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.
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.
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.
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.
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. I have no doubt that Sportpunter can make money even at the AFL closing line and a recent study from the Secret Betting Club showed an eye opening result when looking at football tipster profits when using closing prices and yet few tipsters would want you to take the closing price because they do not understand how prices behave for the type of bets they suggest. 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. Next I will take a look at risk profiling and tipsters and what the new odds compiling landscape means for both.