How Bookmakers Manage A Position

2014-03-10

Trading the investment of clients is crucial to the success of any bookmaking operation. The source of client investment is broad and wide ranging whereby each client differs in punting ability. A clients punting ability is defined by a number of key factors- access to quality information, speed at which this information can be accessed and discipline being the leading few. The facts are that some clients will have access to highly market sensitive information and will act upon it. How a bookmaker trades the investment from its clients differs significantly, with some choosing to reject or partially reject smarter (professional syndicate) punting names whilst others welcome professional syndicate bets and use the information gained to their advantage.

The Asian sportsbook SBO and the European sportsbook Pinnacle are a good example of two differing strategies when it comes to trading the betting investment from punters. SBO places more emphasis on moving a price based on the weight of money whether that be "mug money" or "professional money", Pinnacle however in addition to trading the weight of investment, base price moves more on the betting intellect of their customer base. Most sportsbooks fall into the two categories described above, either they respect their own price enough to base their trading predominantly on a turnover model (SBO) or they take advantage of high quality market information which is revealed in the direction of the professional syndicate bets they accept (Pinnacle). Many operators use a significant mix of both strategies outlined above with most Asian books using smart client betting direction to their advantage. With professional syndicates considered the smartest of them all, below is an outline of how a market can react when a professional syndicate bet is placed.

Trading Syndicate Investment - The number of professional betting syndicates participating in betting markets globally is growing rapidly. Whilst the base strategy and technical detail of each syndicate model can appear similar, there are still many unique data points used by each, leading to different views on markets and different price levels at which a bet signal will be triggered.

When a professional syndicate takes a position on one side of the market the price of the alternate side is pushed out significantly, especially if the name of the syndicate is respected amongst those privileged to the information revealed in the bet. On occasion what can be best described as an "overreaction" occurs as the market moves too far to one side on the syndicate bet, leaving the alternate side exposed as a value bet. In some cases the perceived value now present in the alternate side triggers the signals of other syndicates to enter into a position in the market, where often a quick reply will come in the form a large syndicate bet on the exact opposite side moments later. In a liquid market eventually the true price is discovered and the price settles.

Professional syndicates are aware that bookmakers will make significant price changes based on the direction of their bets and often overact when they see the direction of the syndicate business. This has allowed professional syndicates to engage in a simple yet effective strategy, where the first number of bets executed have the sole purpose of shifting the market higher on the side they genuinely want to back. They are in effect placing "dummy" bets to imitate a significant betting move. After artificially hammering the market lower on one side and softening it higher the other, they then execute a series of larger bets at the falsely inflated odds available after the faux move, on the selected side they genuinely want to back.

A knock on effect due to this syndicate behavior then develops seen in the less informed/educated punter, whereby even though the value in the price has vanished following syndicate activity on a particular market side, a second wave of softer less informed money follows on the same side with punters scrambling to follow the same betting opinion as a professional syndicate.