On developing a solvency framework for bookmakers

The betting industry has grown significantly but there have been no developments in creating a regulatory framework akin to the EU Solvency and Capital Requirement Directives in the Financial Services. This work derives a modular method to calculate the profit and variance of a portfolio of wagers placed with a bookmaker by subdividing these into bundles according to their likelihood size. This calls for improved risk manage-ment and regulatory set-ups similar to those of the financial services industry, which should include a minimum capital requirement for bookmakers to accept a particular number of bets — “A passport for taking risks.”peer-reviewe

Expected values and variances in bookmaker payouts : a theoretical approach towards setting limits on odds

This study summarizes the key methods of displaying probabilities as odds and provides simple mathematical derivation of a number of key statements in setting odds. Firstly it estimates the expected bookmaker profit as a function of wagers placed and bookmaker margin. Moreover it shows that odds set by bookmakers should have implied probabilities that add up to at least one, otherwise arbitrage is present. Bookmakers can increase profitability by offering more multiples, also known as accumulators, and can lower variation in payouts by maintaining the ratio of wagers and implied probability per outcome.Pinnacle Sportspeer-reviewe

iGaming versus Banking: Differences and Similarities

This work compares existing and emerging risks of the banking and iGaming industries. Moreover, whilst a solvency framework is established in the banking industry, this study researches the potential implementation of a solvency regime in the iGaming industry. Our literature review is complemented with semi-structured interviews held with 23 stakeholders working in risk management in Malta. The common risks identified were compliance with regulations, money laundering, liquidity and solvency risks. The banking industry highlighted credit, market and jurisdiction risks as specific risks faced by their industry – the latter being potential worry specific to the Maltese jurisdiction. iGaming experts highlighted financial, responsible gaming and market changes as specific risks for their industry. A formalised solvency framework would be beneficial to the iGaming industry by further enhancing its reputation. Finally, we find that more focus should be given to risk management in banks and iGaming operators to improve the relationship between both industries

Why do some soccer bettors lose more money than others?

Why do some soccer bettors lose more money than others? In an efficient prediction market, each gambler should break-even before costs (but losing a constant amount after costs, reflecting the bookmaker’s margin). Previous empirical studies across numerous sports betting markets show that bets on longshots tend to lose more than bets on favourites (favourite-longshot bias). We use 163,992 soccer odds from ten European leagues to test plausible hypotheses around why some soccer bettors lose more money than others. Are soccer bettors with above average losses simply biased, or are their losses driven by betting on events that are inherently unpredictable? We confirm the existence of favourite-longshot bias in soccer in this sample, but find another surprising feature of betting on longshots. As measured by the Brier score, bookmakers’ odds were better predictors of longshots than favourites, suggesting another potential channel whereby bettors’ preference for betting on longshots may cost them dearly

Insurance, risk management and youth soccer academies : a Maltese case-study

Our central thesis is whether Risk Management can be applied as part of a best practice management system throughout sport organizations. Our literature review reveals that the key risks faced by youth soccer and sports training in general, and the causes of legal liability. We analyse the results of an empirical study conducted across all 47 youth academies in Malta for the purpose of identifying the main risks faced. Interviews were also conducted with the official national sports organisation and an insurance broker who introduced the first (and only) such insurance policy targeted for youth soccer academies in Malta. Our findings indicate that injuries, liability risk and inadequate facilities are the key hazards of concern for youth academies. A framework is suggested to avoid and minimise the risks identified in our study. A key measure that minimizes most risks is coaches’ continuous professional development. In addition, insurance policies ought to offer the ability to transfer risk.peer-reviewe

Betting Markets: Defining odds restrictions, exploring market inefficiencies and measuring bookmaker solvency

