Bookmakers: Sharps and Softs

‘Money Without Work’ 3: Sharp & Soft Bookmakers

Part 3 of this series looks at different types of bookmaker. Earlier episodes can be viewed here.

The terms “Sharps” and “Softs” refer to bookmakers that operate very different business models, writes Russell Clarke. Sharp bookmakers operate a low margin/high turnover model and Soft bookmakers operate a high margin/low turnover model. Examples of Sharp bookmakers would be Pinnacle or one of the larger Asian firms such as SBO, or indeed an exchange. Examples of Soft bookmakers are all around us in the UK (Ladbrokes, Hills, Corals, 365, indeed, all of the household names). Why is this of any concern to us as punters?

To answer that, we need to refer back to our old friend, The Efficient Market Hypothesis (EMH), discussed in Part 2. The hypothesis posits that in public markets, at any given time, all information is incorporated into the prices. Therefore, prices only move in reaction to new information. As a consequence it is not possible to “beat the market”. There is strong mathematical 'proof' of the EMH but also compelling empirical evidence that appears to contradict the theory; however, that discussion will have to wait for another day. This conflicting evidence results in there being “weak”, “semi-strong” and “strong” versions of EMH. For betting purposes, we can assume that the EMH exists and is, at least, semi-strong.

Back in our real world, let us take an example of a football match. Well in advance, the Sharps will offer tentative prices and punters (skilled and unskilled) will begin to place their bets. The Sharps will take more note of the skilled punters' judgement and adjust prices to gradually build a balanced book as the prices become stronger and a closer reflection of the supply and demand in the market. The prices become ever more accurate and the margins ever smaller as kick off time approaches and more information (such as team news) comes into the market place. At kick-off the “closing line” price is the most accurate assessment of the likely outcome. This is not open to argument or interpretation. Logically, the closing price will be more accurate than the earlier prices because there are now more participants and more information in the market. This is backed up by any number of empirical studies.

Can punters beat the closing line? EMH says no. Certain tipsters and companies that act as adjudicators of tipsters, offer empirical evidence that says yes. They are, or know of, a tipster that bets at closing line (or BSP if referring to UK horse racing) and has recorded profits. But, is the sample size of bets large enough? Is the tipster merely experiencing a lucky run? If we had a coin-flipping contest with 5,000 coin-flippers, one would emerge victorious and he would be “champion coin-flipper”, but so what? Again, the argument is mathematically complex and this article is not the place for such mathematical proofs. For now, let us just agree that beating the closing line of the Sharps is extremely difficult.

It is with the Sharp bookmakers that we see evidence of the EMH. Sharp bookmakers have the largest markets in terms of liquidity, of money wagered. In reality, Soft bookmakers are merely brokers of bets. The Sharps are the market makers and the Softs merely copy the prices. At first glance, because the Sharps bet to slim margins and allow big bets and don’t restrict/close accounts, it looks like they are the bookmakers we should concentrate on and find it easier to win with. But, in reality it is the opposite that is true. It is the Softs that offer the greatest scope for profitable betting. It is their business model that makes them vulnerable as we will see when we examine bookmaker concessions in later articles.

To win with either, it is clearly optimal to bet before the closing line. The following applies to horse racing but can be applied to other sports betting. We need to bet before the closing line because we know at the closing line, the market is at its most efficient. Let us run through the stages for betting on horse racing:

Ante-Post: Softs protect themselves with large margins in their quoted prices.

Ante-Post betting is one of the few aspects of horse racing betting that has been largely unchanged over my lifetime. The major top-class and prestigious handicaps continue to be used as a shop window by the major betting firms for publicity. It remains an area for bookmakers that is generally a loss leader and thus qualifies as an area of special interest to profitable punters. It is true that bookmakers are now far more sophisticated and sensitive to price movements than they were in the past, but, nevertheless some scope remains.

Aside from the major showpiece events, bookmakers price up the major Saturday races on a Tuesday/Wednesday and this also affords scope for the independent thinking punter. When bookmakers price up a race ante-post , the game becomes Your Skill v Bookmaker Odds Compiler and that is a much easier battle to win than Your Skill v Combined Knowledge of the Marketplace. The marketplace is a far shrewder opponent than a bookmaker odds compiler!

The one slight difference with ante-post betting is the allowance for the potential of your bet not running and/or horses being supplemented and introduced into the betting subsequent to your wager. Both can be accounted for and are not as crucial as many in the media (and racing itself) would have you believe. Forget all the nonsense you hear from people such as “he’s 10/1 just to line-up” when they are talking about a Classic contender for the following season. If the horse has a realistic chance, barring injury - and they are very rare - the said horse almost always arrives at the start on the day.

Another modern day advantage punters have when betting ante-post is the betting exchange. Although Betfair and Betdaq have weak ante-post markets (because understandably punters don’t wish to tie up their betting capital for months) they can be useful closer to, and on the day of, the event.  If your ante-post selection has shortened in price it offers the chance to hedge or lay-off part of the bet.

Getting meaningful stakes on to a horse ante-post without the help of agents is almost impossible for shrewd punters and so ante-post betting can only form a small part of a profitable strategy, but nevertheless it is attractive enough to pursue as the returns on investment can be very high. The anguish of non-runners can soon be discounted when you land a touch at four or five times the returned starting price!

