmakers in these consolidated feeds. They eliminate arbitrage or at least with any sharp sources and they are cheap to use. I think they will also outsource all risk management as well. There will always be exotic markets attached to the core liquid ones and if bookmakers have any sense they will raise limits on the core and reduce the limits on exotic stuff to 100 pound takeout which is fine for the average “amusement” bettor. As for horse racing I have no idea where that will end up, SP only maybe? I actually think that pari-mutuel betting with very low margins would be the way forward, a sort of universal Betfair SP. In Asia this kind of pool betting has not deterred punters of either the recreational or professional type. The problem with the UK is the amount of terrible racing that is on but who knows if every bookmaker pooled tickets, and Betfair and the Tote and shared the profits then maybe something of worth could emerge and it would also put pay to some of the rancid SP rigging that goes on. Punting will become about beating the market as a whole and not picking off the sick and the weak prices from bad books. This will require punters and tipsters to understand the strengths and weaknesses of the markets they tip in as much as the sports themselves. Ultimately do not concern yourself with how the price is made or whether all bookmakers are showing the same price, only concern yourself with beating it, as there will always be flaws and edges to be found even if they become smaller and harder to spot.
Written by Matthew Trenhaile
You can follow Matthew on twitter @CrazedAlchemist and he also has his own blog.
This post originally appeared at www.daily25.com. It has been reposted here with the permission of Steve from the Daily25 blog. It is written by a guest contributor at the Daily25 blog. He works at one of Australia’s biggest bookmakers but does love his job so wishes to remain anonymous. Being one of many sportsbook insiders I converse with on a regular basis, I shall cleverly name him Spinsider. I email with a number of people who work at sportsbooks, they have all stumbled across this site and contacted me. You can imagine that we have a lot in common and a lot to talk about. I have found that all the workers of these big corporations are great guys. I always feel a tinge of guilt when calling out sportsbooks, as I personally know workers there, but it is not the workers who are the issue, it is the way the owners have created a culture in each company much like those seen in the wolf of wall-street. The goal of all employees is to make as much profit for the company as possible and this sometimes leads quite nice people into doing reprehensible things in the name of profit.
This article will give a small glimpse into the lengths that bookmakers go to profile every single customer and then weed out any that may one day make a profit. This is a major issue in our little sports-betting world, and an important story to get out there to the general public. I’ll hand it over to the Daily25 Spinsider and I’ll be back at the end of the post to add some of my own opinions.
From inside a corporate bookmaker
Sometime back, Steve contacted me privately to write a piece for his ever growing and popular blog daily25.com. I apologise to Steve for the lateness of this as I’ve had a few personal items get in the way in addition to a little overseas trip I had to attend to, but here it is. I don’t usually do this kind of stuff (writing articles) but I can genuinely see that Steve means well in what he is trying to do, is an advocate for fairness, and I know from my brief discussions with him he is a genuinely good guy. That means a lot to me. Who knows I might take up my own blog if I enjoy writing material myself. I guess Steve will tell me if this is a hit.
To introduce myself, I’ve worked in the gambling industry for roughly 4 years here in Australia and am doing so currently for a major corporate. I have, and currently do a fair bit of sports punting myself so I can relate to both worlds very clearly. Sometimes I read tweets and blogs and articles on major newspapers like The Age for instance and get annoyed because only one side of the story is presented. I understand the perspective of the bookie – hey I’ll admit I wouldn’t have a job if losing punters (you guys) didn’t pay my wage, and I understand the frustrations of not being able to get a bet on and getting restricted and getting my account closed. On the flip side, if bookies don’t make profits, you the punter have less options to bet with and hence less promotions and offers. It’s a vicious circle.
Why Bookmakers Limit Winning Players
This brief article looks at how accounts get flagged and hence end up as a dreaded restricted accounts. The last thing any punter wants is to go enter in a stake and be told their business isn’t wanted. Why don’t they want my money? In short: yes, consistently winning punters are shown the door. But let’s understand why that’s the case before I go through typically how it happens. A corporate bookmakers overall aim is to make profits, because that’s what the owners and shareholders are looking for, nothing else. You don’t make growing profits, you lose your job. Individuals within the organisation get greedy and in-order to meet their individual targets look for ways to make more and more of a margin, an easy way to assist with this is to remove business (punters) who look like they will cut into their margins. Corporate bookmakers are complex beasts. Many hundred employees, across trading, marketing, IT, finance and so on. They’re all human, they all need to get paid, and so do the shareholders. I’ll be honest with you, there’s a culture of always trying to be unfair with the customer, and there doesn’t have to be. In other words, trying to deceive the customer, the very guys who pay our wages. As a punter myself it annoys me, because I know other bookmakers are doing it to me. The difference is, I understand it.
How Bookmakers Identify and Profile Winning Players
Anyway, back to the point of this article – how accounts get flagged. The couple bookmakers I’ve worked with have complex risk teams who monitor all customer betting activity, betting trends and so on. When I say ‘all’ betting activity I mean ‘all’ betting activity. Below I will go through a few techniques:
IP Addresses are tracked at both an account level as well as a bet level. Even though you try and create a new account under your mums name, if there’s ever a bet or account that has the same IP Address these are flagged immediately. Things like MAC addresses and the like are captured but to my knowledge are not used for filtering purposes. Also if you and “your mum” start betting on similar sports at similar times, your profiles will match.
