How Bookmakers Lose Money – William Hill

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William Hill (WMH) issued a trading statement yesterday (9/1/2017) which was effectively a profit warning. They said margins were hit by “unfavourable football and horseracing results”.

It is one of the longest standing myths in the gambling world that bookmakers can lose money when the favourite horses romp home, or the heavily backed but unexpected football teams win. My grammar school maths teacher taught me how to construct a “book” 50 years ago, so that by setting the odds on all horses in a race, based on how much money is placed on each, it does not matter who wins the race. The bookmaker should always turn a profit if they construct the book properly.

In this case, it seems the football results on boxing day were the worst ever, so far as William Hill were concerned – 18 of the most heavily backed teams won. Is the company betting against its punters on the principle that they tend to irrationally back the favourites even when the odds are poor?

Now before I get attacked by the bookmaking profession, it is somewhat more complicated than that in practice of course, particularly as the weight of money placed can move at the last minute. But their systems should cope with such changes if the process is competently managed and they should have past experience of betting patterns to enable them to predict likely outcomes. So at the margin they might lose on some events and make money on others. But it’s a poor excuse for writing down the expected profit outcome for the year as a whole.

There may be the occasional large losses (for example on “accumulators” – apparently one punter made £103,000 on a £20 stake over Chelsea’s 13 game winning streak), but if such individual big risks are being taken on, they should be “laying off” those bets with another party.

So this admission by William Hill looks more like an excuse of the “hot weather, cold weather, wet weather, dry weather” kind favoured by retailers when results are disappointing. Investors should surely ask some tough questions of the management of this company.

Roger Lawson

  1. Stephen Burke says:

    It clearly isn’t possible for the bookie to always win: if everyone backs the favourite and it wins the bookie will be down however short the odds. More generally it seems likely that they will make less if the favourite wins than if they lose in most cases – they aren’t forecasting a loss, just a profit at the low end of expectations.

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