Just a gentle reminder that the competition leaders are getting away so if you’d like to own a little piece of LevBet you may want to

or start referring with the button fast.

We are working hard to release a few products for the EIG Berlin conference next week including all day horse racing futures, more dynamic pre-game odds, and our first live football options. Stay tuned but in the meantime delve a bit deeper into our theory behind markets with our case for leveraged betting below.

The gambling industry both land based and online, is undergoing transformational change. In fact, technological advances influence how we consume, interpret and act upon information in every part of our lives never mind how we bet on sports.

We might therefore expect the new football season to be a breeding ground for innovation, but it isn’t. Instead we see another year and another race to the bottom for bookies spending multi-millions on marketing the same ‘me too product’, coupled with the new PoC tax crushing everyone’s bottom line. The industry mentality appears to be “biggest is best” and the war of attrition to maintain player base is fierce - consolidation is likely in 2015.

To be fair (pun intended?) there have been some recent technological breakthroughs in the vertical of sports betting. Betfair has successfully tested the waters for mass market odds trading with the exceptionally user friendly Cash-out. Indeed the fact that Betfair had over 1,000,000 Cash-out transactions in the first 12 months of offering the product demonstrates the punter demand for product innovation. Moreover, it demonstrates that punter sophistication is developing to digest the benefit of more “markets” looking products.

But that is the very, very tip of the “markets” iceberg. In my ideal betting future I want to switch on my computer, choose a market, see six zeros each side of one tick accurate to four decimal places and start trading backs and lays with one click. Basically, I want a financial market for betting on sports, and I suspect this view would be supported by most betting exchange users.

The amazing thing is that we are already half way there. By happy accident (people forget that the leading betting exchange was pitched as a social betting tool1), pseudo-stock markets for betting exist. The market for odds trading continues to grow, but it is still too insignificant for many people who take financial markets seriously to treat betting markets similarly. For those that love odds trading, most have to live with putting in as much effort as their financial market cousins for substantially less financial gain.

Luckily, financial markets have plenty of happy accidents that betting markets can use as stepping stones. Futures contracts were developed so that companies (like airlines) could lock in the price of important commodities (like oil) at some point in the future, and thus hedge against the risk of adverse price movements. These contracts generally “cash settle” (like Cash-out) which means that instead of exchanging money for oil, we just exchange the difference between the contracted price and the actual price at the agreed date.

In English, if I contract to buy a barrel of oil for £100 on June 1, and on June 1 that barrel is worth £110, then I make £10. If the barrel is worth £90 on June 1, then I lose £10. Interchange prices with odds, and we have odds trading right?

Wrong. The difference between a bet and a futures contract is that we only exchange profit and loss, not the assets (bets) themselves, and so I only need enough money to cover a potential loss. Let’s say the worst possible price of oil on June 1 is £80. That means the most money I could lose is £20. Therefore, I can effectively take a £100 position in an oil barrel for £20. What if I take a £100 position in a horse with £20?

That is Leverage: wagering more than what you have. While the contract described above developed as a risk management tool, this concept has had evolutionary repercussions for financial market speculation (gambling).

Let’s look at Gold. Gold is a highly traded, not particularly volatile commodity. A survey by the London Bullion Market Association2 revealed that in the first quarter of 2011 £9,500 Billion of gold changed hands. That was apparently 125 times the annual output of the world’s gold mines, and twice the quantity of gold that has ever been mined. Suffice to say, not a lot of those transactions involved gold physically changing hands.

For a quick look at how so much money can change hands, walk on over to one of the larger CFD brokers and you can quickly start trading gold at 1% margin per contract. I.e., one can move £100 of gold for every £1 that is actually locked down. Wow. Let’s play a game.

Which of these graphs is the price of Gold and which is the odds for a pre-off favourite in a horse race?

The horse is the more volatile one, but it is not that much more volatile. If trading pre-off, one should be able to leverage a position in that market by buying a , just like leveraging Gold or Oil.

A sports future is a betting contract that involves no exchange of principal, and cash settles for the difference between the contracted and actual odds level at the end of a period of similar volatility (in this case at the off).

In English, I bet £100 on the favourite at 4-1 but I only put down £20. As the odds move any profit or loss resulting from the odds movement is magnified 5x and I can trade out of that position at any time until the start of the race.

Contracts of this nature would:

  • Vastly increase the profitability of successful betting strategies
  • Allow you to tie up significantly less capital when betting
  • Enormously increase the liquidity of the market — just as in many financial markets, resulting in tighter spreads and better prices (odds).

Now the horses’ pre-off is a highly traded period but leverage has application to an enormous number of non-volatile bets including the pre-game in every sport, league and tournament winners and Golden Boot to name just a few. While in-running is the current rage in the betting world, there is a huge amount of sophisticated money in these non-volatile periods. Why? One reason is that it is very difficult to create a model to find mis-pricings in-play when so many variables (including Time) are rapidly affecting the odds. What’s more, leverage artificially creates volatility, which traders seek, further increasing the attraction of these periods.

From a sportsbook/exchange company perspective, the vast majority of time to bet is when the event is not in-running. Therefore, increasing the allure of betting in these periods is highly desirable.

Betfair processes more transactions per day than every European stock exchange combined- and this is because of traders. What’s more, the number of transaction per day has increased from around 5million to 30 million over the last 4 years3. Increasingly available, cheaper sports data, as well as the development of better, faster, more accessible, more user friendly analytical tools, is making financial market style trading of odds highly alluring. Leveraged sports betting can magnify that allure by up to 10x.

The i-gaming industry’s big brother still has plenty of tips beyond the betting exchange.

Happy punting,

LevBet team



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1)http://www.joshhannah.com/2014/09/tbt-what-series-a-fundraising-looked-like-in-1999/

2)http://www.ft.com/intl/cms/s/0/eb342ad4-daba-11e0-a58b-00144feabdc0.html

3)http://www.sportstradingnetwork.com/erlang-exchange-betting-can-market-learn-whatsapp/