- Unique accounts – just like any business there are rules in place to ensure that same people do not have multiple accounts. Things like date of birth, suburb, address, device id of your android or apple device are compiled, and compared against one another on an ongoing basis. When new accounts are created they are compared against to the existing database instantly are these accounts are grouped and monitored.
- Cookies. No I am not talking about the bad boys your grandmother gives you. Every time you appear at the bookmakers website either logged in or not they know you are there. In Australia these are automatically placed on your browser and there’s not much you can do about it, unless you clear your browser cookies each time. There are no laws like the UK where you have to opt into such behaviour. Everything from time the site was visited, to clicks on a page, to hover over links, to session length is stored and then you are profiled. There’s no hiding. From here you are placed in “user profile buckets” where suitable marketing or promotions or offers are chosen to be applied to your account to keep you engaged.
- Social media – the two bookmakers that I’ve worked at have complex CRM (Customer Relationship Manager) systems that are constantly evolving. Risk and Customer Service teams are constantly trolling Twitter, Blogs, Facebook, employees from other bookmakers as well, tipping service subscriptions and people with industry knowledge and these are all noted on the customer’s account. Reports are generated daily basis on all betting activity (bets placed, profit/loss and so on) and these people are closely monitored. People who tweet together are put into “pools” and are known as “syndicates”, official or not. This is why some accounts get banned the very few minutes after they create an account. It’s because they get flagged via mechanisms above before they even create an account. I’ve seen accounts pre-created for people and restricted just in case they turn up some day. My favourite is when people post pictures of their accounts/betting slips on Twitter, it makes the job so easy to flag accounts.
- Staking – when you create an account everyone has the same staking level. Once you start “winning” on a daily, weekly, monthly basis (everything is reported) your staking level starts to change or get reduced. If you are really crap at a particular sport the amount you can stake increases. This can be achieved per bet type or sport, or competition or split between racing and sport. This is why you see sometimes you can bet big stakes on cricket (it’s because you constantly lose here) but small stakes on racing (because you constantly win here). Why ban you completely? Bookmakers might as well restrict or ban you when you’re winning and let you lose where you’re losing. Most of this is manually performed at the moment, however the intelligence to make the decision is all automated.
- Trends betting – If you and a few of your mates are betting on the same type of selections at the same time of the day, it will be noted. One of the two bookies I’ve been involved with have an engine that compares bets (exact bets) between different customers and looks for trends. This runs 24/7. If a whole bunch of people bet at the same time on the same selection, it’s obvious they are from the same tipping service. Do you think that bookmakers aren’t subscribing to these services themselves? You’re a bit naïve if you think they aren’t.
- Tipping – ah, another favourite. Ever created a personal tipping competition between your mates? Well it is your lucky day you have all been grouped together, similar to the staking item above, if one punter within the tipping group is really good at Sport X, this may reduce the amount that can be bet by any members of the group.
- Betting Back – don’t be fooled into thinking that every “good punter” is restricted or banned completely. Why would any bookmaker do that? Most of the really good guys have their bet taken, then the bookmaker will place the same bet at a better price back into Betfair (or at least hedge it for a loss), or place the same bet onshore or offshore at private bookies. I’ve heard things like bookmakers have systems to check arbers on particular Betfair markets but I’ve never witnessed or are aware of this system myself.
Why Believing You Are Better Than the Bookmaker is a Bad Idea
Bookmakers have got really sophisticated in the past few years because they know the Australian market is growing and will continue to grow over at least the next 5 years. They all want a piece of the massive market share pie. Don’t be put off by the promotions and special odds, they’re all for show. When Tom Waterhouse tells you to “take him on” that’s because he knows with a high degree of certainty that whatever selection he’s offering the enhanced odds on will lose. These bookmakers have models and systems in place that will provide them the result of a race. The guy sitting behind his computer at home has no chance against the 50 traders who work around the clock who do this stuff day in day out with complex modelling. You’ll never win. Bookmakers only exist if they take your money. On the other hand, they are not a charity, they’re a business.
How Bookmakers Will Identify Winning Players in the Future
The monitoring activities briefly listed above are just the tip of the iceberg. I’m sure in next to no time personalisation software will be able to map out every customer touchpoint or interaction that they have at any point so they can predict your next move before you even do it. My advice is – Big Brother is always watching. Do you want to keep out of the bookies eyes? Don’t make multiple accounts, clear your cookies, keep off social media or do it anonymously, throw the bookmaker off every so often with a really stupid bet. Everything gets reported. Everything is automatic. Everything gets monitored. I could ramble on all day really about a plethora of topics however I’ll leave it there. Hope to touch base again in the future.
End Comments by Steve from the Daily25.
Firstly a big thank you to our industry insider. While this is not everything that is done, it is a very handy list to have. Now that you know some of the rules of the game, you can now take measures to game the system. Luckily for me I have a background in IT and have been in the punting arena for over 15 years (10 doing casinos, 5 with sports). Creating new clean accounts is a science and sadly a necessity in today’s world of limited accounts. If you really want to get a bet on you have to work pretty hard at staying under the radar. Things like IP and MAC address can be easily spoofed. Cookies can be turned off by using incognito mode in your browser. Social media is another issue, as if you or even a friend ever likes or follows a bookmaker, then the amount of information available is immense. My longest lasting accounts all have no social media presence.
