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