How The Bookie Always Wins: Part Two

| April 13, 2016 | Reply

Last time, our bookie turned bettor, John Trent, laid out exactly how the bookmaker always wins. Today he wants to build on that a little, following some interesting feedback from a reader.

Enjoy and if you have any comments or questions for John, you can reach us at bettingrant@agorapub.co.uk.

Matt Houghton


A brief interruption before we get on to the question of betting ‘investors’…

One of the readers of my last article, Paul, has questioned my claim that a bookmaker will make money irrespective of whether the favourite or an outsider wins.

One example of where he thinks that wouldn’t happen was Douvan winning the Arkle at Cheltenham but he also gave a long list of other Cheltenham winners.

Let me explain why he’s wrong.

In the first place, the vast majority of people betting on the Cheltenham Festival are punters…

Many of those who visit the races are there for the occasion and, indeed, there is a huge amount of ‘business entertaining’ going on.

As a result, there’s an awful lot of betting in ignorance. And there are plenty of people who will bet on longshots purely because the return looks attractive, even though the chances of those longshots winning are very, very slim.

I don’t have all the prices in the run up to the off, I only have the starting prices and they are: Douvan 1/4 favourite, the others (in price order, not finishing order) are: 8/1, 9/1, 14/1, 33/1, 40/1 and 66/1.

However, during the run up to the start a lot of money would have been put on all the different horses. Much of it would have gone on Douvan. And the weight of money being put on to Douvan would have reduced the price to 1/4.

But it’s also true that a lot of money would have gone on other horses. And it’s also true that most money will be placed between the end of the previous race and the start of the current one.

It is true that those prices would not necessarily have been those on offer by any individual bookmaker – there may have been some slight deviations – but for our purposes they will do. And it’s the weight of money – that is the amount staked – that determines the odds on offer.

What does 1/4 mean?

In a ‘fair’ betting market, where no profit is taken by a bookmaker, 1/4 implies that there’s an 80% chance (an 80% probability) that the horse would win.

Similarly 8/1 = 11%, 9/1 = 10%, 14/1 = 7%, 33/1 = 3%, 40/1 = 2.5% and 66/1 = 1.5%. I’ve slightly rounded a couple.

Those prices reflect two things…

Firstly, the very short price of 1/4 is given to dissuade people to bet and the longer prices, e.g. 14/1 upwards, are designed to attract money.

The total percentage of those bets comes to 115%. That means the bookmaker has adjusted his prices to reflect the potential risk he faces on each horse – irrespective of which one wins – and will walk away with an estimated profit of 15% on the stakes he’s taken.

Think about it. If the bookie took £800 at 1/4 the ‘loss’ to him is £200. Because of the prices on the other horses he only has to take £200 in stakes to break even…

But, in effect, he will have taken more than £200 because, in order of the prices above he will have taken stakes of: £110, £100, £70, £30, £25 and £15, which comes to £350. That means he makes a £150 profit.

Look at it slightly differently…

The odds on offer reflect the implied probability of a win of each horse, not the actual probability. If they were the actual probability he would break even.

So, let’s look at all those other horses and what would have happened if any of the others had won…

If the prices reflect the money taken (and that’s precisely what lies behind the odds on offer) the total stakes placed with the bookie will have been £1150.

As we’ve seen, if Douvan won the stakes of £800 and the winnings of £200 would be paid to the punters, leaving the bookie with a £150 profit.

On the 8/1 chance the stake was £110 and the possible loss was £880, so the pay back would be £990 and the book maker’s profit £160.

On the 9/1 the stake is £100 and the loss £900, payback £1,000 and profit £150.

On 14/1 it’s £70 stake, £980 loss, payback £1,050 and profit £100.

33/1 = £30 stake, £990 loss, payback £1,020 and profit £130…

40/1 = £25 stake, £1,000 loss, payback £1,025 and profit £125…

And finally 66/1 = £15 stake, £990 loss, payback £1,005 and profit £145.

It’s clear that, irrespective of the outcome, the bookie will make between £100 and £160 profit.

And, I’m afraid, whether or not you believe it, that’s precisely what bookmakers do all the time.

Now, to be fair, I’m simplifying because the bookmaker has various ways of manipulating the amount of money he’ll take on a horse and the ability to ‘lay off’ sums he doesn’t want to take…

In the example of this race I’d bet a pound to a penny that at least one bookmaker in the ring was only offering 1/5 on Douvan because he didn’t want the potential liability that a last minute bet would entail and if you were looking to place a bet would you go for 1/4 or 1/5?

The bookie will be doing things like that (and many others) before the off. Equally, not all the potential profits are exactly the same but they are all profits.

What would have happened if, close to the ‘off’, someone had come along and put another £800 on Douvan and doubled his risk?

The bookie would have laid it off elsewhere either at the same price with another bookmaker, which would have neutralised the bet because win or lose it wouldn’t affect him, or possibly on Betfair, where normally the odds are slightly better than those he’s offering, in which case he’d be making a profit on the difference in the odds (subject, of course to the percentage he’s negotiated with Betfair).

His other option – refuse to take the bet.

A bookmaker is under no obligation to take a bet at a quoted price and, if you want to put on a large sum he may refuse it, take part of it or change the odds he’ll give you. If you are a regular (losing) punter he may even give you better odds than those quoted!

Now look at the very big bookmakers who take money over the counter in shops, on the internet, over the phone and at the races…

As the stakes pile in their computers will be grinding away re-setting the odds all the time. There will be limits as to the risk they will be open for on any one horse and as the stakes increase on it the odds will automatically drop.

At the same time the odds on a lightly backed horse will increase, in the hope of attracting more money.

The vast majority of the bets they take are ‘starting price’ bets and it’s in their interest to make sure that the starting prices of any race reflect their potential liabilities and profits.

I’ve worked for three bookmakers and I’ve been a consultant to several others, including Ladbrokes, Corals and Victor Chandler…

The scenario described above is common to all bookmakers in the UK. You may not believe it but that’s exactly what happens. And I’ve not gone into the ways that the market can be manipulated.

So, yes Paul, I am seriously telling you that whichever horse wins the bookie will make a profit.

The only time it doesn’t happen is when a bookie forgets to act like a bookmaker and either takes a stupid bet without laying it off or doesn’t alter his prices to reflect his potential liabilities…

That does happen – but it’s a situation rarer than hen’s teeth.

I’ll go back to the investors next time.

Until then, bet carefully.

-John Trent

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