I hope this article enlightened you a little about the amount of effort bookmakers go into to make sure no winners ever get a chance. They spend millions a year on staff and tech to make sure they only have losing accounts. So much for the Australia ethos of a fair go. As most of these bookies are British they don’t understand that concept and are slowly realising that it won’t stand here.
- Hedging sports bets can enable you to reduce your risk, but it will also reduce your potential ROI. Therefore it is a tradeoff between risk and reward that you as a trader have to make.
- Be aware of potential pitfalls such as bookmakers voiding your bets as they can leave you exposed with high risk and no upside.
“A hedge is an investment to reduce the risk of adverse price movements in an asset.” - Investopedia
An Example of Hedging a Sports bet in a Russian Premier League Game
As a sports trader you can reduce your risk by hedging a trade you have placed. For instance on November 30th, 2016, Ural played Rostov in the Russian Premier League. The opening odds for the game offered by Pinnacle is included in the table below. Rostov both being higher placed in the League and being a team that beat Bayern Munich at 15 in odds in the Champions League the week before was the favorite to win the game.
Soft bookmakers typically place their odds lower than the odds offered by the sharp bookmakers such as Pinnacle, because they have a lower payout rate. 2,5 hours before kick-off, November 30th, the Norwegian bookmaker Norsk Tipping (NT) offered the game at 2.95 for a Ural win. However at this point in time the odds at Pinnacle had dropped to 2.17 (removing their 2,5% vig, the true odds would be 2.26) resulting in a 30.5 % edge [ ((2.95 / 2.26) -1) *100% ]. Next, Norsk Tipping most likely noticing a large amount of money placed on a Ural win adjusted their odds to 2.6 resulting in the odds below.
However, this was still a 15% edge versus Pinnacle. I placed the bet at 2.6 on NT with a stake of 850 NOK or approximately 100 USD. If Ural wins I would get a return of 260 USD and a profit of 160 USD (Stake returned - Initial stake). After I had placed my initial bet, I kept monitoring the odds at Pinnacle, which kept dropping. With such a large edge I now had the opportunity to hedge my bet to completely eliminate any potential losses if Ural failed to win, while making a smaller profit if they win. This was achieved by placing a bet on Rostov to win on the Asian Handicap line of +0.5 at Pinnacle at 1.96 in odds about 20 minutes after taking my initial position. Meaning that if the match ended in a draw, Rostov would have a 0.5 goal handicap, the result being a Rostov win. By hedging on Pinnacle I would have a return on investment of 11,7% given a Ural win [ 1 / (1/2.6 + 1/1.96) ]. While breaking even on any other outcome (a draw or a Rostov win), so basically I was freerolling the game without any risk of potential losses. An important point to note is that hedging differs from arbitrage, because the bets take place at different points in time. This enabled me to get a much higher ROI while taking positions on both sides than what I would have achieved through arbitrage at the time I placed my initial bet.
New Information in the form of Lineup Changes Made the Odds Drop
The odds at Pinnacle kept on dropping all the way until kick-off as new information became known to the market. Most likely due to Rostov resting several key players, the pictures below compare the lineup Rostov fielded vs Bayern on the left and Ural on the right.
When the match started Ural had become the favorite and Rostov the underdog. Pinnacle offered the following odds:
The vig-free closing odds offered by Pinnacle at a Ural win would be 1.76 [ 1.71 / 0.973 ]. (You can read more about why the closing line is a good approximation of the true odds of a game here). The closing edge versus my initial trade at 2.6 would have been a 47,7% edge [ ((2.6 / 1.76) -1) * 100%) ]. It is also worth to note that I would have had better odds on my hedge trade if I had placed it closer to kick-off.
The Pros and Cons of Hedging a Sports Trade
The game ended with Ural winning 1-0, giving me a profit of $60. However, if I had simply stuck with my initial trade of a Ural win at 2.6 in odds without hedging I would have made a profit of $160. This highlights the pros and cons of hedging sports. The advantage of hedging was that I managed to eliminate my risk on the game. However, the disadvantage was that I reduced my potential ROI.
Now, because of Norsk Tipping’s specific rules, the Ural - Rostov game was not offered as a single, meaning that I had to match it with another game to form an accumulator. I ended up combining it with another team scoring 2 goals or less in another game at 1.01 in odds. They ended up scoring 2 goals, so it was a close call, that ended with the trade being good. However this also meant that in reality my hedge trade was not completely risk free. If the 1.01 game had not gone in, I would have ended up losing the $100 I placed through Pinnacle. Also, bookmakers often reserve the right to void bets where the odds is wrongly set. This could potentially have left me with a huge -EV trade. So if you are going to hedge your trades, make sure you are familiar with your bookmakers rules and practices.
