#33: Value Betting

SAM: Hello and welcome back to another episode of the lazy entrepreneur, I’m your host Sam Priestley and we’re joined by my lovely co-host Emma Priestly.

EMMA: Hello.

SAM: Emma I think that after we’ve been married a few years you’re going to be a real expert on all things gambling and betting and professional gambling related.

EMMA: I’m not sure about that.

SAM: I think you’re quite excited for that day. I still haven’t heard you tell any of your friends about matched betting or value betting or arbitrage or anything like that.

EMMA: I do tell some of my friends but most people their eyes glaze over.

SAM: Have you ever tried to explain it to anyone?

EMMA: Yeah I think I must have, what matched betting is anyway, very basic.

SAM: You probably heard it enough times, the most basic stuff anyway. Well you’ll be pleased to hear we’re not going to be talking about anything basic today. We’re going to be going quite deep talking about value betting.

EMMA: This is a very you topic.

SAM: I know I can’t wait, I am so excited I love chatting about this sort of thing. So for the listener out there let me give a quick rundown of my professional gambling history so when I was in university, I first got into matched betting which is finding bonuses that bookies would give you for signing up to them or for redepositing with them and you would hedge out those free bets in order to extract as much value as possible so I did that for a while then I moved onto casino bagging which is basically the same thing but with casinos. The only difference is there’s no way to hedge out your bet so you’ve got to be a bit more comfortable with variants, and rely a bit more on the maths behind it. The mathematics and then I moved on from that to arbitrage which is where there’s no bonus involved but you’re making your money by finding disagreements between different bookmakers between say a betting exchange like Betfair and a big bookie like Ladbrokes. They might have different odds and you might be able to buy one at Ladbrokes and sell it for a profit at Betfair. Now as a subject of my dissertation for my masters at University and I’ve spent a lot of time researching and making a living out of it and writing software on it and then

EMMA: And you made a lot of money off it.

SAM: I made a lot of money off it, and then after that we moved on to value betting. Now value betting is where you’re placing just one bet one open bet but you think that the odds the bookie have given you are wrong. That there is this good value for you now odds just represent the probability of an event happening so if we’re watching a tennis match, only two people could win and the bookie might think there’s a 50% chance that one player will win. I might think there’s actually an 80% chance that player will win and as such they’ve given me odds that in the long term I will make money. You’re looking a bit confused so let me try and explain that a bit.

EMMA: My eyes are glazed over.

SAM: Which is why I’ve got you to talk to here because whenever I see you starting to daydream about baking or something it means that I need to come back and refresh or rephrase what I just said. So imagine we’re playing a game of flip the coin so you got two coins, one coin, even easier one coin heads or tails. We’re gonna play a betting game on it you can bet a pound on either heads or tails. If you win you get a pound, if you lose you lose it pounds. Now if we play that game you’ve got about 50% chance of winning. So if you play that game long enough, you should make no money yeah because sometimes you win sometimes you lose.

EMMA: Yes it’s the same either way.

SAM: Yeah exactly. Now imagine instead I offered you a game where if you bet on heads you’d win two pounds and only lose a pound if tails came up. You would play all day long because every time heads comes up you make two pounds of tails comes up, you lose a pound so in the long run once we played this game hundreds of hundred of times you should be making loads of money and so those those are basically odds I’ve given you I’ve given you. Two to one odds on one side on heads, you decided actually the odds should be even they should be one to one and so therefore it’s a value bet and you’re taking it. So that’s what value betting is?

EMMA: Which part is the value bet?

SAM: The value bet is realizing that the odds I’ve given you will make you money in the long term, so the way a bookmaker works is they will work out the chance of something happening so the chances of each player winning the tennis match and then they’ll create odds that are slightly worse than that probability so they’ll make money over all and if you look at what the probability they assign to each player winning and then add them all up it will come to over 100% and that’s known as the bookie over round.

EMMA: Okay oh yeah sounds a bit.

SAM: And it’s where the name bookie comes from because it’s making a book and that is making a book when you create odds on every outcome of the event. So normally bookies are pretty good at this and even when they’re wrong, they’ve built in a big enough margin that it’s okay. Occasionally they are wrong and that is where the value better comes in. They can make money by basically working out better than a bookie what the true probability of an event happening is.

EMMA: How on earth do you go about doing that well that’s a very good question next part because in my head I can see lots of algorithms and computer programming.

