How Bookmaker's Profile Winning Players and Thoughts on Tipsters

Former Oddscompiler: Matthew Trenhaile

Former Oddscompiler: Matthew Trenhaile

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.

 

Player Profiling

In the following article, I will be looking into the subject of profiling. I will discuss and analyse the process and how it has changed over time, rather than just looking at the business and morale perspective of it. In my fourth article I will look at account restrictions, as I wish to explore and explain all relevant elements of the case.

In this article, I will also be taking a closer look at how tipsters work, in addition to taking a closer look at how they influence the trading decisions at bookmakers and their management of risk. Bookies will a lot of the times profile tipsters to some degree, rather than profiling the actual clients themselves.

Profiling in The Old Days

Bookies are known to have profiled bettors on a consistent basis throughout the years, be sure of that. For example, when betting at the racetrack, bookies had the option of rejecting your bets, change the place terms, only allow stakes that they were comfortable with, or even lay off bets to another bookmaker to have the liability change hands. There were definitely differences between tracks and areas, as they would demand different behaviours from bookies. This did not change the fact that they might have forced you to play at worsened odds, as they wished for you to change bookmakers. The knowledge of each bookmaker and their ability to identify the profitable bettors were extremely important back then, just as the situation is today. In the old days, they had to recognise people that were playing on behalf of profitable bettors.  

There is a chance that it was easier to place a great bet of a decent size, due to the approach of some bookies. Bookmakers used this information to create their own books the way that they wanted to. This was at the cost of the liability of the accepted bet, but also to over hedge the bet with another bookie at the same track, before they understood that someone placed a smart bet and that this could destroy their odds.

This way, it was sensible to earn smart money in manageable stakes early, rather than to get picked off in the future, when the opportunity to hedge the bets where a lot lower. At a certain point, this attitude changed and was abolished at European and American bookmakers, with the exception of a few that still remained in the Asian markets. If anything, as the number of bets have risen in the whole world, the hunger for early smart money in Asia has increased, as the fight to become the smartest and quickest has become something of extraordinary importance. So what happened to the rest of them?

Profiling with The Rise of Online Betting

Bookies in Europe and in America understood that when the online betting-markets were on the way up, there was a great amount of money to be made. However, when there is an unsatisfied need in a market, a lot of competition will arrive, and quickly. As the world of online poker had a dramatic increase, the market saw a betting boom. “Everyone” made a lot of money, and as a result there was a possibility of making money off Sharp betting and bonus-bagging, or even Arbitrage betting for a while. This was, of course, before anyone noticed and closed their accounts. Unfortunately, when the market stabilised itself and in addition was struck by the collapse of the US poker market, the job for bookies became a lot harder.  

Customer acquisition-cost became a lot higher, due to the increased number of competitors, all trying to get a hold of the current pool of clients. This was increasingly important, due to the decrease in poker revenues. At this point, the bookmakers had to lower their restrictions and limitations to make sure that they kept customers. Profiling was now driven by odds compilers, who were able to see bets laid, due to the vast improvements in technology at the time.  

I cannot speak on behalf of other compilers, but there were situations where the relationship between I and the bettor became personal, and I would pressure for a limitation or restriction of an account. This situation also happened in the opposite direction, as sharp clients betted once the market was settled, and in a moderate stake on a decent market.

Sometimes I would like the relationship between myself and the clients that played smartly, as long as they stayed “honest”.

As far as the online industry goes, the increase in Arbitrage Betting and the exploitation of bonuses took its toll on the bookmakers. This saw an extreme increase in how many clients were turned away from betting, just as much as how many they managed to get in. To the bookmakers it was all about becoming, and staying successful.

Risk Management Departments

To some bookies, it came as a huge surprise when they realised just how many of their bettors were making money from their sites or exploiting their bonus offers. This realisation only came around after they started to analyse their figures. This effectively meant that the common odds compiler did not have the time or the ability to do all of the profiling. Therefore, risk departments appeared at every major bookmaker.

A risk department is a team of people, who are rewarded if they manage to keep out the players that manage to turn a profit at their sites, meaning that the bookmakers lose money. As risk departments are paid after how many bettors they manage to keep out, there will always be people that look to exploit this, and take it too far.

