If they imbalance the book yes. But in this case the authors got the statistical edge because the bookie is trying to balance the book.
What difference does it make if the $10k the bookie needs at 4/1 to balance the book comes from professional better Bob or from long term loser Joe?
As soon as the book gets imbalanced again they would have to change the lines again.
> The bookmaker wants to balance his book for each game to make sure he makes a profit no matter what the outcome is.
This part is not really true. Bookies will very often have an unbalanced book and will be happy to keep taking action on the side that increases their exposure, if the price is right.
Although the strategy works here because the bookie moves the line to make it more attractive to bet on it. If he does not care about balancing the book, why move the line? He could just keep increasing his exposure
If your games are transparent and verifiably fair, you don't need to "make sure" that half your customers lose. You just post the payout odds, and have a fat enough wallet to cover the volatility. There is no "work" involved in deciding who wins or loses.
That said: If you're making a book (for sportsbetting) then yes, you are trying to balance the difference rather than predict a winner. That's a totally different thing from running a casino.
That's more or less how a sportsbook operates. However if the action doesn't balance out, the book has considerable exposure if the team with more bets on it wins.
I don't totally understand why the bookmakers would limit their accounts.
The bookmaker wants to balance his book for each game to make sure he makes a profit no matter what the outcome is. To balance their books they might give better odds for an outcome than what a statistical model might suggest.
But what difference does it make if the bettor who helps them balance their books is a consistent winner or not?
Do they prefer to give these "good" odds to people who are losing money long term?
The key insight is the books are trying to balance winners/losers to maximize their profit, that’s why the line moves.
In two-way markets (e.g. a tennis match) maybe. With more outcomes, it's a rare market that ends up with the bookmakers locking in a profit regardless of the outcome. For horse racing, the favourite in the race is most often a loser in the book for the betting firm.
Even for football (soccer) betting, i.e. team A/draw/team B, generally a bookie is very happy for a draw, because people just can't get very enthusiastic about betting on a tied result. Raising the odds on offer for a draw won't attract many extra regular punters, it only risks luring professionals who are more sensitive to the odds - and they aren't the customers you really want!
The books rarely balance up though, especially for markets with more than two outcomes. Football/soccer has win/lose/draw (and you can never get enough money on the draw, as hardly any amateur is going be watching a match cheering on a draw!)
Horse racing is even worse for the bookies, with multiple runners, their books will rarely balance, and the standard outcome is a loss if the favourite wins. Any outsider winning a race is a ‘turn up for the books’. (n.b. this is for UK style horse racing betting, where the bookies offer fixed odds. Pari-mutuel or pool betting doesn’t have the same problem)
>However if the action doesn't balance out, the book has considerable exposure if the team with more bets on it wins.
isn't that only an issue if the counterparty to each bet is the sportsbook? why can't a sportsbook operate like an exchange, with a bid/ask orderbook and take a % off each trade?
What you are saying makes total sense and seems reasonable but the reality is the books don't need the sharp action and don't really care about having a perfectly even balance. They will make more money just letting squares fire away at 1.9 or -110 odds and print money. Someone above said it perfectly, having the balanced action via sharp players will reduce variance but will eat into profits, and the books have the capital required to ride out any variance (entire seasons where squares win at a higher than expected rate for example).
edit: the books (at least the ones that open with respected lines, not the ones that copy the big books' lines) DO want sharp action when they are trying to set the right line. They will have a private group of handicappers that get to take shots at the new lines before they are publicly listed for smaller bet sizes, then they open the lines publicly for very small bet sizes. By the time the full bet limits are allowed and the square punter is picking a game 30 minutes before it begins, the books have no more fears.
on the topic of this paper, the arb'ing or picking off "off" lines is kind of a crowded space and opportunities don't last for long. I wouldn't get into it with high expectations of profit.
edit 2: source: i've been heavily involved in the industry on the betting / modeling side for years in the past.
This assumes that there is a chance to create a matched book. This is usually possible for something "liquid" like a big league sporting event, but not always for poorly-followed sports or weird prop bets on low-interest games. Even for liquid games, the book is not always perfectly matched and they may end up with some actual exposure to the outcome of the event.
In any case, in this scenario its just one guy looking to make a bet. There is definitely SOME line, possibly million-to-one or higher, that a smart book (or any rational actor) should be willing to take the bet.
> He sets and updates his odds such that he can match exactly the right amount of money for each outcome such that he makes a profit no matter the outcome.
This is only one way bookmakers work though and not the most profitable. If you have deep pockets, and there is tons of action on a bet that is very +EV for you, you will just let the action keep coming in rather than adjusting the odds to encourage balancing action on the other side. That would reduce variance (potentially to 0) but at the cost of EV.
In your case, at the end of the day you make money iff you get people to make individual bets that are unprofitable to them. If "there are plenty of suckers in the game," then you'll be able to do that. The other problem you're talking about is just variance control -- it won't affect your profits.
Sports books don’t work like slot machines or table games. Bets on each side are balanced against each other and the bookmaker works in a spread for themselves.
But then they are depriving themselves of liquidity provided by these professional gamblers.
They might have to increase the odds even more so that an average joe will bet on an unpopular team where as the professional bettor would have taken it at a lower price recognizing the statistical edge.
The aim of the bookie is to have a guaranteed profit on each and every game. Whereas the professional gambler tries to make a guaranteed profit over multiple games. Seems to me that they can benefit each other rather than be against each other.
Yes, that's standard and it's called overrounding. If the odds were to sum to 100% then the bookmaker would make no profit. Betting exchanges such Betfair have books closer to 100%.
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That's more or less how a sportsbook operates. However if the action doesn't balance out, the book has considerable exposure if the team with more bets on it wins.
Beforehand: I don't do sports betting. So I don't know much about the sports betting culture.
But why doesn't the bookmaker simply let anybody "pre-buy" bets (just like you do a bidding on an eBay auction). You will get your bet "approved" as soon as it becomes matched (or at least "near-matched") by the bookmaker. If it cannot be matched, you, of course, get your money/betting token back (just like you don't have to pay anything on an eBay auction if you become outbid).
Perhaps it might even be interesting to offer "flexibility in the ratios" for the bettor, i.e. if you are willing to only get 1.5 times your stake (instead of 2 times), you get "more in front of the queue for finding a match" (because this is better for the bookmaker).
Bookmakers make their profit from the margin between the odds they give.
Example. If the probability of outcome is exactly 50-50, he odds they give are 1.9 and 2.11 and they pocket the difference (completely fair odds without margin would be 2.0 both sides) It does not matter what the outcome is. If they balance the bets for and against perfectly, there is no risk. They generally try to balance their liability but having preferred winner can increase profits with some additional risk.
If people place bets on the other side more, bookmakers move the odds to balance the bets from both sides. At some point the odds can be skewed so much that professional better can make money even after the bookmaker takes his margin. That money is taken from other betters. But if the bookmaker is not fully balanced it can come from the bookmakers pocket.
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