Hedging - Closer to fine?

We do get asked quite a lot about our system, which is great that so many people are showing an interest, so feel a quick update may be of interest to some folk but there's some pretty dry stuff below re thoughts about our system after 3 months of trying to minimise hedging so, if you have zero interest in the mechanics of our thought processes, in all honesty you'd be better sticking Pointless on the telly now and hoping for "Grand National Winners" to come up. Also, I realised, far too late, that "Closer to Fine" would've been a far better title for Saturday's betting blog but, having come up with another obscure 1980s semi indie reference I've shoehorned it in here. Like Friday's musical advice, you may need to Google it but this time you won't need the mute button.

Liabilities. A few things about liabilities.

Firstly, as I blogged (or possibly just tweeted) ages ago that I want to stress than we don't run with eye watering liabilities. We aren't Star Sports. We aren't even our friends who we see regularly who run a similar system to us but with much bigger liabilities than we can consider, and all power to them for doing so. What we have done is significantly increase the liabilities we previously worked with in order to let the book "breathe". I think our liabilities for a small firm of 3 blokes with mortgages and families is decent but, if you see us on course and you look in our book, you're never gonna see much over a £2000 liability on a race and that's likely to be at Cheltenham. Most of the time you'll see no more than half that. I was reluctant to post our max liability (which will vary further depending on make up of race and how busy a meeting is) but, on balance, I'd like to give an idea of where we are so that we don't come across as trying to be Johnny Big Balls. We're not. What this liability does though is allow us to take 80%-90% of hedging away as it's not overly common that we'll have to do much to get a horse back to that liability and every bet we can leave in the book, if possible, gives more value to the book than of we had to hedge it. It means that, on any given day, our worst case scenario is going to be in the region of a £7k loss. This is extremely unlikely though as many books won't hit the max liability naturally anyway and, if they do, the max liability selections would all have to win. Still, it's not impossible and we feel comfortable with that level of risk (though I'd never like to experience it). We ain't Ladbrokes (though you will get on with us in fairness). I have said before that we don't have massive liabilities (but, we think, respectable ones) and, if you missed that and you've read the blogs and are crushingly disappointed that we're not standing them for 20 grand, I do apologise now and understand if you never click our link again.

Secondly. Great question today on Twitter about what we do if something exceeds liability. First and foremost we don't cut the price to avoid it. That would void all the research we've done. Secondly we wouldn't immediately hedge it back. Let's say we're running £1000 liability and something hits £2000. If we had it back to get it down to £1000 we might end up laying other horses which would bring our liability lower than our max which would mean an unnecessary hedge- I have fallen into this trap a couple of times. The crowd clearly want something- it goes over liability- I have it back and then, all of a sudden, they stop wanting it. Classic example is you take 10 bets totalling 500 quid on a 4/1 shot in the first 5 minutes of betting. Surely this means the group think in the crowd is all over this horse and it's all we're gonna lay? Better get it back down in case it shortens (more on that later) but then it turns out that those 10 bets are from the same group of lads on a stag do and they're betting on "Jen's Wonder" or "Emma's Dream" or similar and that's the name of the future Mrs Stag Do Bloke. We don't lay it in the next half hour and it ends up running for us and we've wasted a bet back.

Thirdly. Timing. The ideal is to bet it back as late as possible so you know have absolute minimum amount you have to hedge. 2 risks to this;

First risk, and probably obviously; what if the price crashes and you end up with any value you had sucked out of your book as your hedging back at a much worse price than you laid? Our answer is que sera. It'll happen. But some will also drift and you'll win on the swings what you lose on the roundabouts over time. In practice you'll get the liability somewhere near what you're running that day plus what you're likely to take from the floor for the rest of the betting period. For example. You lay something and you're losing £2500 on it. You're running a £1000 liability. You expect to take another £800 on the race so you'd probably nibble your liability down to £1800 in case you take all of that £800 on the rest of the field.

Second risk; tech and internet connection. Sometimes you lose connection for a bit. This ain't a big deal and it doesn't happen often. Worst case most of the time is that you're stuck out price wise on one that shortens but you realise that pretty quickly as the queue forms and they're all betting the same thing. More of a concern is that you lose connection 10 seconds from the off when you're trying to sort out your book and, that late, however much your bookie mate next door might love you he ain't gonna want to lay you to lose a grand as the flag goes down. For those reasons we tend to tidy things up a minute or so from the off unless there's going to be an obvious delay.

Favourites

As has probably become obvious we don't mind favourites running for us. We don't try to keep them onside, we don't try to get them in at an artificial price just to make them a loser and we don't lay them on the machine. We let them fall where they fall- most of the time, like the majority of bookmakers, they will be losers (or at least some at the top of the market will be). The risk, in our heads when we went with this system, was that we end up with losing books on favs who are off for their lives and winning on favs that are there for a jog round. Our previous research didn't suggest this was going to be the case and we've not seen anything on course since to suggest that it was a problem either. It's always tempting to think you've been caught out with one when it doesn't run it's race and it's a big green figure in the book but, overall, this isn't a pattern. We're mostly comfortable with this. We had 2 obvious favs running for us on Saturday- one didn't run a great race, the other one won. The pattern we've seen is that green favs are likely to run in similar fashion to red ones. All good.

