A Day With The Traders

It is an obvious foul. It is an obvious booking. But when referee Carlos Velasco shows John Obi Mikel the yellow card in Paris, there is a profound sigh in Sky Bet’s office in Leeds. He has just cost them over £1,000.

I’m not sure what I expected when I visited Sky Bet’s trading floor, located in their shiny, modern offices in a quarter of Yorkshire that throbs with the sound of building work, the northern powerhouse in action. Perhaps not quite a smoke-filled room and aged men in hats taking calls and shouting across the room and inscribing bets in a large ledger (as used to be the case: a running book, it was called – betting is suffused with its own idioms, the complex slang both part of the appeal and a barrier to the uninitiated), but perhaps not far off.

Possibly because the most overt customer-facing presence of the industry, horse-racing bookies aside, is the high street betting shop, often a bit weathered and housing an interesting range of clientele, it’s not hard to have slightly pejorative preconceptions about the trade and those who practice it. But Sky Bet, unusual in that they have no physical presence on the high street, looks and feels more like a newsroom, a panoply of computer screens showing sports news and information, scores, and the complex sheets used to track bets and the state of the book. 

Betting has evolved and so too have the punters placing the bets. The basic tools, ranging from knowledge and experience to gut instinct or, in the case of one friend, picking the horses with the prettiest names, might have stayed the same, but the interfaces have changed and so have the markets. We can now play across a multitude of events, including obscure leagues and competitions. We can make bets in-play while an event is ongoing, and do so from the comfort of our own home, or commute, or the pub while we watch the games with our friends. Smart phones and tablets have broadened the reach of bookies and the old days of placing wagers over the phone have all but vanished (though priority customers, the high rollers, do still have a direct line to bookmakers for bets that exceed the normal limits on events).

I joined the Sky Bet trading team for the Champions League Round of 16 games that saw Chelsea travel to Paris Saint Germain and Benfica host Zenit St. Petersburg. My guide and host was Paul Lowery, the Football Desk Manager (“It used to just be Football Manager”, he joked, “but people used to ask which club I managed and it became a bit embarrassing”). Paul has been in the betting trade a while, having worked for a bookmakers when bets were still largely taken down the phone and written in the running book. With a background in American sports, which has left him with a fearsome level of knowledge about American Football, he now manages the other sort of football desk on a day-to-day basis. That desk is a mix of traders and compilers, two previously discrete roles that now, increasingly, overlap. 

Traders oversee the placing of bets, which these days means monitoring huge volumes of trades with automated alerts for risky bets or bets placed by certain accounts and continuously assessing the book’s liability, or in simple terms, what Sky Bet stand to lose if everyone else wins. These are known as ‘risk tasks.’ The overall picture is maintained in the ‘field book’, a comprehensive view of the potential profit and loss across the day’s activity. If you consider that a big match could have 30 or 40 markets, some of which have multiple potential outcomes (first scorer, any time scorer, and so on), and that’s just for one match of potentially hundreds on any given day, it gives you an idea of the complexity of the operation. It also makes you wonder how anyone managed to do it before computers. 

Compilers also handle ‘risk tasks’, assessing the strengths and weaknesses of teams, players, and so on, and determining the prices at which bets initially come to market. Using the measures ‘supremacy’ and ‘expectancy’ (basically which team is better and by how much in terms of number of goals scored) and plotting it all against a Poisson distribution curve using a very complicated, constantly tweaked algorithm, the compliers can arrive at the likely outcome for a game. It’s not all automated, though: supremacy and expectancy, the former especially, are still derived by and large from a compiler’s knowledge and experience, as well as mathematical modelling.

The market helps to drive odds to a reasonable level (a process that can be seen clearly, if not exactly comprehensibly, on an exchange like Betfair, where the exchange of bets sees the price narrow from wide margins towards much slimmer ones as the price firms up). In any market, bookmakers will look to guarantee a margin  (or ‘over-round’) of at least 4%: in real terms, this means they assess the real odds of an event occurring and then adjust these slightly to create their margin (this is described as the ‘tissue price’ as opposed to the ‘real price’).

On more specific markets, such as multiple events (someone to score first and an exact full-time result), they could allow a greater exposure to risk because the likelihood of an event occurring is slimmer. These prices are also often checked against other bookmakers to ensure there is not too wide a discrepancy. Paul says that this misleadingly gives the impression of fixing of prices across the industry but it’s done to guard against a tactic known as ‘arbing’ or ‘hedging’: punters can quite easily exploit wide differences in pricing in a three result market to ensure that, whatever happens, they make a small profit by backing all three outcomes at prices that are too unrelated to adequately ‘cover the book’.