Risk managers in the United Kingdom used to have the greatest tool available for them. This was because Betfair was available to them, and was advantageous because odds compilers weren’t able to beat Betfair at all markets every time, and therefore they knew that bettors that played at higher odds than at Betfair, would have to be sharp bettors. This assumption continued and escalated, to the point where there was a consensus that compilers couldn’t beat Betfair on any market.

The high focus with Arbitrage Betting in the United Kingdom betting industry was mainly aimed at backing the bet at the bookie, while at the same time, laying the bet at the Betting Exchanges. This was in place of placing three separate bets at the different bookies, for a guaranteed return. It is necessary to point out that there is still some risk involved.

People that work with odds compiling do not like traders that focus on Arbitrage, but will in some situations tolerate a sharp trader. This is due to the work ethic of certain sharp bettors, as they have to put in the time necessary to be able to calculate the results of matches and events. An Arbitrage bettor only has to worry about placing a bet after receiving a notification on a site, and cash in on the opportunity. In many compilers` eyes this eliminates the competition between opinions and knowledge, and therefore, they are less respected among odds compilers. Some compilers will tell you that the work is mentally and physically stressing, and takes a toll on them.  

Arbitrage Betting actually did a lot of positives for the risk departments, as they informed them about how the markets work, in addition to have them realise that the Pandora’s box was opened by sites that compared odds. It was also useful to understand that copying an already established sets of odds in the market was efficient, and it was also a factor in being able to decrease Arbitrage betting opportunities and certain types of sharp betting.

Identifying Arbers

The situation in the present is that there are entire teams and departments that are concerned with surveillance and monitoring bettors on a constant basis. This is because the bookmakers want every client to be a part of paying for the excessive budgets in marketing and advertisement, in addition to affiliates. If the bettor doesn’t generate a profit of some sorts to the bookie, it is more than likely that the bookmaker will take action, and either limit or eject the account. By now, it has become clear that is very difficult and complicated to beat a widespread arbitrage across all the markets, without changing the prices, and therefore these accounts get flagged.  

If you don’t change the prices along with the market, there is a clear chance that when you have the best price at any outcome, there will be an Arbitrage opportunity with another bettor in a place somewhere else. In this situation you will end up having the best price, even if it was unintentionally. This is if you don’t change your prices, including when you haven’t struck a bet yet.

The bookmakers have completely gotten rid of the thought of potentially losing money on a client of theirs, even if it was to make money on other clients. When we look at it like that, they have rejected the thought and concept of making a book. In reality, it would be very difficult to make a balanced book without the assistance of the Pinnacle Model, due to the high number of bookmakers one can bet with. The bets that are most often struck on a market are Arbitrage openings, and on some occasions Tipster selections.

Books that end up lopsided are a reality that is hard to avoid for most bookies, because of the fact that square money has a tendency to bet exclusively one way, in addition to betting at a different time compared to the sharp bettors. In some cases, however, they tend to bet the same way as the sharps, only at a changed price and at a new time. The latter of these bets are the best bets to take, even though they will be a part of creating a one-sided book. It is important that, when you have to cheer on a particular outcome, you make sure that it is one that the worst bettors have placed money on.

What Do They Look for When Profiling?

It is important to note that risk departments aren’t exactly the same at all bookmakers, but there are a few things they look for in general, that apply to most of them;

·      Is the account profitable? As crazy as this might seem, this is the reality of the situation. If your account is profitable, you will get noticed. It is impossible to hide from this fact.

·      Is the account considered to be sensitive to prices, and has the account placed a bet through a medium that is considered to be price sensitive? This might, for example, be a site that compares prices. Sharp bettors are considered to be price sensitive, and as a result they are not wanted.

·      When was the bet placed? If it was placed earlier than a day before the match or event will signal that something might be “wrong”, and raise attention to your account.

·      Is the price to be considered an Arbitrage price?

·      Did the price decrease greatly following the placement of the bet? The closing price is a lot more accurate than what the opening price is.

·      Did the bettor only place one bet, or did the bettor place a series of bets? This point might be debatable, but the common bookies like to see you place more than one bet at a time. This is because they want you to want as much action as possible, and for them to be able to profit at a maximum from you.

·      Have you made withdrawals rather than deposits? Bookies do not like to lose money.

