Value Betting and Risk

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I opened my Betfair account on 22nd April 2003. I was one of the first subscribers to Adam Todd's BetTrader and was a founding partner of JuiceStorm.com on 17th February 2007.

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Matched betting and arbing are as near risk free as can be reasonably achieved – unless you make a mistake or there are unforeseen circumstances, you place the bets and make a guaranteed profit. However once you have done the easy signup free bets, the profits from evenly matching out arbs and doing completely risk free offers only can seem rather small. Bookies are getting tighter with their offer t&cs all the time, and in order to increase profits we may need to consider doing things which are not guaranteed to make a profit every time. There are a variety of things you can do, with varying degrees of risk, and my aim here is to explain the reasoning behind each.

Value Betting

The concept of value betting has nothing to do with favourites or picking winners and everything to do with odds. The easiest way to explain it is to consider the toss of a coin, which, if the coin is unbiased, will have a 50:50 chance of landing on heads or tails. The odds on each outcome are 2.0, and over a large number of throws you would expect to break even if you bet consistently on heads at 2.0. If you bet at 1.9 you would lose 10% of your stake money over time and if you bet at 2.1 you would make a 10% profit. The probability of you being right and the number of times you are right have not changed, but at 1.9 the bet is bad value and at 2.1 it is good value. If you consistently bet at bad odds you will lose overall, if you consistently bet at good odds you will win overall, although individual bets (in the coin case, half of them) will lose. All you need to do is to find something which gives good value odds and you can make money.

Book Percentage and House Edge

Whenever a bookmaker prices up an event he factors his own profit into the odds. A book that makes no profit (for example offering 2.0 on each of heads and tails in the coin toss) is a 100% book. In practise all books are more than 100% (a typical horse race will have a 110-120% book depending on the number of runners) and this added percentage is called the overround. Clearly you can’t simply back all the horses in a race and make a profit because of the overround. The back odds on Betfair have a much smaller overround, typically around 101% book, and the lay odds are around 99%. This means that at any given time you cannot make a profit on Betfair by backing or laying all the selections, even without considering commission. Betting with a free bet alters the book percentage massively in your favour, although this is reduced with every extra bet you have to place in a WR (unless you can find arbs).

Casinos also build a guaranteed profit, called a house edge, into all their games. This means that if you play any game over a large number of games you will lose approximately the house edge percentage of your stakes. There is a list of casino games and their house edge here http://www.beatingbonuses.com/games.htm. Some games have a much higher house edge than others, which is why games like blackjack are better for playing through bonuses than slots and keno, and why bookies sometimes restrict certain games from bonus play. A casino free bet offsets the house edge and turns the estimated value (ev) of the game from -ev to +ev providing that the wager requirement or the house edge of the allowed game is not too big.

Variance

Although a coin toss has a 50:50 chance of being heads or tails, you do not always get the same number of each, even in a fairly large sample. There is a random element which may result in streaks of consecutive heads or tails. This is called variance. What this means is that even if you place bets at good value odds you can still have losing streaks of quite considerable length. For this reason people with small betting banks or who do not like losses of any kind should avoid value betting and concentrate on risk free offers. Of course the reverse is also true, you can get streaks of consecutive wins, and it is these that offset the losing runs and make you a nice profit. It is important to realise that for value betting to pay you need to do a lot of it.

Types of Value Bets

1. Arbs are value bets because the bookmaker has priced the selection at a higher price than the near 100% market at Betfair. Selections which are arbs win more often than they “should” according to the bookie odds. It therefore makes sense to underlay arbs so that you win more if the arb wins and less or nothing if it loses. Arbers often underlay to the point where they make no profit at all if the bet loses, but no loss either. This is more profitable than matching out for equal profit regardless of the result, and is completely risk free. The logical conclusion is not to lay at all, and this is a valid strategy for arbs, although a large bank is needed to cope with the inevitable losing streaks and there is the risk of missing out on big winners by sheer bad luck. This should even out over time, but you need to have the right temperament to cope with it. You also need to have a sensible staking policy and a method of deciding which are the best arbs to bet on. Since losing streaks are inevitable, this strategy is moderate risk.

2. Casino Bonuses are value bets if the bonus is allowed to be played on a game with a +ev for the required WR. These are bocoming exceptionally rare. You may consider bonuses with a large WR not worth spending the time on. It is very important to realise that because of variance even if the bonus is +ev and the casino is perfectly fair, you can still lose a lot of money trying to cash out an individual post wager bonus. I once lost over £200 trying to cash out a £25 post wager bonus on blackjack, playing correct strategy at Coral. Not everyone is suited to casino bonuses because of the time involved and the inevitable losing ones. There are many of them on this site, none are risk free, but if they are +ev you should make a nice profit if you do a lot of them. Nothing, though, is ever absolutely certain where variance is concerned, and casino offers are moderate to high risk depending on the allowed games and size of the WR.

3. Casino Refund on Losses offers are sometimes value bets. Similar offers in sportsbooks can often be matched for no-risk profit on Betfair, but casino ones are rather different. There are a couple of examples in the comments below. These are usually a % refund, with the refund providing insurance against a full loss and therefore tilting the odds in your favour. Remember though that even if there is only a 25% chance of losing (as in the Paddy Power offer in the above post) that means that on average 1 time in 4 you WILL lose. These offers are therefore individually high risk, and one loss will require 3 wins to recover. Because you only get one shot at each offer, the variance is high. There may additionally be a WR on the refunded money, reducing the ev of the offer.

Gambling

This is completely different to value betting, and involves elements of skill and luck. There are all sorts of gambling systems, most of which do not work long term because they are not based on value, but on attempts at predicting results. Some of the trading strategies on football matches are pretty much pure gambles, and are little different from someone expressing an opinion that a certain team will win or that there will be very few goals. You should be aware of this if you attempt to follow these strategies, as the people who make them work often have considerable knowledge of the sport and experience of trading which is impossible to teach. Whenever you trade you are gambling that the odds will go in your favour. For this reason all trading strategies should be considered gambling and very high risk.