Lessons Learned from Hedging a sports bet
What did I learn from this experience? One can only make decisions with the information one has available at that point in time. I could not know whether the market would continue dropping in odds on a Ural win after I placed my initial trade or whether it would swing the other way. Therefore I made the decision to hedge my trade and freeroll the game for a guaranteed profit if Ural ended up winning. In hindsight, I would have made the same decision if the trade had been a single on NT. However if I come across trades in the future where there are hedging opportunities, but the game is not offered as a single I would rather run the risk with the potential upside of a larger return on investment
To sum it up hedging a sports bet can enable you to reduce your risk, but it will also reduce your potential ROI. Therefore it is a tradeoff between risk and reward that you as a trader have to make. In addition, you should be aware of potential pitfalls such as bookmakers voiding your bets as they can leave you exposed.
Marius Meling Norheim
"Arbitrage is the simultaneous purchase and sale of an asset to profit from a difference in the price. It is a trade that profits by exploiting the price differences of identical or similar financial instruments on different markets or in different forms. Arbitrage exists as a result of market inefficiencies"
How high-frequency trading firms exploit arbitrage opportunities in the stock market
With today’s technology, the pricing of stocks is updated within a few milliseconds of real-time. This is way faster than a human is able to perform calculations, which makes it difficult to find arbitrage opportunities in financial markets. As a result, firms who are performing day trading are now using computers to perform algorithmic electronic trading at a speed that is impossible for humans to match. The way this works is that you give the computer a set of instructions, which will trigger it to buy or sell stocks. These instructions can be related to price, timing, volume or a mathematical model. For instance, you write an algorithm that tells the computer to buy 1000 Tesla stocks whenever the price goes above $200 and sell if the stock price increases by 10% above the purchase price. For more reading on arbitrage and algorithmic trading, check out the links.
The non-fiction book “Flash Boys” by Michael Lewis, tells the story of how high-frequency trading (HFT) firms used a super fast fiber optic cable that connected the financial markets of New York with Chicago to perform arbitrage trading. This $300m cable reduced the journey time for data from 17 to 13 milliseconds. An advantage, which enabled the HFT firms to obtain better prices on their trades compared to their competitors.
To illustrate how this works in practice let’s imagine that a hedge fund wants to buy a 100 000 shares of Tesla stock. This purchase will be spread out on multiple stock exchanges to ensure that they get the best possible price on their purchase. As a result 60 000 shares are purchased on Nasdaq for $200 per share, but once someone buys stocks in a company, the price will increase. Thus there are only a limited amount of shares are available for $200. Once the purchase has been made the stock price of Tesla increases to $202 on Nasdaq. Therefore the hedge fund will look at buying the remaining 40 000 shares at a better price on a different stock exchange. At the London Stock Exchange (LSE) Tesla is still trading at $201 because the price has not been updated yet. What happens is that the HFT firm will notice that someone has purchased a large amount of Tesla shares on Nasdaq and therefore they will leverage their faster cable connection to purchase Tesla shares at the London Stock Exchange before the price increases to $202. So let’s say the HFT firm manages to buy Tesla shares at $201 per share at LSE. They then sell the stocks to the hedge fund for $201.99 and pocket a 99 cent profit per share. All of these events take place within a couple of milliseconds and are enabled by the firms using complex computer algorithms to perform their trading. In reality, the pricing difference is more likely down to 1 cent or less, rather than the 99 cents used in this example. However, if the HFT firm is able to perform thousands of trades like this during a day, then the profits will add up to huge sums in the end. According to the article at Harvard Politics, the HFT market produced profits of $5 billion in 2009, but declined to 1.25 billion in 2014. Also, HFT trading accounted for 73% of the total daily market volume on U.S. exchanges in 2014. A possible explanation for this decline can be found in the macroeconomics principle of perfect competition, which states that the existence of economic profits within an industry will attract new firms to the industry. The increased competition will result in diminishing returns for the firms and in the long run the industry will reach the state of perfect competition, an equilibrium where the industry profits equal zero. A second possible explanation is that the stock exchanges have improved their own connections, which reduced the relative edge that the faster connection provided the HFT firms.
According to Investopedia’s definition, arbitrage opportunities exist as a result of market inefficiencies, which allow investors to exploit price differences. Therefore it is not limited to just investments in stocks, but really any market where such opportunities exist. As a result the HFT firms also trade other types of securities such as bonds, futures and foreign exchange contracts. The rest of this article will focus on price inefficiencies within sports markets.
Arbitrage opportunities in sports markets
Within the world of sports betting there exists bookmakers where you bet against the house and betting exchanges where you bet against other people. The latter can be compared to a regular stock exchange, the main difference being that the traders buy and sell bets on the outcome of events such as a football game rather than stocks. What makes the sports market interesting from a trading perspective is that it is more inefficient than the financial markets, which in turn creates arbitrage opportunities. At the free site oddsportal.com, one can compare the odds of a game provided by different bookmakers and betting exchanges, which enables you to see the inefficiencies that exist within the sports market with your own eyes. I’ve included a screenshot of the odds from different bookmakers on the Liverpool – Manchester United game that was played on 17.10.2016.
The odds of a game’s outcome reflect what the bookmaker believes to be the probability of that outcome. The probability of an outcome equals the inverse of the odds, in addition one has to adjust for the bookmaker's payout rate, which is the amount of money that they pay back to their customers. For instance Mybet has a 90% payout rate, which means that they take a 10% cut of the money that is placed on this game. Next let’s compare the odds provided by two different bookies.