It’s also a reflection of the general homogeneity of pricing, which is a result both of more sophisticated pricing models and the increasing use of Asian handicap betting as a baseline for market price (essentially, Asian handicap betting, which is unavailable in the UK by legitimate means due to point of consumption tax, is a form of spread betting that allows a punter to place what is effectively a draw no bet wager with a handicap element. The accuracy of the line and the huge sums placed by Asian syndicates on these markets mean they’re very liquid and very responsive, and give a very good indication of what the market feels is the accurate price of an outcome).

The betting industry in some way reflects wider changes within the sport environment and, more specifically perhaps, within football. The trading team is split, roughly down the middle, between old-school traders and compilers like Paul and a newer breed. These newer traders are often trained mathematicians, think in decimal rather than fractional pricing and enjoy probability and pricing more than compiling. They are part of a growing group, both within the betting industry and its customers, who have almost no familiarity with the racing origins of organised betting (and concepts such as each way betting, for example), and whose experience of betting is largely online. The industry has sought to retain something of its old ways, for example in the language used or the provision online of ‘coupons’, long lists of available markets and odds within them that replicate in the online world the A4 sized sheets of paper that one still finds in high street bookmakers. But, just as football is becoming more interested in stats and analysis and there is a division between ‘proper’, old-school football and the new number wizards, so this dichotomy exists in the gambling world.  

The new breed of punter, online and in-play (there is now a roughly 50/50 split between pre-match and in-play betting on big games), often football oriented and (by and large) not gambling for much more than fun, still has serious cash to spend though. Sky Bet offers loss-leading bets at wider margins (for example transfer business or next manager markets) to engage these customers, and also uses social media to engage customers through their request-a-bet service: a punter can ask to be able to bet on, for example, a match result with anytime scorer, over or under corners, cards, penalties, hitting the woodwork, and so on, in ever spiralling numbers of possibilities. Paul describes this as a win-win for the company: “it’s basically free market research for us, but it also engages the customer and it’s fun.” The transfers’ market (i.e., which club will Benik Afobe sign for, which was one that was run) usually sees about a 1.5% loss for Sky Bet, which is reasonable because it engages customers. After a while, the market will move quickly as gossip leaks out and the traders, seeing this, will close the book because they know a deal is done even before the news is official. 

At around quarter to three in the afternoon, betting has already begun in earnest on the PSG Chelsea match, although the average stake on the full-time win lose draw result is only £3.30 per punter. Despite the small stakes, losses for the bookies can be huge if results go against them. On Boxing Day 2014, Sky Bet lost 140% of its stakes, or £5.3 million; less than a month later, they lost £6.9 million on another day’s betting in football alone. By contrast, a good day for the bookies would likely see an average of £400k profit, but by ensuring their margin and pricing sensibly, they come out ahead over time. Sky Bet’s standard customer is the amateur, fun gambler, having a punt while watching a game with his friends, and the psychology of such punters is interesting. They usually bet small, but positively: ‘overs’ markets are much more popular than ‘unders’ (i.e. people are more inclined to bet on over 2.5 goals than under, and almost no one bets on 0-0 draws). Backing a final score of 3-1 is oddly popular, given how infrequently it actually occurs, because it’s seen (or felt) to be positive for both teams. Accumulators are very popular, usually on games where one team is between 11/10 and 1/3 or 1/4 to win, because small sums can net big wins for minimal risk (interestingly, cashing out has seen some odd results for punters on accumulators: one punter staked £2.50 on a twelvefold and cashed out at £77.50, but would have gone on to win £13k; another cashed out a £25 stake on an eightfold for £5k but would have gone on to lose).

It’s almost game time, and the team order in a curry from a local takeaway. The establishment is famous for having a zero food health rating and I baulk at the prospect of getting something, but a member of the trading team, who used to be a chef, informs me that it’s actually quite easy to get a zero rating and it doesn’t mean that you’re guaranteed to be up all night with evacuating bowels. Having mixed chopping boards or a stock-pot that’s been in use for a few days will knock points off your mark without doing any serious harm. Apparently, most commercial kitchens use an almost eternal stock-pot, and just swap it out whenever there’s an inspection. It’s an oddly instructive analogy for what these men (and they are all men in the trading team) do for their living: using a level of knowledge that exceeds the average, they assess and calculate risk and then act accordingly, limiting their own liability as much as possible and maximising their, and the company’s potential gain. It’s not enough to persuade me into having a curry though.

