The advent of person to person betting exchanges has greatly improved the lot
of the betting public.
In essence, a betting exchange is like a stock exchange, except that instead of
trading in stocks and shares, you trade in bets. Placing a bet is the equivalent
of buying shares and laying a bet is the equivalent of selling shares.
The existence of exchanges makes it possible for a member of the public to lay
bets as if he were a bookmaker. This may seem very attractive and certainly
the ability to lay bets is an option that wasn't available before exchanges came
along. However, the ability to lay bets itself is no guarantee of success.
In order to make a profit, bookmakers rely heavily on what's called an 'over-
round'. This is calculated as the sum of the win probabilities implied in the prices
for a given race, multiplied by 100.
A '100% book' is a set of prices that contains no margin for bookmaker's profit.
A '125% book' on the other hand, would produce a profit of 20% to a bookmaker
in the extremely unlikely event that the public were so kind as to not only place
bets on every runner in the race but to do so in amounts proportionate to the
implied win probabilities of the runners.
In practice, it is fair to say this almost never happens, and the bookmaking
fraternity would have us believe that the concept of over-round therefore has
no meaning. Notwithstanding such claims, over-round is indeed a useful and
valid measurement of the relative generosity of a set of prices - the closer
to 100%, the better for the punter.
Typical exchange over-rounds for betting on UK racing range from about 100%
to 103% near the off, perhaps a little higher on Irish racing. This is considerably
lower than typical bookmaker over-rounds, although bookmaker over-rounds
vary with field size, with smaller over-rounds for smaller fields.
The smaller over-rounds mean that a member of the public who wishes to act as
a bookmaker has to do so without the protection of the relatively large over-rounds
that bookmakers price up to, and this is what makes it difficult for members of the
public to make a long term profit from laying bets on the exchanges.
In addition to the over-round, there is a commission payable on profit, whether
the profit is made by betting or laying, and typical commission rates are between
two and five percent.
So where does this leave the punter?
Well, even after allowing for commission, average exchange betting prices near
the off are much more favourable than bookmaker starting prices. The biggest
advantage lies with longer priced runners, with only a small advantage to be
gained at the front end of the market. In fact, bookmaker SP's for short priced
horses are often slightly more favourable than exchange prices, so it is definitely
not optimal to ignore bookmakers.
Also, prices differ from one bookmaker to the next, so what is needed is some
software that provides a continuous feed of market prices. Betgenius provides
an excellent service along these lines, via their product Bestbetting, which can
be viewed by clicking on the link to the left. Note that Bestbetting links directly
to the websites of the bookmakers or exchanges whose prices are the most
competitive, so (provided you have an account) you can place a bet simply by
clicking on the best price for the horse you wish to back.
The potential for improvement in profitability by betting at favourable prices is quite
startling.
Below is a chart showing the cumulative profit from inception on 24 February 2005,
to 21 May 2007, resulting from wagering £1 blindly on each top selection. The red
graph shows profit at SP, while the black graph shows profit at estimated exchange
prices, which were estimated at SP + 16% with commission at a rate of 4%. The red
graph was produced by cutting and pasting data from the Racing-Index website and
the black graph by calculation from the pasted data.
Anyone who wishes to test other estimates of exchange prices is welcome to a copy of
the file that contains the profit or loss on each top selection.