What we can see here is that the two bookies differ greatly in what they believe will be the outcome of the game. Now this leaves us with the question of which bookmaker is right and are either of them able to accurately predict the game’s outcome? The earlier screenshot above shows that Mybet’s odds for a home win is 2.40, while the closest bookmaker is at 2.27. This large deviation from the rest of the market indicates that Mybet is the bookmaker who underestimates the probability of a Liverpool win. The consequence of Mybet having mispriced the probability of a Liverpool win, by placing their odds at a higher level than the rest of the market, is that it creates an arbitrage opportunity. More specifically it makes it possible to put money on the outcome of a draw and an away win at two other bookmakers with a guaranteed ROI of 2.62% as can be seen in the screenshot below.
This is what is referred to as a surebet. The advantage of surebets is that in theory you are guaranteed a profit without any risk. Surebets are also called arbitrage bets and have been covered in even more detail in this article. While this article covers some practical experiences of using arbitrage betting from Vida, a guest contributor at the Trademate blog.
However, the majority of surebets will occur at the soft bookmakers (will be defined later), which can lead to several practical disadvantages:
- Soft bookmakers limit sports traders who are able to win consistently.
- You need to find high enough odds on all of the outcomes for it to add up to a surebet.
- If the odds deviate too much from the rest of the market, bookmakers are able to void bets placed on that game. Imagine the following scenario: you are following the recommendation in the screenshot above, by placing money on a home win at Mybet, a draw at Vulkan bet, but when you are trying to place a money on an away win at Leonbet, you are limited to place a maximum of $1. You are now unable to complete the surebet, which results in a huge negative expected value on the bet. (If you are unfamiliar with the statistical concept of expected value (EV), read this short article) Now whether you are investing in stocks or sports the most important principle is to avoid loosing money, because if you loose 50% of your capital ($10 000 → $5000), you will need to increase it by 100%, just to return to the starting point ($5000 → $10 000).
- You will need to distribute your capital and thus tie up your capital across a very wide range of bookmakers to take advantage of the surebet opportunities.
Because of the disadvantages with arbitrage trades (surebets) listed above, a better strategy is to place a high volume of +EV trades. An example of a value trade would be to place money on a home win to Liverpool, which has a +6.06% EV. Over a large sample size placing +EV trades should be a profitable strategy in theory. This is based on the assumption that the Asian Bookmaker's odds accurately reflect the true probability of a game’s outcome, which is covered in this article.
WHY INVESTING IN SPORTS OVER STOCKS MAKES SENSE FOR PRIVATE INVESTORS
A rational investor will attempt to maximize returns while minimizing risks. This implies that they will invest in the markets or financial instruments where the potential return / risk ratio is the highest. Investors in financial markets can broadly be divided into two categories: Long-term oriented investors who rely on fundamental analysis and short-term oriented investors who follow a trend or technical analysis. The former are often referred to as value investors, which means that they try to identify assets that are underpriced by the market. They also require the asset to be significantly underpriced, which provides a margin of safety, before they purchase a given asset. What I view as the main disadvantage for the value investors is that, because they are oriented towards the long-term, which can be anytime between 3-10+ years, it means that they will tie up their capital in investments for a long time before potentially reaching a positive return on investment. In the meantime, you do not know whether your hypothesis that the asset is underpriced holds true.
The opposite of strategy would be day trading, taking advantage of short-term price discrepancies in the market. Day traders apply different methods such as looking at chart patterns or technical indicators in order to predict future market movements. Now the main disadvantage with being a day-trader is that computers are superior to humans in performing statistical analysis and for discovering patterns in large datasets. Thus gaining an edge in the market when you are competing against HFT firms is very difficult. The gap in access to information held by hedge funds compared private investors have increased dramatically in the last decades. Today hedge funds can rely on real-time satellite images of the parking lots of JC Penney to predict their quarterly returns, while private investors rely on historical financial statements. The result being that it is very difficult for private investors to compete against the professional hedge funds, especially if they rely on technical analysis. This is because, if there does exist price inefficiencies in the stock market it will be exploited by the HFT firms way faster than any private investor is capable of, returning the market to an efficient state. Thus in practice, the day trader performing technical analysis is competing against HFT firms, with access to less information and using inferior methods.
To manage risk the principle of portfolio diversification is followed by both groups of investors. The short-term investor will typically mitigate risk, by making a high volume of smaller trades with low risk and low returns that add up and provide a positive ROI. In comparison, value investors will make a lower volume of investments, but with a higher potential ROI on each of them. Similar to the day trader a sports trader will perform a high volume of smaller investments on the sports market. With any strategy, it is important to set up a feedback loop that provides you with data on how your strategy is performing. Within sports trading, the natural benchmark is to measure whether the odds you are putting money on is able to consistently beat the closing lines of the sharp bookmakers. If so, you will have a positive expected value, which in theory should lead to profits over a large sample size of sports trades.
Poker players will be familiar with the difference between the short and the long term. In the short term is possible for anyone to win, regardless of skill. Because luck or randomness has a large impact on the outcome. While in the long run, the random variance will even out and the players who have an edge will be the ones making a profit. The same holds true for people who trade in both the stock and the sports markets. Anyone can make a profit in the short term, but in the long term only traders who make decisions with a positive expected value will be profitable.