SAM: There is a lot of computer programming. You’re correct but there’s really two ways that people do this. It’s similar to how people trade on the stock market. There’s normally fundamental analysis and technical analysis. I don’t know if you’ve heard these terms before but what they mean is the fundamental analysis means you’re looking you’re reading the perspectives from the companies, you’re trying to work out actually what that company is worth and then you’re seeing if you disagree with what the stock market says it’s worth.

EMMA: Yeah so kind of in business we call that due diligence.

SAM: Yeah so you basically want to look into all the stuff about it and find stuff that maybe the market doesn’t know yeah to get a better idea, that’s fundamental analysis. And that’s how people like Warren Buffett make their money because they will say that coca-cola is currently undervalued and it’s worth me buying lots of and they’ll go and buy coca-cola. So that’s fundamental analysis. Technical analysis is when you look at like the psychology of what everybody else is doing and how the markets are reacting and how the money is flowing through it and from there you work out where you think the price is going to go in the future

EMMA: Wow that sounds complicated.

SAM: It sounds complicated but I think by the end of this you’ll understand why it was a natural step for us. Now let’s go back to the idea of arbitrage, so with arbitrage, a tennis match, one bookie thinks that one player is going to win, the other bookie thinks that the other player is gonna win and I can bet on both outcomes, I can bet both bookies and lock in a profit. So that’s arbitrage. Now the step from that to value betting is that one of those has to be wrong. So there is value, one of those odds is value. Does that make sense?

EMMA: Kind of.

SAM: So when an arbitrage is in place it means that the probabilities have added up such that we will win no matter who wins. We will make money no matter who wins. One bookie will lose money from our bet, one will make money. And over a very long period of time it’s gonna even out that some bookies will lose sometimes and others will lose these other times. Over all they’re gonna lose money, overall I’m gonna make money because as value, at least one of those two bookies have miscalculated their odds. Yes so the next step from that to value betting is that by placing the bet of both bookies, we are paying a commission to the bookie who calculated it correctly. Because what they do is they’ve priced their odds in such a way that they’re going to make money, so if we take this idea that one is right and the other is wrong by hedging our bets and betting on both, the one who is right and has calculated yours correctly is going to be making money off us. So let’s say we found an arbitrage that has a 2% profit for us that we can lock in. By turning it into a value bet and only betting at the bookie who is wrong and not hedging it at the one that’s right, we will make more money.

EMMA: Yeah because you’re not also paying at the one that’s right.

SAM: Exactly yeah so that’s value betting. Now value betting is different to arbitrage in that it is not risk-free. There is variance but the idea is that it’s like that coin flipping game. You know it’s a good bet to bet a pound that maybe win two pounds from getting heads, but you could still lose. You could still lose a pound in one go but when you’re playing that 500 times a day, it’s gonna even out and you’re gonna end up making money. So what we did in this technical version of value betting was we would calculate, work out which of the different bookies were sharper than others, we would look at each situation where bookies disagreed with each other, work out which one was incorrect, which one where the value bet was and then bet on them. And then we would do that hundreds of times a day such that we were unlucky sometimes and we were lucky other times but over a long period of time and so when we were doing it I don’t think we ever had a two-week period where we lost money. So if you look at our chart it’s what would a little bit over up and down up and down but it’s kind of always going up. If you look at a daily profit, some days we lost money, if you look at the weekly profit, there’s some weeks we lost money but there’s never been a two-week period where we lost money. Just because we were placing so many bets.

EMMA: Wow and this whole analysis of picking the value like one week one bookie could be really sharp on I don’t know the horses, but then the next week like how do you.

SAM: How do you know which bookies sharp?

EMMA: Well is it something that changes on an hourly basis, is it something that changes on a daily basis, is it something that changes on a weekly basis?

