Are you getting a duff price?
Had an interesting conversation with somebody recently about how they can’t use the exchange any longer because the prices on the sports book were much better.
Here is why he realised he had made a mistake: –
Industry pricing for football
The first thing to note is that industry prices on football are much tighter than they used to be. I’ll have to dig out some very old prices to see what they were in the distant past, but typically match odds markets used to be priced to 110%. Basically the bookies were offering to sell you the chance of something definitely occurring for 110% giving them a theoretical profit margin of 10%.
That does seem to have changed however and it appears most people are trying to square themselves up against Bet365. The industry seems to be hunting a book value of 103% on match odds markets, which is pretty good really. I noticed, in a curious turn of events, that the Betfair sports book more or less mimics the Bet365 pricing.
Actual versus imagined commission
Now, as we know, an exchange charges commission; but sportsbooks don’t. So the view that this person had was if the book is priced at 103% and the exchange is charged 5% commission, then surely the sports book was the better bet?
This doesn’t tell the entire picture though. This is because on the exchange you only pay commission when you win, not when you lose. The net effect is that commission is spread across the outcome of the event and is not specific to your successful bet. I’ll explain in second.
Putting that fact to one side for the moment. If you intend to cash out at any point then the exchange is always better. And on an exchange you will not be restricted on your bet size, your bet will always be honoured and you can ask for a price to improve the odds which you take. It only takes a couple of clicks to get much better odds, something you cannot do on sportsbook.
But let us say that you’re about to bet on something that is priced at decimal odds of 2.00? If you convert those decimal odds to an implied chance, it tells you that you will win 50% of the time. The market is remarkably accurate and therefore we can safely assume that it is very likely that you will win at or near to 50% of the time. Any significant deviation to that would be remarkable and if you can do that, you need to pick up the phone and call me immediately!!!!!
The real commission you pay
If we take the worse case scenario in this case and you are paying highest possible rate commission on the exchange (5% in the UK). Then the total commission you would pay in the long term would only behalf your base rate if you’re winning 50% of the time. In other words your actual commission on loads of bets will be 2.5%. In most of the cases it you would still definitely be better off on the exchange over the long term. It is an optical illusion to see that even if you pay 5% commission into a 103% book, you are still better off in the exchange! It’s all about your net result, over time. Well that’s how I view it. Of course opportunities may arise when a market is particularly competitive on one set of odds, but then you have that age old problem of actually getting a decent bet on.
I’ve attached an illustration to hopefully clarify this for you.
Category: Football trading strategies
