In Defence Of Bookmakers - Part Two

In the first part of this blog I set out the argument which is often given why bookmakers shouldn't close accounts. 

I also advised a check of the guide to understanding bookmakers which features paragraphs on account closure. 

That argument goes that bookmakers can make money with the help of winning punters, because winning punters teach bookmakers where their odds are incorrect, and give them the opportunity to correct them.

I am going to call this argument the “get with them” argument. 

I then set out why I think the "get with them" argument us flawed. The main gist of my argument was that for the “get with them” argument to be correct, three assumptions have to hold:

1. A bookmaker can cheaply and easily identify the shrewd punters and their bets
2. Knowledge of what shrewd punters back will help the bookmaker
3. Shrewd punters will act transparently so bookmakers will know their real opinions

In the last blog I explained why in my opinion, when talking about the big bookmaking firms, the first two assumptions do not hold. 

It is difficult and expensive to identify who the shrewd customers are, bookmakers in shops do not always know whose bets they are laying and even if they do know what horses the shrewd punters are backing, they cannot always use this information to make sure they make money on a market.

I had by that stage reached a number of words that would be far too much for a single post if I added the rest of my thoughts. I decided to put the first part up and then finish off what I wanted to say in a second blog. 

For the purposes of discussing the third assumption, I am going to assume that the first two are in fact true, in the interests of not singling out any particular bookmaker for attention, this time it is the turn of Ladbrokes to be used as an example. 

Even if Ladbrokes can successfully flag up the bets that a shrewd punter makes, and then engineer a situation that means they win money if the tip of the shrewd punter wins, there is still another problem with that strategy. 

Imagine a shrewd punter comes in and has a bet on a horse called “Shrewd Thing”, Ladbrokes trading team do their job and set the firm up perfectly to make a killing when Shrewd Thing comes in. 

The shrewd punter could of course be wrong, and Ladbrokes would, of course, have to build into their strategy a provision for the fact that even a shrewd punter, or even a group of shrewd punters, will sometimes be wrong. But what if the situation is worse than being wrong, what if a good punter is deliberately pulling the wool over their eyes? 

What if he picks a small race where Shrewd Thing is running, but on this occasion he doesn't think that Shrewd Thing will win, he actually fancies another horse called Machiavellian Man. 

The shrewd punter is limited in the size of his bet anyway, so it doesn't cost him that much to make Ladbrokes think he is fully behind Shrewd Thing, say, for example, he is allowed £50 on that horse at 6/1.

Before this bet, Ladbrokes have Machiavellian Man as 4/5 favourite, but after seeing the shrewd punter put his £50 on Shrewd Thing, they shorten him to 7/4 and lengthen Machiavellian Man to 7/4 to make the two horses joint-favorites. 

Now imagine the shrewd punter has five friends, each with £50 and each of whom he has instructed to go into a Ladbrokes shop five minutes before the off and back Machiavellian Man. 

Obviously, he could have arranged the same thing without having his losing bet, but the profit on that would be £200. If he has the losing bet and this makes Ladbrokes change the price as described, he can then make a profit of £387 after the £50 losing bet has been taken off. 

Whilst £187 is not an amount that Ladbrokes would probably lose any sleep over, it mustn't be forgotten that this is only the extra profit that the shrewd punter and his five friends can make from them by deceiving them in this way. 

The actual cost to Ladbrokes, assuming Machiavellian Man wins, could be much, much bigger if it is well backed at 7/4 by other punters who know nothing of the trick that is being played on Ladbrokes. 

Ladbrokes or any other bookmaker will of course not make this argument; the last things they want to be doing is giving good punters the idea of getting friends to place bets on their behalf, but I think it is a valid argument. 

Barney Curley was banned from most bookmakers when he pulled off his numerous betting coups, imagine what further havoc he would have been able to wreak if allowed to bet in the knowledge that his bets were going to have an effect on the prices.

Now I have offered three counter-arguments to the one that says that bookmakers should have no problems accepting bets from winning punters, because winning punters can be profitable too. 

The main bookmaker that is held up as an example of this strategy.

Pinnacle, has been successful in doing this for nearly every sport except for Horse Racing so far; if Pinnacle can't get the strategy right for the sport, then we can hardly expect other bookmakers to copy the strategy and apply it to horse racing. 

There also another argument against closures, and this argument goes that bookmakers lose turnover from losing punters that get caught by accident by account closures. 

Given that there are a relatively small number of good punters and it seems a lot of accounts are being closed, doesn't that mean the strategy of closing accounts is bad for bookies as well as bad for the racing industry?