How price differences occur in the sports market
The reason that computers running algorithms are used to trade in the financial markets is because in these markets prices are updated so fast that it almost impossible for humans to exploit. In the stock market the difference in price that you will be able to obtain when purchasing Tesla stock at Nasdaq versus LSE is close to identical since the updates happen within milliseconds across exchanges in different markets. While in the sports markets the same asset, the outcome in the game between Liverpool and Manchester United is priced differently at different bookmakers or exchanges. In addition, these inefficiencies are not necessarily corrected in real-time. For instance, in the game between Chelsea vs Manchester City on February 21st, 2016 it took the bookmaker Norsk Tipping almost 30 minutes to adjust their odds compared to the Asian market, as seen in the image below. You can read more about how value occurs in the sports market by clicking the link in the previous sentence.
Now compare this to the stock market, where the price would have been adjusted within milliseconds. These market inefficiencies create arbitrage opportunities that can be exploited by smart sports traders.
Being a sports trader
For professional sports traders, the majority of work is put in during the weekends because this is when the majority of games are played. In a given weekend you can potentially run through your bankroll multiple times by placing a high volume of sports trades. Trades are typically placed within a couple of hours before the game starts to reduce the variance that may occur between the opening to closing lines of the bookmakers. Thus the capital of the investor is tied up in the investment for a shorter period of time. The result being that you can grow your fund much faster, than for long-term investments in the stock market.
For example, if your bankroll consists of $10 000 and you place sports trades with an average of + 3% EV per trade. +EV being the trades where you get a higher odds than the closing lines of the sharpest bookmakers. Now let’s assume that you place your trades with a flat structure* of $100 per bet and that over the weekend you place 100 bets. Then your expected profit would be: 100 (trades) x $100 * 1,03 (EV) - $10 000 = $300. Now obviously, whether you endure winning or losing streaks will have an impact on your actual profits . If we assume that there is no variance in the 100 trades we placed or in other words that we are neither lucky nor unlucky, our actual profits would be equal to our expected profits of $300. In reality, the variance will only even out if you are able to place a high amount of +EV trades.
*Your bet sizing is an important topic when trading in the sports market. You can read more about bet sizing in this article.
To sum it up there are 3 main advantages of trading in the sports market compared to the stock market:
- Market inefficiencies enable arbitrage opportunities.
- Shorter investment cycles provide a higher potential for profit growth and reduced capital tied up in investments.
- Faster feedback loop on strategy performance.
Written by: Marius Meling Norheim
Disclosure: Neither I, nor Tradematesports have any affiliation or receive any form of compensation what so ever from any of the bookmakers, websites or companies mentioned in this article.
Learn what value bets are and how it can improve your sport betting strategies today!Read More
The biggest struggle profitable bettors taking on the "soft" books have is not getting limited from them. We have put together a set of guidelines you can follow to extract even more value from the "soft" bookmakers.
Follow our recommended leagues
Trademate has a filter called recommended leagues. By selecting this, you'll only be presented with opportunities from the leagues with the highest betting limits. This includes Premier League, Primera Divisione, NBA, NFL and many more. These leagues are the ones that most people bet on - so it's easy to hide in the mass of all the non-profitable betters.
Bet whole amounts
Arbitrage betting is very usual in sports betting (A topic covered in this article) - so bookmakers look out for bet sizing out of the ordinary. Instead of placing the exact recommended kelly amount of $162, bet $160. The Kelly Criterion as a stake sizing strategy for bankroll management in sports betting has been covered in this article.
Never cash out before you have to
Never cash out from a bookmaker before you're limited. Bookmakers are paying fees whenever you cash out, so that's an easy way for them to do a second look at your account. So you've tripled your bankroll in the past 3 weeks? Let's take an even closer look..
Don't push the max limits
Let's say you try to place a bet of $250 on a game. The bookmaker may tell you that you can only place $238 on the particular bet. Instead of putting the $238, bet 60-70% of the max stake, in this case $150.
Some bookmakers even give you the opportunity to automatically put the max limit of $238 and send the remaining $12 for manual clearance. Never do that.
Add in some accumulators with a lower bet size. This will make you look more of a "recreational bettor" and its something bookmakers appreciate. Lower your bet size for these as the variance is higher.
One bet per game
Bookmakers place betting limits for a reason. The reason is usually that they're not really sure if their odds in a particular game are any good. If someone comes in and places bets on Over 198.5, Over 199.5, Over 200.5 and Over 201.5 - it's pretty clear that they're trying to get value. Bookmakers don't like that.
Also - placing more than one bet on a game has a great impact on your variance, but that's a whole other discussion, we'll touch upon in another blog post.
Make your first deposit small
Try to look like a hobby Sports bettor. Depositing $10,000 in a brand new account is an obvious way to tell bookmakers that you're trying to beat them.
Wanna be really clever? Throw in an accumulator once in a while.
In general you want to avoid accumulators as covered in this article. Bookmakers make most of their money from accumulators. Their margins increases for each bet in the accumulator. But matching different value bets will still give a positive expected value, however it will increase your variance. So use it carefully. By doing this though, you look more like a non-profitable player to the bookmakers.
