Making Money Gambling

Many more people lose money gambling than make money. The equation is pretty simple, and makes salutory reading:

Money Gambled

-

Bookmakers' and Betfair's costs

Bookmakers' and Betfair's profits

=

Money Won by Punters

The numbers in the middle are large: Both Ladbrokes and William Hill have huge chains of stores and each has more than 16,000 employees (albeit not all in the fixed odds business). Betfair and the like have large marketing budgets. And there are hundreds of smaller bookmakers - from on-course betting, to the Tote, to Australian and Swedish imports.

There are a host of small businesses that make money off the bookmakers and betting exchanges as suppliers of technology: I might mention Finsoft or Orbis or Betgenius. Plus the spend with technology suppliers like IBM or HP is pretty enormous - I heard Betfair spends something like £80m a year on technology alone.

And then there are the profits made by these businesses, Betfair is rumoured to make hundreds of millions of pounds of pre-tax profit, William Hill and Ladbrokes probably made £100m last year, and even Paddy Power made £50 or so.

Basically, there are a lot of people who are better placed to hoover up the profits from punters' losing bets than you or me.

But that is not to say it is impossible. Gambling is like financial services - where the profits made by investing go first to the investment banks and stock exchanges and traders, and only eventually to the poor punters' saving for their retirements. And like financial services, the rise of technology is democratising gambling. It used to be that punters' could only bet with Ladbrokes or Hills, and had to live with 17% over-rounds. (In other words, you were placing bets at 17% below NAV. You have to be pretty good to make money in that environment.) The only market makers were the bookmakers' themselves. And if you ever did prove yourself to be a successful gambler... well, then bookmakers simply wouldn't take your bets. (I know one professional gambler who would spend the first half of every day cycling around 30 to 40 bookmakers placing small bets in cash to avoid detection.)

The rise of Betfair and odds comparison engines like Oddschecker and Bestbetting has enormously democratised things. (BTW, it's no coincidence that the bookmakers' use Bestbetting themselves - it has a significantly better odds comparison engine than Oddschecker.) The over-round charged on - say - UK Premiership football has fallen from double digits to mid-single. Bookmaker profits have compressed sharply. Volumes have risen commensurately. You want to know why bookmakers push you towards multiples bets: it's because over-round multiplies up. So, a bet on Chelsea to win 1-0, and John Terry to score first, has twice the margin of a bet on Chelsea alone.

So, faced with this brave new world, armed with access to Oddschecker, Betfair and Betdaq - how do you make money?

Well, let us first define the man (for it is usually a man) who will *lose* money. Let us not forget that every penny you make as a gambler will be a penny someone else has lost. He will have a view: someone will have tipped him a horse that he is sure will win. Or he wants to back England in the football because he always backs England at home. Or he's round a mate's house and the rugby is on, and it'll be a bit more interesting if he's got some money on it. Or he has a compulsive gambling habit, and he thinks this one winner he feels really good about...

But one thing dominate's this man's thought process: he wants to back the winner. He is odds insensitive. He'll almost certainly be backing something, rather than laying it.

And, of course, he has no idea what a balanced book is, nor does he know what the NAV of his positions is. He may have - once or twice - made what he considered a 'value bet', a synonym for a long odds one. But the gambler is really after the thrill of betting and racing. He might as well be at the casino, or putting money on the National Lottery.

(Of course, he'll probably not recognise these symptoms in himself. He may boast of his extensive knowledge of the form book. Or he might swear by a certain racing tipster. One thing I can absolutely guarantee: he will have no idea whether he is up or down. He'll say he 'breaks even'.)

And people like this need to lose billions of pounds, to pay for the tens of thousands of employees of bookmakers' and the sport of racing and the advertisements on Sky TV and the shareholders of Betfair. You, semi-professional or merely interested gambler, need to recognise where and how you will make money. And you need to recognise that this is not going to be easy.

In the next post (or the one after that, or the one after that...), I'll run down four broad strategies for making money. None of them are work, or risk, free. But they all offer you a small, real, opportunity to make money. And, hey, with the right tools in your armoury, you might invent the next uberbot.