Being the bookmaker

Ok, so the title is a little inaccurate, but for most people laying the bet is similar to acting as the bookmaker, though as we are not actually making a book we aren’t technically being a bookmaker.

Anyway, last time I said that just laying the no hopers wasn’t perhaps the best quick and easy option to making money it may seem at first.  To try and explain this I shall make up a fictitious book with 6 selections.

Team	Odds
New York Rangers	1.10
Toronto Maple Leafs	1.25
Sheffield Steelers	15
Guildford Flames	50
Fife Flyers	100
Nottingham Panthers	250

Anyone familiar with ice hockey will recognise the teams above and know that either New York or Toronto would easily win this league, but which of those two it will be is a little less certain, so we decided to lay the other four teams knowing they have no chance (if you don’t know anything about ice hockey trust me on this).

On the betting exchange some people are taking a wild punt and they are wanting to back Sheffield, Guildford, Fife and Nottingham. This is important, on betting exchanges bets must be matched, so if you want to lay a bet for a certain amount at certain odds, there must be someone (or people) wanting to back the bet at the same amount and odds.  If you tried laying Nottingham at 2.5, it wouldn’t get matched while people can get odds of 250.  Think about it, would you back a team at 2.5 if you could get 100 times that!

So we lay £1 on Sheffield, Guildford, Fife and Nottingham. So if Sheffield win we lose £15, Guildford £50, Fife, £100 and Nottingham £250.  As only one team can win we don’t need to cover all these liabilities combined, just the biggest one.  So for this we need to have £250 in our betting bank and the most we can win is £4.  That £250 is then tied up until the league is over.

So you can see the problem, to lay things like this requires a much larger betting bank that I am using for this experiment.  However, if you are using a much larger bank, it is worth thinking about this as an additional option to help increase your returns.  With this example it is about the same as backing at odds of 1.02, pretty common for what I have been doing in this experiment.  So if you have a bit more to play with, you can make steady if unspectacular long term returns with very little risk.

Hopefully this gives you a bit of an insight in to betting exchanges. I plan on coming back to them at a later stage, as they present some very good opportunities for making money, which don’t form part of this experiment, but could be used in another experiment at a later date.

Stick to what you know

You may have noticed that the events I have been betting on have so far been limited to certain types of event and certain sports. (You can view my bets here.)  There is a reason for this, simply that these are sports I follow and enjoy.

There are two reasons for the importance of this part of my strategy for handling my investment.  The first, if they are sports/events I know and understand there is more chance of me making a well informed decision about which bets to place.  Looking at one of my football bets, Holland to beat Macedonia, I follow football and knew that this should be an easy win for the Dutch.  If you don’t follow football, despite the low odds suggesting a win for Holland is by far the most likely outcome, you will have a much higher degree of uncertainty about the result.

The second reason is if you follow a particular sport anyway, you are not really investing any additional time in order to place the bets.  Using the same football game as an example, I was looking at who was playing that night anyway.  The only extra thing I had to do was pick out any potential bets and then place them, something which took minutes.  Effectively I have found the bet by doing something I would be doing anyway, so the only investment of my time is actually placing the bet.  On the other hand if you weren’t following football you would be spending time looking for the bet (if you are trawling in general through all options it could take some time to find the ones you want), then researching if it was a good one to take or not.  Remember, we are looking to beat the bank, (it take a few minutes to open a bank account and deposit money) a return of 10% would be great but is that extra 6%-7% return worth spending hours finding the right bets?

A final word of warning, just because you are knowledgeable about and follow a particular sport, doesn’t mean you should bet on it.  The bet must fit in with the rest of the strategy too.

A few more bets

I’m a week in to my little experiment now and its been a busier week than I thought it would be so I’ll share with you the bets I have made so far.

Bet	Odds	Result
Specials(Dancing on ice) - Donal to not get perfect 30	1.05	Win
UFC 97 - Anderson Silva Win	1.18	Open
Politics - General Election Jan 2010 or later	1.20	Open
F1 - Lewis Hamilton to beat Jenson Button	1.57	Open
Tennis - Roger Federer beat Kevin Kim	1.02	Win
Tennis - Novak Djokovic beat Frank Dancevic	1.07	Win
Tennis - Andy Roddick beat Diego Junqueira	1.02	Win
Tennis - Elena Dementieva beat Anastasia Pivovarova	1.04	Win
Tennis - Ana Ivanovic beat Mariya Koryttseva	1.07	Win
Tennis - Dinara Safina beat Mathilde Johansson	1.04	Win
Football - Italy beat Montenegro	1.57	Open
Football - Germany beat Liechtenstein	1.02	Open
Football - Denmark beat Malta	1.14	Open

In a week I have made a profit of £0.31.  If I can keep this up I will have a total of £116.16 after a year, that’s equivalent to 16.16% AER if it was in a savings account!.  So while 31p may sound insignificant, as the saying goes, ‘take care of the pennies and the pounds look after themselves’.  But as I said at the start of this post, I have been a little bit busier than I expected to be in this first week, (I’ll explain why in my next post) so I don’t expect  to keep up this rate of return for the full year.  If nothing else, I am sure there will be a few losses at least over the year.

Next time I’ll expand on my strategy a little more and explain why I think I have already made a couple of mistakes by deviating from it.

The experiment begins

So things are underway.  I have deposited my £100 with a well known online bookmaker and am ready to get things started. (Actually I already have started, but more of that later.)

In order to set a bench mark so I know if I have beaten the banks in a years time I have looked at what savings options are open to me today through if I was to invest the money in a bank or a FTSE tracker.

Best Instant Access Savings Account
Citibank – 3.26% AER (includes 12month bonus)

Best Instant Access Savings Account (No Bonus)
Yorkshire Building Society – 2.75% AER

Best Cash ISA
Barclays – 3.61% AER (includes 1% bonus for first 12 months)

Best Cash ISA (No Bonus)
NatWest* – 3.51% AER

1 Year Fixed Rate
Nationwide – 3.14% AER

So ignoring any tax implications the best return I could get from a savings account is currently 3.61% AER from Barclays.  As I already have an ISA I couldn’t invest the £100 in this, but I enjoy a challenge so will use this as the rate to beat meaning that if the rate doesn’t change for the next year my £100 would be worth a massive £103.61. Wow! So if I can make just £3.62 from gambling I will have beaten the banks, how hard can it be.

To add another element to the challenge, I have also noted the price of the FTSE-100. 

FTSE-100 – 3842.85  (At close of play Friday 20/03/09)

If I put my £100 in a FTSE-100 tracker I would either gain or lose based on the movement of the FTSE, so if in a year the FTSE is at 4227 my £100 would have turned in to £110.  It may not work exactly like this in practice as tracker funds have management fees and I have also assumed the fund would perfectly track the index, but for the purpose of the experiment its close enough.

When I next update I will give details of some of the bets I have made or will be making.  You will also be able to track what I am doing with more regular update on Twitter.

* – requires opening of a separate account with NatWest

Sources:-
Savings account rates – moneysupermarket.com
FTSE-100 – BBC News