• 03 Feb 2012 at 5:03 PM

Dealbreaker’s Senior Bookmaker Has A Few Things He’d Like To Get Off His Chest

Anonymous Sports Book Manager left academia to run a trading department at one of the world’s largest offshore bookmaking outfits. He now works onshore with his cellphone, pencil, rice paper, and a bucket of water. He’s trying to go legit as a consultant (please send job offers), but every time he gets out of the bookie business, they pull him back in.

I’m cranky. It’s probably because the Giants opened +3.5 in the Super Bowl and now it’s nearly +2.5 and I’ve taken in a lot of sharp money I don’t want. “3” is the biggest number in football. That’s a problem, and it’s put me on edge. So other stuff is getting my goat—especially stupid stuff. Like this:

With the GOP primary campaign in full swing, even more TV talking heads are pointing to candidates’ odds at internet betting exchanges and sportsbooks while gushing “It’s just like the stock market!” Are you kidding me? It’s nothing like the stock market. While the notion of people getting on TV and spewing ignorant statements during an election cycle is hardly new, let’s just debunk this nonsense before we’re all treated to it 500 more times: Betting on politics is nothing like the stock market, and not even really like betting on sports.

First, there’s very little trading. Betfair.com is the world’s largest betting exchange. As of Sunday, Betfair had “matched” less than $1 million on who will be the Republican nominee and less than $250K on the winning party in November. By “matching”, that means if I wanted put $100 on the GOP in November at 11/10, and you matched it by putting $110 on the Dems to win my $100, that’s $210 matched. If you wanted $10 on Ron Paul at 200/1 and I matched your bet, we matched $2,010: your $10, plus 200 times that from me in the case that you won.

So these markets have been up for a year, and they’ve matched less than $1.25 million.

Consider now a stock that trades on the NYSE: National Presto (NPK). They make kitchen utensils, ammo, and adult diapers. Honest. Market cap’s about $700 million, so if you don’t know them, you’re not totally alone. $100/share, and recent volume is about 34,000 shares/day. So the stock market, on this company alone, is matching 34,000 times 100 times 2 (both the buyers’ and sellers’ dough) = $6.8 million each and every day the market’s open.

In the gambling world, every large sportsbook matches millions on every NFL game, every week.

Second, it’s hard to get a bet for a reasonable amount without wrecking the price. As I write this, Betfair’s top price on both the Dems and the GOP are good for less than $200 each. Picking a side, betting that side, and also “shorting” the opposition (which is the same thing as betting the side you like in a two way race), you could get about $2,000 on at Betfair at a reasonable number. Betfair is not the only game in town. All told, if you hit all the sites pretty simultaneously, you could probably bet $20,000 if you did it just right. (The prices will collapse: some bookies will instantly try to lay your bet off.)

$20,000 sounds like a big bet, until you figure it’s less than 50 shares of Apple. Trying to buy 50 shares of Apple (or 3,000 shares of Bank of America) at/near market price won’t get anybody’s undies in a knot.

For that matter, if your bookie knows you’re good for it, getting $200,000 down on the Superbowl, or any game, is much easier. $20K? Any bookie will take that. And $200,000 might move an NFL line half a point, or it might not: that kind of money won’t really change a price unless it’s coming from a pro gambler with a winning track record.

Third, the stock market has a whack of rules and regulations. When it’s open, who can trade, how trades are settled, blah blah blah. Gambling markets have no overarching rules. A market is open as long as the bookie or the exchange administrator says it’s open. It can be closed on a whim; it can have its limits lowered on a whim. While some bookies and exchanges submit to voluntary regulation as to when a bet at a bad price can be busted, in most cases it’s the bookie or exchange’s gut call as to whether it’s worth making the customer happy. I need to keep my good customers happy. The rest, who cares.

Fourth, different bookies and exchanges have different prices as they try to match up their own order books, but the arb opportunities aren’t handled efficiently. Let’s say I can guarantee myself a 1% profit by betting the Dems at one shop and the GOP at another. Am I really going to tie up cash or credit at both places to make 1%, when I know I won’t be cashing out before November? Even if I’m sure both shops are super-solid (and Betfair, among others, really is a safe place), 1% return for ten months?

Last, books don’t really want bets on politics. Nevada shops are lucky: taking bets on politics out there is actually illegal, so they don’t do it. The rest of us offer it as a service, and it sucks. Even the betting exchanges don’t really like these kinds of bets: that’s money that’s frozen for months or years. Just like the NYSE, these places live on churn and fees. Further, when an election ends up in dispute, half your customers will always end up pissed off.

