How Do Bookmakers Manage Risks?
Bookmakers refer to the businesses that offer to b
Bookmakers refer to the businesses that offer to bet on sports and other events. They are people who know that just because someone receives a bet, they will not necessarily win. So they have to assess the risk of each bet, balancing those risks against their potential payouts. A bookmaker who does this well will have a high chance of success.
What Kind of Risk?
Understanding the nature of bookmakers' risks is the first step to understanding how bookmakers manage them. You can hardly separate sports betting from risk, and there are many differences in opinions about what kind of risks a bookmaker is exposed to. Bookmakers are exposed to three main kinds of risks:
- Understanding the ability of a particular sports team.
- Identifying the bias of a referee, umpire, or other match officials.
- Calculate an event's outcome based on past performance, current form, fitness, and other factors.
Using Odds to Deal With Risk
Bookies know that not every bet they take will win, which is why they use odds to help them manage risk. Odds are the amount of money you bet compared to what you can win. For example, let's say you place a £10 bet on a horse. If it wins, your chance will be paid off at 10-1 odds, so you'll receive £10 plus another £10 for your initial stake. Your profit is, therefore, £20.
Bookmakers use odds to calculate profits and losses when they accept a bet. Every time someone places a bet, the bookmaker includes the odds in the equation to determine their profit or loss. Let's look at how this works: Bookies know that the odds represent their chance of winning, so they use them to calculate their potential gains and losses.
Bookmakers Use Risk Management Software
High-tech bookmaking is big business. Modern bookmakers use a system called 'Risk Management Software' or RMS for short. Bookmakers calculate their profit and loss according to the odds and the amount of money they have.
If a win happens, their profits could increase quickly if they do well throughout the day. But if they lose on multiple occasions within an hour, it could put them in serious trouble. Betting risk management software calculates the odds for them. It can also calculate how much money is on hand, the current opportunity and whether it will be a good day.
If you've ever watched the film Trading Places, you'll have seen Eddie Murphy's character work out whether or not it would be worth buying or selling a particular commodity based on its history of prices. By applying this theory to a bookmaker, the Good To Out (GTO) charts are used to determine potential gains and losses.
Determining risk with these charts can be fairly simple. The horizontal axis on the graph indicates the period for which you're looking. The Y-axis shows the potential winnings from the previous bets, so even if a bet wins, the potential loss is still indicated. It shows where a bookie could be in financial trouble depending on their losses.
It makes it much easier for them to assess their risk and decide whether or not they want to accept a bet at their current odds. In addition, the more time it covers, the more accurate the risk assessment will be.
Detecting Suspicious Betting Patterns
Bookmakers use different software to help them spot suspicious betting patterns. Take a horse race, for example. If bets are placed at the last minute, and the odds are longer than usual, it could mean that someone has insider information on what will happen in the race.
If one person makes many bets, they may be up to something. Bookmakers can use risk management software to determine if any bets against them have common features. They can then take action to catch any potential wrongdoing or adjust their odds accordingly.
Bookmakers want to balance the risk in their business against the potential profits. Of course, a good bookmaker can manage this fairly well, but it's always worth checking out their risk management before placing a bet.
The Bottom Line
In short, bookmakers use risk management software and graphs to assess their risk before accepting a bet. These tools can help them calculate their possible gain or loss from every bet. With that in mind, you can see how important it is for a bookie to have a healthy balance of profit and loss. They could leave money on the table if they don't manage risk well.