Sometimes I wish I was a bookmaker…
As I write this, outside the sun is burning lazily down on a quiet, sleepy and green corner of Manchester as the day draws to a close. Fine weather, often makes me think about an alternate career I considered about a decade ago. I thought I’d share the story.
In 2002, the dot.com crash was in full effect. The internet era looked like it might be over for a while. As a software developer specialising in internet technologies, I was in a little bit of trouble. Whilst contracts appeared occasionally, I realised I was looking at 6-7 months of unemployment.
Not having any savings, and as yet mentally unprepared for the path of entrepreneurship I have now followed for half a decade, I was a little stumped as to how to actually pay my food bills, etc. I applied for barwork, but there was none forthcoming. I looked at minimum wage jobs, perhaps as a cleaner, but was “over qualified”. One CTO of an ISP I interviewed with thought I was too bright for the role he had in his firm, and that I would quickly become bored.
One contract I acquired however, led to an interesting discovery. I was hired by a small startup in Eccles to help “fix” a betting platform. It was a clone of Betfair.com, which was still relatively young at the time. I was hired for three reasons:
- I knew how to fix the problem - their Bulgarian programmer was an idiot who didn’t understand what he was doing
- I knew quite a bit about horse racing and gambling, and therefore had “domain expertise”
- I was cheap
Since the age I’ve been legally allowed to gamble, I’ve been interested in it as a maths problem. Books on technical analysis in FOREX trading - one of which I’ve been reading recently - fascinate me. I had developed quite an eye for reading form, had become a better than “good” poker player, and enjoyed “the game” and all that came with it. I still have an impressive collection of books on sports betting and horse racing. Gambling, quite simply, is something I have always found a little bit fun.
An example of how confident I was: A few years before the events below unfolded, my mother was very concerned about my “gambling problem”. I did not have a gambling problem, beyond the fact I gambled, and this alone was enough to scare her. Sat in a small cafe in the town I grew up in, she decided to try and prove a point. She handed me £10 of her own money - money she could scarecely afford to fritter away at the time - and told me to go and bet on a horse with it there and then. If it lost, I would agree to repay her the £10 and to stop gambling. I didn’t quite understand her logic, but I agreed. I walked to the bookmakers around the corner, backed £5 each way a 4/1 chance in a jumps race, and then sat and watched as it won by 3 lengths. I returned to the cafe with my mother’s winnings, and she became silent as I handed her the cash.
So when I turned up at a rather dingy office in Eccles and discovered Betfair, I was transfixed. The major appeal to me was simple:
It allowed you to take the position of a bookmaker.
Bookmakers say that the moment somebody has to make a choice about which competitor will win a challenge, they are at a disadvantge. That means the bookmakers put themselves in a position where they don’t have to make a choice, they just balance the odds with the bets coming in.
The bookmakers generally don’t care who wins - they will “lay a book” at odds that mean whoever wins, they make a guaranteed profit. Some of them - especially on big prize handicaps - will often “lay to a common liability” which means they might lose some money if a favourite wins, but make a much larger profit if an outsider wins. A few don’t bother risk managing and just hope it all balances out. There are some truly horrifying scare stories about the last group.
The advantage they have however - encompassed in a mathematical measure of odds we call “the over-round” is that they are pretty much guaranteed to make money in the long run.
I opened a Betfair account, deposited £20, and laid a book on a race. I made 27p. It might not sound significant, but the important thing is, because of how I had done this, my risk was effectively zero by the time the race started. It was a “free” 27p that had magically been produced out of thin air.
I dived into the subject, buying whatever I could about bookmaking. I spent a lot of time - and frankly money - understanding the different conditions different laying approaches were best in. Like most geeks, once I choose to learn a subject, I go deep - I try and completely understand the whole domain. This was no different. I read up on the history of bookmaking, the backgrounds to important bookmakers, the maths, the probabilities, the strategies, and spoke to whoever I could about it that understood “the game”.
With my work done at the company, I now had an abundance of free time to put some of this learning to effect.
I was able to lay - and sometimes back using a method called “Dutching” on “under-round” books - over that summer out of Internet cafes (I had no connection to the Internet at home at the time), and cover my living expenses. I ate and drank well, I had a comfortable apartment in Manchester city centre, and was learning about being a bookmaker on a razor thin margin of 102% over-round.
About this time, I thought about becoming a professional bookmaker. The lifestyle of being on-course appealed to me almost as much as the 130% over-round (i.e the roughly 30% profit on capital staked pretty much guaranteed to a bookmaker), and I started to enquire about how to make it happen. I would need £100,000-£150,000 to get started at the courses I wanted to get started at which meant it would have to be a long-term plan. I contemplated assisting established names in the meantime, but without a driving license or a car, I was going to have a problem there as well.
And then the dream was interrupted, and all hell broke lose.
When you’re trading all day on Betfair, you’re moving money around in order to make just a little tiny bit more money. You are not improving the planet, or people’s lives. It’s boring, and frankly, it’s selfish. Your ego takes a hit, even when you’re winning.
I didn’t have the equipment available to automate the process (despite being a software developer), so for me it was about just grinding it out, hour after hour, day after day. I would get up at 10am, buy and read a copy of the Racing Post, head to an Internet cafe for midday, and lay books on around 20 races until at least 5pm, and during the Summer as late as evening racing allowed. Sometimes I even laid books on US races in the evening, or started earlier and managed to catch races in timezones some hours to the East of us.
It was soul-destroying and boring work. I lost discipline. I stopped managing my risks, and suddenly started to gamble a little to make things more “interesting”. I rode out a lucky streak for a few weeks.
And then I took some losses. I don’t like losing. Nobody does. The original plan said losses were impossible, but I was now being reckless. It was more exciting. But stupid. But the losses hurt.
I started to chase the losses. Any experienced gambler will tell you that this is the beginning of madness.
When you lose, walk away, and accept it. It’s as a good a lesson for life as it is for gambling: don’t take it personally. Right then though, the “red mist” gamblers talk about descended, and it stuck with me for days.
The numbers accumulated as loss after loss built up. Three days later, as an unemployed - perhaps unemployable - software developer, I had lost just over £5,200. Given my goal was to make just £3 per race, this was a rather large sum.
I stopped, stood back, and took a deep breath. I went and decorated a friend’s bathroom for some spare cash to live on and to get away from the screen for a day or two.
I thankfully got a job, and recouped my losses in a more traditional manner, and until the mist that had enveloped me had left, stayed away from Betfair.
Betfair now has an API - a means for a software developer to automate trading strategies. I’ve put off coding anything against it for years for a few reasons. Principally, the environment is now very different as a trading arena to what it was (the liquidity makes the markets zero-sum games, in essence, and that means profitability is harder to come by), and frankly I have other more interesting things to spend my time working on that are likely to make me more money, sooner. I still ponder it though - an automated solution can be developed calmly and unemotionally. It should work quite well.
That said, on evenings like this, when the weather is fine, and a great Derby will be with us at 4pm tomorrow, I think back to those dreams of becoming a bookmaker. Being in the ring at Epsom tomorrow - or even better, on the rails - would not be a terrible way to make a living. Providing you manage your risk properly, of course…
… but then I remember, as with most things, my Mum was probably right.