It is probably true that account closures are affecting a lot of people who in the long run would not have won money form their bookmakers. 

It is estimated that in 97% of customers lose money betting long term; only 3% are good enough to consistently win more than they lose. 

Anecdotally it seems that a lot more than 3% of accounts are being closed, so surely there is an argument that even if the bookies should be closing accounts, they are doing it too much.

Like many of the people reading this, I live in the United Kingdom, and what I am about to say will be no surprise to many readers. 

But if you are reading this abroad you may be surprised to hear that when you go into a bookmaker's shop in this country, as well as betting on horses and other sports, there is also the option to play roulette and a variety of other fixed odds games. 

This is done on a machine a bit like a fruit machine called a fixed-odds betting terminal or FOBT. 

Here, if I want to open up a casino and have a room full of FOBTs, then I have a lot of paperwork to do and I am not guaranteed to get permission for my venture.

 If I want to open up a bookmaker's shop, then it is much easier to do and I have a higher chance of getting permission. 

I live in Sheffield and there are four casinos in the city. But there are many more bookmaker's shops in the city and each of those has at least one FOBT if not more. (The law has been changed since this blog was written)

I don't have the statistics but I don't think it is difficult to imagine that more roulette is played in bookmaker's shops in Sheffield than in casinos. 

The reason is that as a bookmaker I can make a lot more money with a lot less effort and expense from the roulette machine, than I can from sports betting. In order to accept sports bets 

I need to have odds compilers, and if I am doing so in a shop I need staff to take the bets.

 I may also need to pay to stream footage of the event into my shops and for the data I need to offer the bets which can be very expensive. 

Roulette is by its nature a fixed-odds game of chance, if as a bookmaker I can get customers willing to play the game, I know I can make money, and the process is not as staff intensive.

If I were a bookmaker 20 years ago, I would have two equally big concerns when deciding whether to take a bet from somebody who I feared might be a good punter. 

Of course, I wouldn't want to take the bet and then find I had taken a bet from a good punter who won money off me. 

But on the other hand I wouldn't want to refuse to take a bet from someone who in the long run would be a profitable customer for me. 

In running a bookmaking business twenty years ago, getting this balance right would be a key to being successful.

If I was a company whose stated aim was to make money by whatever means achieved this end the best, then my thinking nowadays would be very different. 

If I was in charge of Paddy Powers English operations for example, in these days of FOBTs (they aren't legal in betting shops in Ireland) I would tell my staff to do things very differently to how I would want them to be done 20 years ago. In this scenario, I wouldn't care if I didn't take a horse racing bet that I didn't need to refuse.

 My fear would be accepting bets that I shouldn't accept. If I close an account where I would have made money from sports betting, who cares, sports betting is a sideline that allows me to get on with the real business of guaranteed profits from FOBTs. 

What's more, the smaller the proportion of my profits that I am making from horse racing, the stronger my position when I am negotiating how much I have to pay into the sport. It is sad to say, but Paddy Power needs horse racing less and less, so they, as well as all the other firms that want to be successful are taking steps to simply keep the risk of their horse racing business down to a reasonable level, whilst relying on football and FOBTs for their growth.

This might sound like a bit of a cynical view to take, but if I was the head of Paddy Power, then I wouldn't have a choice. 

My job would be to do the best for my shareholders, and I believe if we are honest we have to accept that the approach of closing the account of anyone we think might be a long term winning punter, is the best commercial approach. 

Betfred, Coral, Ladbrokes, Paddy Power, and William Hill are all too big to use the approach of getting “with” the good punters, and they are not in a position where they have to be too careful that they don't bar people who are losing punters. 

If you go in a shop and ask for £10 on any horse, you will probably get on, if liabilities are going up in small enough increments, then they can manage their prices in real-time on the aggregate amount of business done, without the difficulty and expense involved in differentiating between bets made by people who usually lose and those made by people who usually win. 

They still make reasonable money from these types of bet, without having to worry about getting cleaned out by professional gamblers. 

It might be sad that horse racing is not seen as a priority by bookmakers anymore, and this is of course bad news for the future of the sport.

As horse racing fans we shouldn't blame the bookmakers, they are bound by their duty to their shareholders and it is not their responsibility to promote racing. 

The actions of the bookmakers are bad for our sport, but we shouldn't complain to them. 

The job of defending the interests of the sport does not belong to the bookmakers.

This is the second of two blogs on the topic, you can read the first part of the blog here. 

Both blogs are written as a response to an excellent blog by Jim Brown which I would encourage everyone to read, and which can be found here.