Why betting exchanges offer better odds

I’ll not go in to too much detail here, but we need to look at things from the bookmakers point of view first.  Bookmakers make their profit by taking more in bets than they pay out.

A perfect market would have a value of 100%, that means that the value of bets place would equal that of bets paid out.  Not much good for a bookmaker as they wouldn’t make any money.  So a bookmaker will make a book with a value greater than 100% so they take more than they pay out.  Typically a bookmakers book will be 110% – 125%, i.e. they payout £100 for every £110-£125 taken in bets, so make a profit.  If a book had a value of less than 100%, it would be possible to back every selection to guarantee a win regardless of the outcome.

With a betting exchange, we are betting against other people.  The betting exchange matches peoples bets and eliminates the bookmaker so comes closer to forming a perfect market.  Obviously, the betting exchange does need to make money still, so will take a commission from your winnings, typically 5%.  Note this is on your winnings only, so if you back a selection at 1.20, your return will actually be 1.19 after commission.  If you lose, you don’t pay commission.

When is a bookmaker not a bookmaker?

If you have been following the blog, you will know that for the recently I have been using oddschecker.com to see if the odds I am getting are the best available.  What I noticed is that certain bookmakers were consistently offering the best odds for many of my bets, one being Betfair.

Unlike most of the others, Betfair (and others such as Betdaq) are not traditional bookmakers, they are betting exchanges.  So what is the difference.

First, there are two terms to be familiar with, back and lay.  If you back something you are betting on that out come taking place. For example if you back Manchester Utd to win a football match you win the bet if they win.  If they lose or there is a draw you lose the bet.  If you lay Manchester Utd to win, you are betting against a Manchester Utd win.  So if they do win you lose, but if there is a draw or they lost you win the bet.

With a traditional bookmakers, you and me always back a selection and the bookmaker always lays the selection.  With a betting exchange you are betting with other people not a bookmaker and can choose to either back or lay a selection. 

Brilliant, so you can now lay everything that doesn’t have a chance of winning and make easy money, if only it was that easy.  I’ll explain why it probably isn’t the easy winnings it may appear on first inspection another time.

Best odds

A few weeks ago I said I would be tracking the odds at other bookmakers using www.oddschecker.com to see if I could get better returns on any of my bets.  The odds show are at the time I place my bets.  Here are the results.

Bet	My Odds	Best Odds	Worst Odds
Tennis - Verdasco beat Lapentti	1.14	1.18 (Betfair)	1.11 (Bet365)
Tennis – Azarenka beat Navarro	1.33	1.33 (Sporting Bet, Bet Fred, 888, BlueSQ, Coral, William Hill, Betfair)	1.29 (Stan James, Boyle Sport)
Tennis – Dementieva beat Groenefeld	1.12	1.14 (Betfair)	(1.07 Bet Fred)
Tennis – Safina beat Errani	1.14	1.24 (Betfair)	1.09 (Betdaq)
Ice Hockey – Czech Rep. beat Norway	1.04	1.05 (Expekt, Ladbrokes, Betfair)	1.02 (Boyle Sports, Paddy Power)
Ice Hockey – USA beat Austria	1.05	1.09 (Betfair)	1.03 (Sporting Bet)
Ice Hockey – Finland beat Denmark	1.04	1.07 (Betfair)	1.02 (Paddy Power)
Ice Hockey – Sweden beat Latvia	1.10	1.12 (Ladbrokes, Betfair)	1.05 (Boyle Sport)
Tennis – Murray beat Monaco	1.17	1.25 (Extrabet)	1.12 (Betdaq)
Tennis – Del Potri beat Troicki	1.17	1.22 (Betfair)	Stan James (1.14)

So as you can see, there is quite a difference in the odds. About 20 bookmakers are compared and not every bookmaker will be taking bets on every event.  Most will offer very similar odds but there can be a fairly big difference between the best and worst odds offered.

Take the first bet as an example.  17 bookmakers had a market for the Verdasco V Lapentti tennis match when I checked. 8 were offering the same odds as I got, 1.14, another four were only 0.01 either side of this.  So while there is a difference of 7% return between the best and worst odds, nearly 50% were offering the same, and the majority were within 1% of this.

So if you use just one big name bookmaker, it probably doesn’t matter too much which one as their odds are all very similar.  That said, if you can make the extra 1-2% here and there, your overall return over a year can be significantly increased.  While at current interest rates I’m sure you would jump at a chance to get an extra 1-2% return, it perhaps depends on whether you feel the extra time needed to check the odds is worth the extra gain.

Moving on, the most obvious trend is that one particular bookmaker (and I use the term loosely for reasons that shall become apparent in this instance) consistently offers the best odds for events, Betfair.  Over the next few posts I’ll explain a bit more about Betfair, how it works and some of its pro’s and cons.

Getting a better return

So four weeks in and my original £100 investment now stands at £101.64.  Not bad for a month given I am only looking for a £3.62 gain or more to beat the rates on offer in the best cash ISA’s when I started the experiment. If I keep that up for a year it will be the equivalent to a 21% AER tax free! But could I have done better?  The obvious answer is yes, I could have placed more winning bets, but that would put more capital at risk and remember its quality not quantity that matters.  But there is another way I could potentially have increased returns without risking more capital.

At the start of the experiment I said I had deposited my £100 with a single bookmaker.  Not all bookmakers will give the same odds for the same event, so I may not necessarily be getting the best return available each time I win. 

Let me start by saying my reason for using just a single bookmaker is for comparative reasons for the experiment.  If I had put the money in a savings account I would have left it in that account for a year.  While it is best to regularly check you are still getting a good rate in a savings account, I tend to check mine annually rather than weekly or monthly.

A better option would be to choose multiple bookmakers and deposit some of your investment with each.  This way when you see a bet you like the look of, you can check for the best rate to maximise your returns.  If you are staking 1% of your investment per bet, I would recommend using no more than 5 different bookmakers.  While spreading your money gives the best returns, spreading it about too much could mean you all your money with a particular bookmaker is staked, stopping you placing any more bets with them should the opportunity arise, until one of your outstanding bets is settled.

If you want to check odds there is a great comparison site OddsChecker.com, which will give you the odds available from all the leading online bookmakers.  What you will also notice is that some events are not carried by all bookmakers, so if there is a particular sport you want to bet on, it can be worth having a look here to see which bookmakers tend to run books on it.

Over the next couple of weeks, I will check my bets to see if I could have increase my returns if I had placed the bets with different bookmakers.