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 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.

Identifying arbers

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.

Tipsters

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.

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.