Nothing lasts forever
Unfortunately, by continuously placing profitable bets and beating the bookmakers - chances are they will limit you eventually. After all - they are losing money on you.
However, by following these steps we are confident that your accounts will last longer, thus making more money from each and every soft book! And hey, once they're all used up, you can always transition to the Asian markets.
Remember if you have any questions, we're only an e-mail or message away. Good luck and happy betting!
As part of any form of investing it is important to have a benchmark that you can compare your performance against. Otherwise, you do not know whether the results you are getting are because you have made smart decisions or luck. Professional poker players use analysis software to track their hand history, enabling them to review whether they make decisions with a positive expected value. E.g. calling hands where they have pot odds. For stock investors, a suitable benchmark is how you perform against the S&P 500, an index fund consisting of the 500 US companies with the highest market cap (Stock price x volume of shares). For sports traders, the benchmark is the odds at the time the match kicks-off, what is known as the closing line. This article covers the topic of whether sports betting markets are efficient. A key assumption about the accuracy of the closing line, is that because it has been shaped by all the bets placed at the bookmakers, and because they know where the rest of the market have their odds, the sports betting markets are very efficient at the time the games start. Or in other words the closing line is a great benchmark.
The goal for sports traders is to beat the vig-free closing line of the sharpest bookmakers
No one is able to accurately predict the outcome of every sporting event. However, this does not imply that it is impossible to become a profitable sports trader nor that those who are profitable are merely lucky. The goal when trading sports is not to win every bet you place, but to make decisions that have a positive expected value (+EV). E.g placing trades that have a larger chance of winning than implied by the odds. This article explains the concept of expected value. Over a small sample size of trades anything can happen or in other words variance will have a large impact on your results,. However, over a large volume of trades the variance will even out (the reason for which is explained in this article) and only sports traders who are able to consistently beat the vig-free closing lines at the sharp bookmakers will be profitable. In the sports market, the sharp bookmakers’ closing lines are considered to be the expected value. Meaning that If you traded at a higher odds than the closing line you have made a +EV trade, while if the odds you traded at is lower than the closing line you have a -EV trade. Now obviously at the time you decide on whether to place a trade or not, you do not know what the closing line will be. However there are multiple factors that impact the movement of the odds and thus the closing line, such as the time before kick-off, the bookmakers payout rate and the liquidity in the market, which will be discussed next.
Time before kick-off
The odds are a reflection of the information possessed by the market. Thus the longer before kick-off you place a trade, the more information might appear that can affect the odds one way or the other. Therefore trades that are placed closer to kick-off will most likely experience less fluctuations.
Payout rate and liquidity - The difference between edges (+EV trades) at soft vs sharp bookmakers
The main difference between the soft and the sharp bookmakers is their payout rate and liquidity. An edge occurs in the market, when there are differences in the odds offered by the various bookmakers. This is commonly referred to as a value bet, which you can read more about here. The majority of the soft bookmakers have a lower payout rate than the sharps. So for instance the odds at Manchester United winning at home vs Arsenal this weekend is 2.50 at Ladbrokes and 2.68 at a Sharp Bookmaker Their respective payout rates are at the time of writing, 92,6% and 98%.
Because the Sharp Bookmaker has a higher payout rate and allow larger bets to be placed on the outcome of this game than Ladbrokes, more money is placed on the game through the Sharp Bookmaker. The result being that the Sharp Bookmaker has more liquidity. More liquidity means more information, which means that odds at the Sharp Bookmaker is a better reflection of the true odds (the true probability of the game’s outcome). Now let’s imagine the scenario where news gets out 1 hour before kick-off that Alexis Sanchez, Arsenal’s best player is injured. The sharp traders know that this decreases the likelihood of Arsenal winning the game, so they will place a large bet of $1 000 000 on a Manchester United win, the result being that the odds of United winning at the Sharp Bookmaker drops to 2.30. If we look at the vig-free odds (removing the Sharp Bookmaker’s margin of 2%), the odds is 2.346 (2.30 * 1.02). The odds at Ladbrokes remains at 2.50, meaning that there now exists an edge in the market of 6.56% [ ((2.50 / 2.346)-1)*100 ]. The market movement from 2.68 to 2.30 is a fluctuation of 16.5%. For the Sharp Bookmaker's odds to swing the other way and eliminate the edge, it is going to take new information. This information must then convince bettors to place hundreds of thousands of dollars on a draw or away win to change the odds. Now there is only 1 hour before kick-off so we can assume that the probability of this occurring is rather low. This implies that what is an edge 1 hour before kick-off is also likely to remain an edge at the time of kick-off. Or in other words if we had placed that trade 1 hour before kick-off at 2.50, it is likely that we would have beat the closing line of the sharp bookmaker, thus it is a +EV trade.
In general the odds at the soft bookmakers is way lower than the sharp bookmakers, because their payout rate is lower. Thus for an edge to occur at the soft bookmakers, the market must drop by approximately 10% (because of the soft vig). The probability that the market will swing back to its original position is then fairly low. Whereas a 2-3% drop between the sharp bookmakers will create an edge, it then takes a lot less new information for the market to move out of your favor as opposed to the 10-13% drop at the soft bookmakers. The point being that if an edge occurs at a soft bookmaker, it is much more likely to remain an edge versus the closing line when the game starts, than an edge that occurs between sharp bookmakers.