·      Did you use an E-wallet when you had plenty of options that are more directly connected with the bookmaker available? This could be recognised as betting sharply, as you give the impression of wanting to move your money in fast fashion. This could also be mistaken as money laundering, which might lead to having your account flagged, regardless if you are or not.

·      If you haven’t used the casino, you should consider doing it.

·      Bookmakers don’t like bettors that place bets at niche markets, and don’t play the events that they highlight themselves.

·      Bookies also don’t like high stakes, as they make more money when people bet “for fun”. This is usually synonymous with placing low stakes.

·      Consider using the mobile platform that the bookie suggests. If not, be wary when changing IP Address.

·      Bookmakers actually raise their eyebrows when a woman places a bet, as they are not thought to be the “conventional” client. If they do, the bookmaker might suspect that they are going to exploit Arbitrage opportunities, or are a bowler account.

·      Do your bets match your demographic? Bookmakers are more thorough in gathering of background information nowadays. In the old days, the bookmaker might only want rich clients, but in the present they even accept students.

·      Do you allow their cookies on the site?

·      Have you placed bets at the same time as other bettors? Or have you placed bets at the same time as Arbitrage Bettors or Tipsters?

·      Never bet on a match that is fixed, or that might be considered to be fixed. This will flag you, whether it was intentional or unintentional.

·      Never establish yourself in the industry of tipsters, don’t associate yourself with the industry, don’t be friends or follow people in social media that are associated with betting.

There are probably other factors that play their part as well, but the list above works like a pointer, and if you follow these tips, your accounts might be safe. If you end up being limited or cancelled, ask yourself if you followed the list.

Tipsters

In the closing paragraphs, I will discuss the subject of Tipsters. Most of the time, bookmakers aren’t concerned with Tipsters (when considering the sharp betting perspective). Most bookmakers have a very high number of clients that follow the tips of Tipsters blindly, and therefore they don’t instantly inspire fear. Again, Steve has expressed his thoughts on Tipsters, as they are in now way a guarantee of a profit. Tipsters contribute to creating markets that are heavily weighted on one of the sides, which is unfavourable in the smaller and most liquid markets. Tipsters might also create overlaps with the points in the list above.

In general, a Tipster will try to tip at the best price and a long time before the event starts. Often, Tipsters are the reasons for why prices collapse. If some of their subscribers place high stakes at the exchanges, they might make other bettors look like Arbers (Arbitrage Bettors). This collapse could trigger those who bet on prices that are currently dropping, to push the market even lower, leaving the bookie with a negative and horrible result. This result would be difficult to turn into something positive, as they weren’t quick enough when changing the price. This is why bookmakers follow Tipsters closely.  

I, myself, have signed up for trials at Tipster services, to see and to understand the angle that Tipsters were taking, and if I had overlooked anything. Generally, compilers respect Tipsters that appear to be compiling their own price further, before they eventually tip a selection. A compiler that knew what he/she was doing, would always use the Tipsters to learn, if they had a great merit and history. Compilers will quickly dismiss Tipsters that don’t have any results that are verified, that don’t seem to have a clear strategy, and the ones with inflated ROIs beyond what they deem to be likely.

Said in other words, we as compilers, were trying to do the same as the punters are doing in high volumes nowadays, in addition to seeing who we should take seriously.

Websites that were related to betting, with useful stats and calculations of models were of high interest for us. Most of them were checked, but as it turned out, we were already sitting on the information from the past.

Exploiting arbitrage opportunities: From trading stocks to sports.

"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"

- Investopedia

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.

Odds comparison

Odds comparison

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.

Sharp vs Soft Bookie Odds and Probability

Sharp vs Soft Bookie Odds and Probability

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.

Arbitrage Bet / Surebet

Arbitrage Bet / Surebet

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:

  1. Soft bookmakers limit sports traders who are able to win consistently.

  2. You need to find high enough odds on all of the outcomes for it to add up to a surebet.

  3. 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).

  4. 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.

Difference in estimated probability between soft and sharp bookmaker

Difference in estimated probability between soft and sharp bookmaker

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. 

How value occurs in sports betting markets

How value occurs in sports betting markets

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

Conclusion

To sum it up there are 3 main advantages of trading in the sports market compared to the stock market:

  1. Market inefficiencies enable arbitrage opportunities.

  2. Shorter investment cycles provide a higher potential for profit growth and reduced capital tied up in investments.

  3. 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.