SAM: Yes you’ve hit the nail on the head of what the challenge is when it comes to doing this value betting, is how do you work out which bookie is wrong? And there are some general principles that we worked on for that. I don’t want to go into too much detail, it’s not that I’m not sure we were right, it’s just backed up by our method and our results but we do have theoretical reasons behind it but it’s hard to know when those reasons were correct or we just got lucky at the time and we choose the right thing. So one of them was that market places such as Betfair where you’re betting against other people are generally more accurate than traditional bookmakers. So you’re betting in exchange and you’ll have hundreds of people placing bets and the odds move based on what people are betting on so they’re very quick to react. Whereas something like Ladbrokes is all done by people sitting there with the form sheets creating the yards and then some software to react to how much money is coming in. But they’re generally quite a bit slower than the market places is so if it’s a straight up between Ladbrokes and Betfair we will assume that Ladbrokes is the one who’s wrong. One other thing we look at is who disagreed with the majority. Generally the majority is right, so if we have eight bookmakers on one side and one bookmaker on the other side, the other one now is probably wrong. That’s something else we look at. Something else we look at is what markets they were on so for instance on a football match the win draw lose market is very big it’s very well understood, there’s lots going on whereas something like the first goal scorer market is a bit less looked after a bit less cared about.

EMMA: There’s more opportunity there.

SAM: So if there’s a disagreement between the win draw lose market and the first goalkeeper market we’re going to guess the first goal scorer market is the one that’s wrong yes and there’s also different bookies from different countries so Asian bookmakers are generally better than European and UK ones, they’re sharper.

EMMA: Well that’s fairly stereotypical.

SAM: Yeah and the reason of that is that all their markets are treated like a marketplace so they’re always two ways, only two options so instead of having a win draw lose yes market like we have it here in the UK, you’d have one team to win and the other team to win with a handicap of half a goal already added, which means if it’s a draw that team wins and two-way markets like that when one moves the other one moves.

EMMA: It’s a little more clean cut.

SAM: The more things going on, the harder it is for a bookie to know because of this one moved how should the other ones know, so generally Asian bookmakers are a little bit sharper so if you’re looking at the Asian Handicap arb so plus a one point five goal versus Ladbrokes got a team to win, Ladbrokes is probably gonna be wrong. There’s a whole host of things like that and let me talk a little bit, let me leave that for a moment because I think we’re getting into the weeds a little bit and actually what you can do is we talked about software, so there are software you can get that works it out for you. And we weren’t sitting sitting there with our spreadsheets at a time we built a software that would do that. There are some software now. One reason I’m doing this podcast is the rebel betting who are probably the biggest arb software out there for finding arbitrage bets have released a value betting bit of software which kind of does this for you it takes the same information they were using to find the arbs and then goes a bit further to work out where the value is.

EMMA: Is it good?

SAM: It is good and actually before recording this, I reached out to them and they have offered a bonus 20 to any of the listeners that want to sign up. If you go to rebel betting dot com slash lazy you get buy one month get one free and I think it’s half price anyway at the moment because it’s in the launch months and I’ll get a refer bonus from that as well. They’re the only one I know about who are doing this technical analysis of value betting.

EMMA: That you really recommend or.

SAM: Yeah I think they are just the only people doing it and there are other people who are doing the other type of fundamental analysis which will come on to talk about in a second and this technical analysis which is where I made my money, which is the stuff we were doing. Rebel betting is the only people doing it. The other way you can do it yourself is you can get a typical arb finder like rebel betting is a traditional one and work out for yourself which bookie you think is incorrect. Now there are times where there isn’t a normal arbitrage but there is a value bet. Say for instance let’s say there’s an arbitrage between Ladbrokes and Betfair. For there to be an arbitrage in place, there’s got to be enough room on the spread between the odds at Ladbrokes and Betfair for you to make money and there’s got to be enough room on that spread for you to pay your commission to Betfair. Whereas what we would do is instead of taking, we would take the midpoint of the spread on Betfair so on Betfair you can buy and sell odds yeah so let’s say we’re buying at Ladbrokes, we call it backing and laying, we’re backing at Ladbrokes and we’re laying at Betfair, there might not be an arb between, they might be the same odds. There might not be an arbitrage there, but if you looked at the midpoint of the spread between the back and lay on Betfair, suddenly there is an arbitrage between Ladbrokes and Betfair. It’s an arbitrage you can’t make money on but it is one that you can value bet on and make money that way. Not a situation where you can value bet where you can do arbitrage is if there isn’t any liquidity so you might find the market just haven’t formed that well. Somewhere like Ladbrokes might let you put a hundred pound bet down but Betfair might only have two pounds available for you to lay off, so if you’re doing a traditional arbitrage, you’re limited by how much you can get on at both places. And if you’re not sure what your limits are and all the places you’re arbitraging you have to be very careful because you don’t want to place a bet on one place and find you can’t place on the other one.

EMMA: Because that’s not arbitrage.

