Like any business a bookmaker needs to control their risk. Doing this as a bookmaker can be a bit more complex than for most businesses because there are thousands to people like you trying to take their money off them.
In order to manage risk they use risk control systems, namely a combination of ARC, Customer Risk Categorisation and Stake Factor.
Automatic Risk Control – A.R.C.
Automatic risk control refers to the computer system that all good fixed odds bookmakers use to control the liability that they open themselves up to on any given event. It is an essential piece of kit for any online bookmaker as it avoids the risk of getting completely taken to the cleaners if they offer an incorrect price or if someone knows something that they don’t.
Max Book Loss (MBL)
The maximum amount that the bookmaker is willing to potentially lose on an event. It represents the level of liability that they are open to on any one selection in a market.
Max Singles Takeout (MST)
The amount of money that the bookmaker will allow any 1 person to win on a selection in a market. The MST applies to single bets only.
Max Multiples Takeout (MMT)
The amount of money that the bookmaker will allow any 1 person to win with a multiple bet that includes a selection in this market.
The level of liability is normally dictated first and foremost by trading policy of a bookmaker. A larger bookmaker is generally willing to open itself up to a greater degree of liability than a small bookmaker. This may be because they have been around a bit longer and have good alerting tools and more confidence in their traders or because they have a better customer risk categorisation policy in place.
The other key factor in the level of risk that a bookmaker is willing to take is the type of event in question. For example a bookmaker may be willing to set a MBL of £250,000 for a Premier League football game with a MST of £50,000 whereas on a Blue Square Premier League match they may set the MBL at £10,000 and the MST at £1,000. The reason behind it is pretty straightforward – all of the info that a bookie has at his disposal is the same as what you have access to. A football trader would find it difficult to keep up with team news from a lower league team but he may be all to aware that the goalkeeper might be your cousin and he told you that half the team contracted swine flu. They would also be wary of allowing a liability on lower paid levels of the game where the temptation for the players to cheat for £50k may be quite a bit higher.
Golf is an excellent example of how the bookmakers use ARC to manage their risk. Firstly they will set a MBL at the overall book level. This applies to all selections initially but on any 1 selection they may allow a higher or lower liability.
Here is a table that may help you to better understand.
The market is assigned the following default overview limits:
MBL of £100,000
MST of £15,000
MMT of £50,000
Any of the fields in the above table that remain blank are set to the overview limits. This means that the bookmaker is willing to take a liability of up to £100k on Tiger Woods, Mickelson, Singh, Els, Westwood and Cabrera.
They may have a lot of patriotic Irish punters so they decide to take a bit more risk on Harrington because they know lots of people will bet on him. However to continue to allow a lot of people to bet they have decided to reduce the MST to £5k and the MMT to £20k.
The trader reckons that Sergio Garcia is not going to play well this week so he is willing to take a bit more money on Garcia. For example other bookies may be offering a lower price of say 12/1 but this trader thinks that Sergio will have a bad week so he offers higher odds than any other bookmaker on Garcia to attract more bets. In order to accommodate the expected extra bets he has to open up the potential liability to £250k.
Similarly he fancies that Kenny Perry has a good chance of winning this week. He still wants to have a balanced book and offer a competitive price but he may adjust the amount that he is willing to lose on Kenny (MBL to £50k, MST to £5k and MMT to £20k).
Because Tom Watson is such high odds the bookmaker feels the need to raise the liability in order to accept a reasonable sized bet from the customer.
The bookmaker will continue to adjust the limits during the lifetime of the market. They will always be aware of their liabilities and may adjust a MBL on one player if they see that the potential loss is getting close to the current MBL. This is so that they can continue to take bets.
If the max book loss is reached then any further attempted bets on that selection will be rejected.
Customer Risk Categorisation
Not every customer that signs up to a bookmaker has their betting patterns scrutinised but when you start betting at a certain level or if you start to win off the bookmaker they will analyse your play and put you into a certain category of punter. The categories vary across different bookmakers but they generally cover the same ‘group’, namely;
New – By default a new sign up will be identified as a new customer.
Monitored – When a customer has made a few bob but the bookie is trying to work out whether you were just lucky or whether you really know what you’re doing.
Good – A customer who is doing better than the average punter. This customer will continue to be monitored and any bets of a certain size may be referred to a trader before being accepted.
Hot – A customer that is beating the bookmaker. The bookmaker can use a number of tools at their disposal to restrict how much you can bet.
Arber – A customer who is continuously betting on prices that are better than those available on other bookmakers or betting exchange will stand out as a probable arber. Once you are identified as an arber the amount that you are able to bet will be very low (maybe even zero). Bookmakers cannot beat arbers in the long term so naturally they will cut them off as soon as they can.
VIP – A customer who bets a lot and is not very good at gambling (i.e. lose a lot of money) will be identified as a VIP. The VIP will generally be allowed to bet more than the average punter by adjusting their stake factor upwards.
The MBL, MST and MMT are all important but some customers are allowed to win more than others and some punters are restricted to only being able to win small amounts. How the bookmakers do this for an individual customer is through their stake factor.
The stake factor is the multiple of the regular maximum bet that an individual punter is allowed to have.
By default a new customer is given a stake factor of 1. This means that they can continue to bet at the same level as 90% of all customers. If the MST on a selection in a market is £10k then the most that you can win on a win single bet is £10k.
If you are a punter who bets high stakes and loses quite a bit of money then there is a fair chance that your stake factor will be increased. So for example if your stake factor is raised to 3 and the MST on the market is £10k then the most that you can win on a win single bet is £30k (3*£10k).
If you are a punter who likes to bet high but beats the bookie then they might reduce your stake factor. For example if your stake factor is reduced to 0.1 and the MST is £10k then the maximum that you will be allowed to win on any win single bet is £1k.
That is a high level overview. The modern bookmaking systems are very sophisticated and allow the bookmaker to reduce stake factor for certain sports and not others or allow you to bet on certain betting markets but not others.
Other Risk Control Mechanisms
Along with these main risk control strategies a modern online bookmaker will also employ the services of companies like Bet Radar. Bet Radar track all of the bookmakers prices and will alert them to any time that their odds are out of line with those available on Betfair. Once the trading team has been alerted they can choose to adjust their odds or to keep their price at the same level.
The type of alert generated depends on how far out of line you are with Betfair. If the price is 5 times of that available on Betfair for example the Bet Radar sytem will issue a high level alert to the bookmaker as it is quite obvious tha they have made a mistake in their pricing.
The terms and conditions of most bookmaker sites, as well as attempting to cure insomnia, are pretty comprehensive and allow them to cancel a bet that has been placed where an obvious pricing error has occurred. On the face of it this might seem like a scam but it is a very reasonable position as the traders entering the prices are only human and therefore error prone. Any adjustment or cancellation can be challenged by the punter (at no expense) with the regulatory body of the bookmaker (changes as per the jurisdiction of the company).