Short price favourites. Still not there. I think it's more psychological than factual. The last barrier for us (actually, probably me) is to have 5 losers in a 6 runner race and a 1/2 shot winning us plenty. As you've probably seen we are still fudging this and it's my fault. Work in progress, possibly forever.

Outsiders

We accept losing on these. It's a good job really as more or less every race we will have a loser that most books turn their noses up at. I understand that. We have been told, with an element of disdain, that we can't be proper bookmakers losing on a 33/1 shot. I know most books will want to win on big priced ones. That's fine. If you're consistent with what you do it'll work out. I do, however, take issue that standing outsiders based on what you actually take in the ring makes us less of a bookmaker than if we'd backed it back online with Billy Smith sat in his bedroom in Romford wanting to lay it on Betfair/Betdaq. It doesn't make that approach wrong but not doing it doesn't mean we are disrespecting the memories of bookmakers from days of yore.

"It's only a tenner". The most commonly used phrase when a fellow bookmaker sticks his head in our machine almost pleading us to bet that rag back. But that only gets it back to a nil liability and really we should make it a winner. So it's "only a twenty". But we've got 2 losing rags so it's only 40 quid. And we've got 7 races. So "it's only a tenner" rather quickly becomes "it's only about 300 quid". We do about 75 meetings a year but it's only 20 grand... I know some will win and I know we wouldn't lose 20 grand betting back rags but they generally have the biggest gaps in pricing on the exchanges so, overall, our thoughts are that we would lose a few grand a year betting back rags so we can remain psychologically undamaged when we lay one that wins. Why would you back something back at, say, 80.0 on the machine when the lay side is 100.0 and you have another 2% commission on top. Assuming the mid price is it's true chance of winning you're betting 90/1 (ish) shots at 78/1 (ish) Though I do hate laying one that wins.

Incidentally the 2nd most commonly used phrase when a fellow bookmaker sticks his head in our machine? "That's a s*** book". We like that. Don't ever stop.

So far? We think there's only one stick out day for us that we truly missed out and that was the Thursday at Cheltenham. It was the worst day of the week for us and the best for virtually all of our colleagues. I've discussed this before but our other options are to either green up which isn't even an option as it's boring, it feels wrong and, most importantly, we believe it is the least effective way to bet or to "bet straight" and stand the top of the market, winning on the rest which has a higher hedge usage but has the advantage of, effectively, taking the smart money out of the ring.

Ironically the "best" method for the last 3 months would've been to green up. Which we know is absolutely the worst method overall. Even the guys that do it accept that they are chucking money at Betfair/Daq. We have been faced with a disproportionate amount of favourites since the beginning of Cheltenham which we usually lay and the "betting straight" method always lays. Our fellow (and infinitely superior) blogger Mr Lovell has made the same point. At this point I don't believe that you can ignore 8 years figures for 3 weeks of fav fest but we'll continue to monitor.

So there we have it. We haven't seen anything that changes our approach though we would love the favourite ratio at meetings we go to be nearer to the norm.

Any Other Business

The other question we (and many other bookies) get asked is "will we take a proper bet?". The answer is about 50% risk and 50% logistic based. As a rule we'll take a bet to lose around £10k at most meetings. Nearer £20k at Cheltenham. As getting a bet on off course becomes more and more of an issue I'd like to think that we, and our fellow on course books, still lay decent bets. Again, we aren't Star Sports, we can't lay a bet to lose £100k but I think that on course offers betting options that are almost impossible to get on the High Street now and I'd like to think that punters will support that. We may not always be the best priced, we won't be offering 30 places in the National but you will get on to a decent liability and we do our best. Speaking for ourselves I am always happy to be asked for a better price, especially for bigger bets and regular punters. We won't always be able to accommodate but we will try. I know that people would say "if you'll lay it at that price it should be on your board" but we simply can't be best priced on all horses all of the time as it would be impossible to continue to trade. We have expenses, we are a business, we're not perfect, we sometimes miss drifts and we can't work for nothing but we are regular guys who try our best to find the right balance.

Finally, for those with us from the start, I appreciate there is a bit of rehash of our Christmas thoughts in here and for that I apologise but, with any update, I think it's important to cover everything rather than piece together our thoughts from Christmas along with a new piece here. I also appreciate this is one of our more dry, serious pieces. Gratifyingly we have had a lot of new folk along with us for the ride and for that we are always very, very grateful for your interest. Would welcome any questions/feedback either on here or Twitter as the day you think you know it all is the day you should pack up.

See you Saturday (or, more likely, Sunday morning)