SAM: So what we found with value betting was actually it was much safer than arbitrage.

EMMA: Because you didn’t have to constantly check their limits.

SAM: Exactly there’s risk of variance on each bet but that evens out quite quickly and in terms of the actual return and the total amount of turnover we could get away it was much better.

EMMA: Yeah in that way it makes so much sense where you started off with arbitrage and then went to value betting.

SAM: And when we started this kind of stuff wasn’t really understood. I think we kind of in the back of our minds knew there might be some value somewhere but we didn’t really have any way of working it out.

EMMA: And yeah just bet loads and test it out.

SAM: Yeah and by this point we had years and years, thousands and thousands of bets, historical data all recorded that we can go back and have a look. We can look at how much you know our overall profit on certain bookies and stuff like that and then I think we would know you know this bookie we’ve only ever made money on so therefore there’s probably value. Okay so yeah let me say that again rebel betting dot com forward slash lazy if you want to try out some value betting if you’re signed on to an arb service anyway you can just use that for a little bit and try it out and follow the tips that I was saying about how to find out which side does value on but only do it if you can afford to lose some money because there is variance. Don’t do it if you have any sort of addictive personality because there’s a lot of psychological psychological quirks around value betting that makes it quite similar to psychology behind normal gambling in that you are winning and losing money and luck plays a role. If you’re the sort of person who might go on a tilt and chase your losses, if you had a bad day, just stick to arbitrage, it’s worth paying a commission so you know exactly how much time. Yeah that’s another reason why I haven’t really spoken out before because I don’t want to encourage people who don’t really understand what’s going on to go into it you know. Start with matched betting. You shouldn’t be doing this if you haven’t already done matched betting. Don’t do this unless you haven’t already tried at least a little bit of arbitrage because this is an advanced topic we’re talking about. There’s a lot of theory in here. It does work and I do have a lot of experience with it and hopefully by the way I’ve explained it it kind of makes sense but if you don’t really understand it don’t don’t do it because if you do it wrong you can lose a lot of money. Alright let’s talk about fundamental analysis. Looking at form this is where, so traditionally a bookmaker would work by they would sit down with all the information they knew about a horse and then they would try and work out what the chance of it winning was and then they would create their odds that way and as a bettor as a professional gambler as a professional fundamental gambler well I do it exactly the same. I sit down I get all my information out and I would work out what I think the odds were and then I go compared to all the other bookmakers to see if I’m discrete with anything for them and if I disagreed enough and I was confident enough in my own analysis, I would then place a bet. So once upon a time when I used to go to a race track there’d be hundreds, loads of independent bookmakers who had all kind of done this, created their own bookie, and they could go around, get odds from different ones do the price comparison, work out yourself and then compare before the internet they couldn’t then check the odds with different places so everything was quite independent. One racing track might disagree with a different racing track. There was one value better who worked out that this horse was almost definitely going to win.

EMMA: Against all odds.

SAM: And the bookmakers would have their their odds people in London and then at the race track they would have the people who take the bets and if they saw quite a lot of betting what they do is they go and ring up the central place and say oh we’re seeing this you know should we change the odds? They’d say yes. Or if the people go back at London discovered that you know they’ve got the odds wrong, they’d ring the bookmaker at the racetrack to change the odds so what this punter did was he got all his mates to go on all the payphones in the racing track and keep them occupied pretending to have like domestics and arguments with his wife so that the punt the bookies dead. And just kept betting kept betting and made a few million back before the internet, back before mobile phones. Nowadays that’s what fundamental analysis is very difficult because there are so many marketplaces that places like Betfair where everyone has a good view of the market so if you’re at Ladbrokes and your odds creator says he thinks you should do this and you look at the market you’ll say well everyone else thinks you’re wrong. They’re going to go in the market, they’re not going to go with their boffin when it is in his form paper though some people do make money on that that’s kind of where the idea of tipsters come from.

EMMA: Sounds like hipster to me yeah.

SAM: You’ll find loads of them on Twitter you know I think that this is a good tip. It’s like giving a tip I think you know, this horse is a good tip for it to win. I’ll bet your dad has got a few good tips on things in the past.

EMMA: Yeah I don’t know I bet my brother does as well.

SAM: But it’s a bit of a thought you know that’s fundamental analysis probably a bit of insider trading going on and a whole lot of bullshit.

EMMA: I was going to say you don’t sound very positive about fundamental analysis.