Betting markets have been of great interest to researchers as they represent a simpler set-up of financial markets. With an estimated Gross Gambling Revenue of 45bn yearly on betting on outcomes alone (excluding other gambling markets such as Casino, Poker and Lottery), these markets deserve attention on their own merit. This thesis provides simple mathematical derivation of a number of key statements in setting odds. It estimates the expected bookmaker profit as a function of wagers placed and bookmaker margin. Moreover it shows that odds set by bookmakers should have implied probabilities that add up to at least one. Bookmakers do not require the exact probability of an outcome to have positive expected profits. They can increase profitability by having more accurate odds and offering more multiples/accumulators. Bookmakers can lower variation in payouts by maintaining the ratio of wagers and implied probability per outcome. While bookmakers face significant regulatory pressures as well as increased taxes and levies, there is no standard industry model that can be applied to evaluate the minimum reserves for a bookmaker. Hence a bookmaker may be under/over-reserving funds required to conduct business. A solvency regime for bookmakers is presented in this work. Furthermore a model is proposed to forecast soccer results – this focuses on goal differences in contrast to traditional models that predict outcome or goals scored per team. Significant investigations are made on the inefficiencies of betting markets. The likelihood of Brazil reaching different stages of the 2014 World Cup, as perceived by odds, is compared to events on and outside the pitch to imply bias. An analysis of over 136,000 odds for European soccer matches shows evidence of the longshot bias. Finally this work investigates how it is possible to profit from market inefficiencies on betting exchanges during short tournaments by using a Monte Carlo simulation method as a quasi-arbitrage model

Measuring Bookmaker Risk

The sports betting industry made estimated gross winnings of over $40 billion in 2014 and this industry has been growing significantly especially in European markets where it is liberalised. However there has been no development of a regulatory framework similar to Solvency II for insurers or Basel III for banks that specify the minimum capital required for a bookmaker (betting company) to conduct business. This usually means that the bookmaker is over-reserving or purchasing additional protection for contingency purposes which leads to inefficient use of capital. Alternatively it may result in a bookmaker not having significant funds to cover for adverse outcomes. My work shows the key requirements on odds set by a bookmaker and extends this by calculating the overall risk faced by a bookmaker with a portfolio of bets. This can be used to evaluate the minimum capital requirement for each bookmaker

Accumulators and Bookmaker’s Capital with Perturbed Stochastic Processes

The sports betting industry has been growing at a phenomenal rate and has many similarities to the financial market in that a payout is made contingent on an outcome of an event. Despite this, there has been little to no mathematical focus on the potential ruin of bookmakers. In this paper, the expected profit of a bookmaker and probability of multiple soccer matches are observed via Dirac notations and Feynman’s path calculations. Furthermore, we take the unforeseen circumstances into account by subjecting the betting process to more uncertainty. A perturbed betting process, set by modifying the conventional stochastic process, is handled to scale and manage this uncertainty

Implementing Automotive Telematics for Fleet Insurance

The advantages of Usage-Based Insurance for automotive covers over conventional rating methods have been discussed in literature for over four decades. Notwithstanding their adoption in insurance markets has been slow. This paper seeks to establish the viability of introducing fleet Telematics-Based Insurance by investigating the perceptions of insurance operators, tracking service providers and corporate fleet owners. At its core, the study involves a SWOT-analysis to appraise Telematics-Based Insurance against conventional premium rating systems. Twenty five key stakeholders in Malta, a country with an insurance industry that represents others in microcosm, were interviewed to develop our analysis. We assert that local insurers have interests in such insurance schemes as enhanced fleet management and monitoring translate into an improved insurance risk. The findings presented here have implications for all stakeholders as we argue that telematics enhance fleet management, TBI improves risk management for insurers and adoption of this technology is dependent on telematics providers increasing the perceived control by insurers over managing this technology

Hedging on Betting Markets

The possibility to use hedging strategies is an often neglected aspect in the literature on prediction/betting markets, as most papers assume that bettors will bet according to their beliefs about the probability of the outcome of the event, as opposed to the direction in which the odds will move. This ignores strategies that try to buy low and sell high through exploiting price changes, which is an important aspect to incorporate to fully understand market pricing. In this paper, we derive the key mathematical results in using hedging strategies through taking opposite positions to an initial bet after the market odds have changed and show that a profit can be made without explicitly speculating on the probability of the outcomes. We also discuss two sources of inefficiency that can arise when using hedging strategies in practice: (i) the need to pay a fee when using a betting exchange and (ii) the lack of a lay option (the possibility to bet against outcomes) on some markets, and we analyze how they affect the possibilities to hedge. Many of the results have interesting properties when expressed in terms of the naive probabilities implied by the odds