If betting on politics is claimed to be like trading on the NYSE, it’s only true to insofar as if you pick right you make money, and that current sentiment is no guarantee of future returns—just ask Presidents Gore, Kerry, Huckabee, and Perry. Internet betting on politics is a low stakes parlour game—it ain’t the market.

I’ll write enough two-way action on the Super Bowl to get out alive, and the prop bets are gravy, but thanks for letting me piss and moan about this.

15 comments (hidden to protect delicate sensibilities)
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Comments (15)

  1. Posted by Relational LLC PM | February 3, 2012 at 5:18 PM

    Is this Matt's bad boy twin brother?

  2. Posted by Matt's Mom | February 3, 2012 at 5:22 PM

    Matt's Dad

  3. Posted by bangin futes | February 3, 2012 at 5:33 PM

    its an emerging, and at this stage, "back month" contract.
    This will be active market in the coming years, and early movers like
    yourself should be well positioned.

  4. Posted by Guest | February 3, 2012 at 5:34 PM

    The Stefan Urquelle to Matt's Steve Urkel, if you will.

  5. Posted by VonSloneker | February 3, 2012 at 5:38 PM

    Running numbers = OKI
    Consultant = NKI

    Made the same transition myself

    – Terry Benedict

  6. Posted by Eddie Braverman | February 3, 2012 at 5:40 PM

    Nice. The bit about the rice paper and bucket of water really takes me back. Old school.

  7. Posted by chrls | February 3, 2012 at 5:40 PM

    so….. Betfair & Wollensky?

  8. Posted by Guest | February 3, 2012 at 5:42 PM

    You come to Matt Levine's site – yes, THE Matt Levine, the king of lengthy somewhat apologistic insider trading posts – and use a TLDR tag? That is bold, my friend.

  9. Posted by FKApmco | February 3, 2012 at 6:01 PM

    I feel for you Anon. I put up a comment about The Giants crushing the Pats this morning and it gets -24 and my IDRS goes down a point to 93. And now I have to walk home 10 miles, uphill, backwards, in bare feet. What a freaking day, right?

  10. Posted by moderator | February 3, 2012 at 6:12 PM

    lets not forget your gay comment about
    the perfect hedge.

  11. Posted by Grant Hill | February 3, 2012 at 6:17 PM

    Examine your motives.

  12. Posted by Peztopiary | February 4, 2012 at 3:15 PM

    Intrade is where you make money on politics. Ron Paul's idiot brigade, people betting on Not-Mitt, etc. Really the best part of it is the sure and certain knowledge that you are taking some money that would otherwise have gone to a Republican candidate.

  13. Posted by wang | February 5, 2012 at 1:28 PM

    Great, you just made me bet 100 on the pats. thanks ASBM.

  14. Posted by Bob Dobolina | February 6, 2012 at 6:25 AM

    What's the point of commissioning an article from an idiot who doesn't know what he's talking about? $10 on Ron Paul at 200 on Betfair would be $20 of matched volume, just like on CME or CBOT (your $10 matched my $10 = $20). That's $20 of volume, not $2,010. And that's 199/1, not 200/1 – the latter isn't a valid price on Betfair.

    The third point is dumb. You're confusing bookies who do what the hell they like, making up the rules as it suits their position, with Betfair which doesn't. Betfair doesn't have a position (you're betting against other users) so they don't close markets on a whim or impose limits. Again you're confusing them with shyster bookies.

    Wrong on the fourth (arbitrage) point too. Imagine someone said there's no arbitrage between the June S&P future and the underlying stocks "because you'd have to tie your money up for months". You'd laugh at their stupidity: you don't hold the positions for months, you trade out when they're back in line, which could be same day, just like the arbers on betting exchanges do.

    But the dumbest point of all is the idea that you should pay no mind to prices on political betting markets because they aren't as popular as sports and relatively small amounts of money move the market. The question is whether the prices give you some useful information. You only need the amounts to be worthwhile, and for enough people to be playing for the market to form and for it to reflect a consensus. The political betting exchanges tick both boxes.

    Either the betting market on who'll be elected president is useful because it tells you Obama currently has a 58/59% chance of winning, or it's useful because you know better and can make money out of it. If you do know what you're talking about then your money moves the market and makes the price more accurate. So they're useful either way (unless you're a dumb bookie of course).

  15. Posted by Ufo | February 6, 2012 at 8:06 AM

    So, not a gambler, but is it correct to infer:
    Betfair : bookie :: NYSE : bucket shop

    Yes?