SAM: It is really difficult and the people doing it well aren’t really telling you about it because why would they? Why would they let the bookmaker know what’s going on sonine out of ten tipsters will lose money.

EMMA: Why you would be a tipster? Why would you give out information?

SAM: Well because you charge for your tips.

EMMA: But they’re on twitter.

SAM: So Twitter is where they’re affiliated with the bookmaker and they’ll earn a percentage of any losses.

EMMA: Encouraging people to bet and lose.

SAM: Yeah really bad and that’s why you got to be really skeptical of tipsters and there are some good tipsters and I do have a couple friends who make money from a living from following like one or two tipsters but often you know to find these people are, they’re not advertising on Facebook. There’s a couple of marketplaces you can go on where you can see their historical performance of tipsters and have a look that way. There are a few sort of private groups that you kind of have to be invited into or sit on a waiting list and pay a fortune to get on, so some tips that we all give out are good and we’ll give out their tips because they’re banned by bookies for being too profitable and they can’t really bet at betting exchanges like Betfair anymore because of things like the premium charge. Now a premium charge is a fee that Betfair charges to people who are too profitable on their system and it can go up to I think last time I checked it was 65 percent of your profit.

EMMA: Wow.

SAM: They can just take as a charge so some people say well I’d rather charge people to have my tips and they can bet themselves than give up on my profit, so that’s the reason but you know I’ve never really made any money from tipsters. I haven’t made any money from fundamental analysis. I don’t know much about it. Be very careful with it and don’t confuse these two, a type of technical analysis with talking about. It’s completely different to reading form and thinking that you’re cleverer than the whole marketplace of gamblers and bookies and everyone out there.

EMMA: Yes it’s a very sophisticated complicated industry. Otherwise everyone would be making money.

SAM: Well that’s it, that’s the takeaway is that it’s very hard to make money.

EMMA: Otherwise everyone else be doing it.

SAM: It’s also very hard to make money doing fundamental analysis on the stock market so I’d recommend not doing it either.

EMMA: So are their whole companies set up to do fundamental analysis on the stock market.

SAM: Yeah they’re called hedge funds.

EMMA: Oh is that okay.

SAM: Most investment, most hedge funds and investment firms are doing some form of fundamental analysis. It does get complicated more complicated than that.

EMMA: Yeah I’m sure it does that it’s quite nice to hear it in a simpler way.

SAM: And like there’s been a lot of research that says that hardly any hedge funds out before or investment firms or mutual funds or any of these other companies outperform the index and you’re better off just buying an index tracker and not paying huge fees and you’ll make more money in the long run.

EMMA: Why would anyone spend money on hedge funds then if that’s the case because of their kudos and reputation and then you think that your money’s in your large amounts of money are in a safe place.

SAM: I think there’s a few things at work, one is a fear of missing out. There’s this genius who you’ve met and he seems really clever and you see his last two years and he’s doing really well and anything, oh if I can make twenty percent a year like they’ve been doing, that’ll be it. There’s that, there’s also this idea that these people are professionals, they’re the smartest people in the room. Surely they’re gonna be better than just a stupid computer system. There’s also the idea that if everyone just bought the stock market, bought index trackers that it wouldn’t really work.

EMMA: You need to have a balance.

SAM: There needs to be some sort of fundamental analysis going on, otherwise you don’t know what the value of anything is. So have you got any questions?

EMMA: I don’t think so I think I understand a little more the basics now. It doesn’t give me a sudden rush to go off and start doing it myself.

SAM: You don’t want to head down the racetrack, get your mates to block the local phones in the area, clean out the house.

EMMA: No but I definitely feel like I have some friends that would do that.

SAM: Cool story isn’t it. There’s so many of them out there. Maybe I’ll do a whole episode on tales of professional gamblers. That will be quite fun. Alright well we’ll come back to that in a future episode but for now let me throw out my little refer a friend deal as well. So mine will make a little bit of money. So maybe you will look at some value betting using a technical analysis that we talked about earlier. I’m also doing a big blog post on all this sort of stuff if you want to sort of look into it a bit more and if you ask any questions on there in the comments I’ll do my best to answer them. That’ll probably be out by the time this podcast gets released. If you have any good ideas for episodes you want to hear as well or just general feedback about the podcast in general please email me at hello at sam priestley dot com and as always I would love it if you could leave me a good review until next time goodbye.