Which bookmaker is the sharpest?
The bookmaker with the consistent highest liquidity in a particular market is considered to be the sharpest within that market. This is because more liquidity attracts sharper traders. Sharper trades possess information. Once they place a trade the market reflects the information possessed by this trader. Close to kick-off in a high liquidity market all of the sharp traders will have placed their trades and thus the market reflects the sum of the information possessed by the individual traders. The closing line represents what the market believes to be the true odds and thus probability for the different game outcomes.
Pinnacle usually has the highest liquidity and is therefore most often the sharpest of the bookmakers. Thus when edges occur between the sharp bookmakers it is usually because a sharp trader is placing a lot of money on a line at Pinnacle. This causes the odds to drop by 2-3 % and a 1% edge to occur versus the rest of the market. When this happens other traders will compete to capture the same liquidity on the other sharp bookmakers before someone else does.
When an edge occurs in the asian market, the sharp traders will keep betting the line until the value is on the other side, hence equilibrium is usually not the lowest-most point on the graph. Thus if you are able to place your trades at the peak edge it is very likely that the line will stabilize slightly lower than the odds you placed at. By placing trades on edges, you are placing your money on what is the right side of the market. Therefore it is more likely than not that the market will move in your favor.
Trademate is a valuable tool for sports traders, because it allows you to monitor market movements. Sometimes “false deviations” will occur at the sharp bookmakers, meaning that the line is pushed back to its original position, by someone taking a large position on the other side of the market. The result would then be that what was a +EV trade at the time you placed it, becomes a -EV trade 2 minutes later. As more money is placed on a game, meaning that the liquidity increases, it requires more money to shift the odds. Thus placing trades closer to kick-off means increases the likelihood of your trade being a +EV trade at the time the line closes.
Low liquidity vs high liquidity sport markets
In general, bookmakers only allow smaller stakes to be placed on lower leagues and smaller sports. Thus these leagues have lower liquidity than the major leagues such as PL, CL, NBA, NFL and MLB. As a sports trader this is important to know, because if there is a 5% edge on both a Premier League game and a game in English League 2, it is going to take a lot less money to shift the odds in the L2 game and thus turning your +EV trade into a -EV trade. Now, this could swing both ways, so your +EV trade could be even higher. The point is that the only thing that is guaranteed is that the lower liquidity markets are much more volatile than high liquidity markets. Therefore they can be considered to be riskier. In an example where you place both trades close to kick-off (<1 hour) then most likely both of the trades will end up as +EV trades versus the closing line. However, let us assume that you place both trades 4 hours before the game. Then it is much more likely that the L2 game is going to swing out of your favor than the PL game. Thus as a sports trader, you have to weigh up whether placing that trade at that edge is worth the risk.
- As a sports trader your goal is to place trades that beat the vig-free closing line of the sharpest bookmakers. Over a high volume of trades, only traders who are able to consistently beat the closing line will be profitable.
- The closing line in high liquidity markets reflects the true odds, because it incorporates all of the information that exists in the market.
- At the soft bookmakers it is likely that more often than not edges that occur pre-game are likely to remain +EV trades versus the closing line, because in order for the edge to occur in the first place the market needs to move a lot. This decreases the possibility of it swinging the other way and out of your favor.
- Placing trades close to kick-off reduces the likelihood that the edge will change dramatically.
- Lower liquidity markets are much more volatile and thus riskier than high liquidity markets.
What is an Arbitrage Bet, Surebet or Arb?
In an arbitrage bet or surebet you will bet on all outcomes of the game for a sure win. In a value bet you only bet on one outcome of the game. Thus the risk is higher, but so is the potential reward. A typical arbitrage bet is typically around 1%. In theory arbitrage bets are great, but in practice there are a couple of elements that makes them less appealing. E.g. the odds changing after you have placed one side of the bet or that the bookmaker voids the bet (palpable error). Both of these would lead to the surewin no longer existing. If you loose that bet, it will take you a lot of arbitrage bets to make up for the losses. Also, the number of arbitrage opportunities are less frequent as the odds needs to be high on all of the game’s outcomes. Because of this it is also a lot easier for bookmakers to identify and limit arbitrage bettors than value bettors.
What is a Value Bet?
Value bets are typically between 1-5%. However, the largest value bet recorded with Trademate was 182 % ! Valuebets occur far more frequently than arbitrage bets, because there only has to be deviations in odds on one outcome of the game. This means that you can get in several hundred bets/trades per week. Which again implies that you can get in a higher overall turnover and a higher compounded growth. The downside is that there is more variance, so the ups and downswings are larger. This is best mitigated by reducing the odds range and stake size.
You can read more about value bets in these three articles:
The Pros and Cons of Arbitrage vs Value Betting
- You can read more about the pros and cons of matched betting, arbitrage betting and value betting in this article.
- While this article covers the practical experience with what works and what does not with arbitrage betting vs value betting by Vida, a guest contributor to the Trademate Blog.