By 7 pm, the liability for a Chelsea win has reached £100k and £540k has been staked on various multiple bets. Around 75% of all the action occurs before the team sheets are released at around an hour before kick-off. Both Chelsea and PSG feature in the top 10 teams used in the day’s accumulators too – if all the top 10 were all to win, the liability would be £1.7 million, but that is, of course, impossible. It’s another point worth making: while a full book’s liability might be enormous, many positive results cancel other positive results out, especially across multiples, so while Oscar scoring in a 1-0 or 2-0 could lose Sky Bet £50k, it would also negate the vast majority of other bets and the book would still come out ahead. Sky Bet are running a price boost promotion at 14/1 on Benfica (who are around 11/10 to win) and Chelsea both winning, exposing them to a £1.9 million liability, and Benfica are being heavily backed in their own right, with almost 80% of stakes on that tie going behind the Portuguese club. 

The chatter in the office subsides to a more focussed, soft hubbub. The PSG Chelsea game kicks off and Paul informs me that Sky Bet have just won £17. Doing what, I ask. Apparently, you can actually bet on which team kicks off these days, which just seems bizarre, but £152 was indeed staked on this rather arbitrary market and it closed to the bookie’s advantage. Even now, I couldn’t tell you who actually kicked off: watching a match with traders and compilers is different to actually watching it: you assimilate occurrences, wait for certain things to happen, tick off happenings for what they mean to the market or a pay out or a loss; it’s no wonder, really, that Paul says he’s much less of a fan of football now than he used to be (though it’s also probably to do with the fact he is a Bolton supporter). Costa hits the woodwork and Sky Bet pay out another £409 on that exact occurrence, despite it being the result of a blinding save from Kevin Trapp, and another £112 on the woodwork being hit at all; that market resolves with Sky Bet ahead £98, though, as more people backed it not happening.

And then it happens. John Obi Mikel is booked, his yellow card arriving with the kind of inevitability that makes any price seem long and Sky Bet are down £1150 immediately (With hindsight, it begs the question; who wouldn’t have backed him to get booked?) 

Chelsea jump to 22/1 when Zlatan Ibrahimovic scores and almost immediately, £1600 is placed in total on the Blues to win the game at that price. Poor old John Obi has a part in the goal as well, deflecting it past Courtois, and there is a general mirth around the trading desk, a karmic rebalance for costing the company over a grand with his indiscipline. Mikel, of course, then goes onto equalise, possibly the most unexpected development of the night. 

At the 60 minute mark, the draw shortens to 11/10, Chelsea go out to 11/2 and PSG to 5/4. The in-play markets are still liquid, though increasingly less; Paul says there is often a flurry around the 75 minute mark of people backing a draw if that’s the score at the time, a simple form of hedging. There is a muted sense of expectation around the draw, always the best result for a bookmaker. But it’s not to be. Edison Cavani scores to quash the hopes of the 75th minute hedgers.

On 83 minutes, Gary Cahill clears behind for a corner and one of the bizarrely ornate accumulators (Ibrahimovic to score, a certain number of cards and corners) pays out. The full-time result, not unexpected given the market’s certainty, sees a pay-out of just under £30k for the PSG win, but Sky Bet finish the night well ahead, as one might expect.

There is quiet diligence as the team settle all of the complex bets, as well as any large stake ones (one punter had £13k on PSG to win as a single bet), before totting up the day’s efforts. It’s been a good day all round for the trading team, with a significant profit made and no customers unhappy. As Paul says, being a bookmaker is about “offering the right bet at the right price to the right people.”

It can seem very complex and, indeed, the tools used by modern bookmakers are, but it’s engrossing once you find your way in through the jargon and start to view a game as a bookmaker does. In the new era of online betting and more various markets, this requires greater levels of awareness and responsibility from bookmakers, which they manage with a host of new tools, but the basic premise is the same as it’s always been: find a price, add a margin, and place yourself in the lap of the gods. And always, always, always back John Obi Mikel to get booked.

You can follow Alex Stewart on Twitter (@AFHStewart)

The vast majority of people gamble responsibly, but if you feel that you might be losing control, visit GambleAware for advice. 

A Day With The Traders
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