First prices: These appear late afternoon/evening before racing. Again, Softs have large margins and restricted stakes. Consistently betting at this time will flag you up to bookmakers (if you are winning or consistently beating the starting price). A number of tipsters use evening prices. Whilst it is credence to them that they can recognise “value”, such a modus operandi becomes impossible to replicate in the real world.

Morning Prices: Margins are reduced and higher stakes permitted. On the exchanges (Sharps) liquidity is building. At this time, best odds guaranteed is available with most soft bookmakers and, providing you are not obviously “arbing” (backing horses at morning prices that are trading at lesser odds on the exchange), then the bookmakers are more willing to lay reasonable sums, at least until they recognise you as a winner.

Pre-race: 15 minutes prior to the “off” time of the event. Lowest margins and highest stakes permitted. The market becomes more and more accurate. At this stage, the exchanges will be betting to 103% or less and, in most instances, this is where you are likely to find the better prices, rather than with the soft bookmakers.

We are aiming for the sweet-spot of lower margins, better liquidity and a less than perfect/knowledgeable market. To some degree, where that sweet-spot is depends upon your own circumstance. The takeaway here is that, despite the lure of the low margin, betting at BSP or the closing line is a fools’ errand for all but the most successful players. Your own sweet-spot will depend upon your account availability, your need for liquidity (i.e. how much you stake) and the appeal of valuable concessions such as Best Odds Guaranteed and Enhanced Place Terms. For most, the morning of the race should witness the majority of your betting action.

In the next article, I will cover some concessions that the Soft bookmakers offer and how and why you should take advantage.

- RC

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9 replies
  1. 10 Things You Didn't Know about Geegeez Racecards
  2. breebraw
    breebraw says:

    Excellent article . I am curious though why the market can get a result so badly wrong sometimes. Paisley Park in the recent Stayers Hurdle was strong all day and never wavered from an extremely short priced favorite right up till the off as far as I can remember.

    • Russell
      Russell says:

      Thanks Breebraw. The reality is that the market is highly accurate over the long haul. In an individual event many things can happen and that means many different results are entirely possible.

  3. maverick99
    maverick99 says:

    I would be curious to hear the views of this paragraph in terms of the GG Stat of the Day given that the selections are issued the night before at the quoted prices:
    First prices: These appear late afternoon/evening before racing. Again, Softs have large margins and restricted stakes. Consistently betting at this time will flag you up to bookmakers (if you are winning or consistently beating the starting price). A number of tipsters use evening prices. Whilst it is credence to them that they can recognise “value”, such a modus operandi becomes impossible to replicate in the real world.

    • Chris Worrall
      Chris Worrall says:

      Stat of the Day doesn’t appear online until after 8.00am at the earliest, unless I know I’m going to be unavailable in the morning.

      • Russell
        Russell says:

        Hi Maverick,
        Chris’s Stat of the Day has a long-term record of recognising value at early prices. It is proof that the ‘soft’ bookmakers are vulnerable.

  4. Jim Atkins
    Jim Atkins says:

    Tipsters ruin it for all by tipping up the night before. You can get very limited stakes on anyway but what’s worse is connesctions cannot get their price the next day and because the night stalkers have chopped their price the horse will either be withdrawn or simply not run to it’s merits.

  5. Mark Littlewood
    Mark Littlewood says:

    Great to see Russell back writing but I would have to disagree with the final part of this article. If you are a losing punter and of course around 98% are then the only way you will beat BFSP is by backing the best 10am price amongst ALL morning bookmakers and you must have BOG. I think you would agree that even for an accommodated losing punter this is highly unlikely. It would require a large amount of effort from a losing punter and even then when bookmakers realize you are taking top price they will ban you. The above statement by the way if from empirical evidence, its not simply my opinion. I ran this test with newspaper tipsters as well just to see if a more ‘skilled’ picker would buck this idea but alas they too would be better off at BFSP than best 10am. This is not to say that a highly skilled punter would not beat BFSP if he watched AM markets and was guided by when to bet but of course we are advising losing punters and they would be better off in their pockets if they simply backed at BFSP. If you do not believe me then do what any good punter should do, experiment. Back your horses as you currently do but place a small token BFSP bet and then see where you are at the end of the year, you may be surprised.

  6. Russell
    Russell says:

    Hi Mark,

    We will agree to disagree, but I think it is largely semantics.

    A winning strategy based upon best prices at BOG is likely to see lesser returns at BSP. A losing strategy based upon best prices at BOG will see enhanced returns at BSP. Like yourself I have seen numerous empirical examples of this.

    The Newspaper tipster example is a strawman argument I think. Although these ‘gentlemen of the press’ undoubtedly have considerable knowledge of horse racing, at the time they go to press they have no knowledge of prices, which means their tips suffer inevitable losses. You or I would suffer a similar fate with no price knowledge. Compare them with say Hugh Taylor who has knowledge of and advises at best prices. His profits would be reduced considerably by betting them at BSP. Of course, this is exaggerated in Hugh’s case because of his following but it is essentially the same experience of any skilled tipster/punter who understands and can evaluate value.

    However, in the real world of account closures, your point is valid.

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