If In Danger, Breakaway From The Pack And Form Your Own Pack

Sports betting is unlike any other casino game so operators should cooperate to minimize the risk. Setting up a private portal that will reveal their exposures can benefit all participating books by spreading the risk over a wide area.

If In Danger, Breakaway From The Pack And Form Your Own Pack

Casinos are extremely risk-averse operations, their business model is based on products that is giving them an edge, guaranteeing theoretical wins based on the math of a game, and if a game requires players to make decisions during the game, they will hold a higher percentage because most players don’t follow the best strategy when playing a game such as blackjack.

Casinos offer games that have enough volatility to give players a chance to win, but if they play for a long time or come back, they will end up losing as the odds are designed to be against them and hence the house always wins. To get people to return, they offer loyalty rewards which together with the payouts is less than the players’ wagers, a formula they delicately craft to achieve their overhead and profit. And for peer-to-peer games, such as poker, they become the facilitator, dealing the game, and taking a rake rather than risking their own money. Sports betting on the other hand has been an exception to these general rules and historically has been regarded as an amenity by Nevada operators to bring customers into their properties. However, with the recent expansion of sports betting across the country the landscape is now changing with online operators that had no brick-and-mortar of their own trying to force themselves into the regulated market using sports betting as the gateway to the industry.

Sports betting fundamentally is not a casino style game and in theory has nothing to do with casinos since unlike traditional casino style games such as blackjack, baccarat, and slot machines they have no control over their outcomes and are played in arenas and stadiums that are outside their properties. Most countries have gaming laws as to where gaming can take place, for example in most European countries, wagering is primarily handled by betting shops that are geared towards the working class and are offered in a clearly different setting than European style casinos which are boutique venues designed for the upper class.

In UK, the 1960 Betting and Gaming Act legalized sports betting with the goal of regulating the business to keep gambling off the streets. Around the same time in the US, the 1961 Wire Act confined legal sports wagering to Nevada until the recent 2018 ruling by the Supreme Court which made the business to be a states’ rights issue reversing PASPA (The Professional and Amateur Sports Protection Act) which was signed into law in 1992.

The sports betting model most states are now following post reversal of PASPA is the same as those developed by Nevada over the last several decades. The business model is offering fixed odds and taking wagers on both sides of an event with the goal of balancing customers’ demand that splits their opinion in half rather than trying to predict the result of the game. Historically, Nevada casinos played a cat and mouse game with what they called the “sharps” or the “wise guys” as they considered them a threat to their business model knowing they could be better than them in predicting the results of a game. These efforts included refusing or reducing the amount of money the sharps could wager and banning the use of cell phones and other communication devices inside of a sportsbook, a practice which was abandoned in 2008 because by then the internet had already created an environment for illegal operators to set up shops offshore targeting the US and making the odds to be publicly available online.

One of the basic principles of Nevada style wagering is to only offer odds for the upcoming events to remove the effect of random events such as injuries and weather which could affect the outcome of a game. Also, for marketing reasons, sportsbooks offer a limited number of odds for what is called “the futures” such as who would win the Superbowl with small bet limits. To overcome the challenges of managing the risk associated with taking wagers on sporting events, sportsbooks offer odds that would split public’s opinion in half thinking that even if they couldn’t manage to balance their books on every game, they would still have a 50/50 chance to win or lose on their risk exposers of each game which over a season could average out to zero leaving them with their 4.5 percent juice. Sportsbooks also have been offering parlays and teasers which essentially are bets on two or more single events that have large payouts if a player wins on all the events. These types of wagers are offered with odds that hold higher percentage for the books than traditional head-to-head wagers.

Another strategy Nevada developed was to stop the sharps from hedging between them by placing bets on one book and covering them with bets made on another book. To achieve this, they formed a pack by cooperating closely with each other, offering odds that were the same or very close to each other to make it uneconomical for the sharps to hedge between them. The process of forming a pack against the sharps was much easier when there was only a handful of sportsbook mangers who intimately knew each other and could pick up the phone discussing their risk exposures and deciding whether they should move their lines. This practice continued until the internet empowered the offshore operators to dominate the business and to take the leadership position to set the initial odds compelling Nevada operators to follow their lines, a trend that is still happening even though the business is now much larger and is legal in many states.

Now that legal wagering has spread across the country it makes sense for sportsbooks to cooperate with each other by reporting their risk exposures to a secured private portal so that they all can evaluate their positions versus the rest of the group. If all or majority of the books participating in the portal have risk exposures on one side of an event, they should communicate with each other through the portal to move their lines at the same time and if their exposures are on both sides of the event then they should consider trading their risks. Generally, if the exposures are one sided, it indicates the sharps think the books don’t have the right odds and if they are on both sides, it could indicate there is a geographical biasedness by the fans and rather than waiting and hoping their exposures average out over the season, they might be better off to trade them on a game-by-game basis.

Overall sportsbooks could be in a difficult position on games that they don’t have a balanced book, if they break away from the pack and change their lines independently, they can be the target of arbitrage and if they don’t, they might lose on the exposure and not get all their losses back on future games. Sharps increase their bets in line with the discrepancy between their own odds and those offered by the sportsbooks knowing that statistically the higher the difference between the two, the better chance they have against the books. Wins by the average consumer tend to loop back to the same books as new bets but this will not necessarily be the case with the sharps.

Articles by Author: Bruce Merati

Bruce Merati is cofounder of BC Technologies, a sportsbook system provider and CEO of Uplay1, a gaming IP company.