Click here to open a Betfair accountThere has been much debate recently about the supposed integrity concerns
that are raised when customers back a horse not to win ("lay" in betting exchange parlance) on a betting
exchange. Similarly, there have been suggestions that those customers who "lay" on a betting exchange
should somehow be treated differently to those who "back".
Opponents of betting exchanges have
suggested that the ability to "lay" on a betting exchange is suddenly undermining the integrity of the
sport. They claim that betting exchanges offer customers the facility to back a horse not to win for
the very first time. This is not true: it has always been possible to back a horse to lose using
"traditional" betting outlets such as Totalisators and bookmakers because backing and laying are effectively
the same thing.
This note demonstrates why this is the case. Similarly it also demonstrates
why an attempt to differentiate between "backers" and "layers" can not work in practice and would unfairly
discriminate against one set of customers.
1. Basic
principles
In a free market betting odds should accurately reflect the market's view of the
likelihood of the outcome in question occurring.
Consider a 4 horse race where all 4 horses are
considered equally likely to win. The probability of any one horse winning is 25%, or 1 in 4. Its odds
would therefore be 3-1 before any profit margin is taken into account (ie decimal odds of 4.0. The
decimal odds are the reciprocal of the percentage chance of the outcome occurring).
Customer A
wants to back horse 1 to win. He bets �100 on horse 1 at odds of 3-1 to win �300. He is risking
�100 in return for the possibility of winning �300 if his chosen outcome (ie horse 1 wins)
occurs.
If the race is run 100 times, Customer A will expect to win �300 on 25 occasions and he
will expect to lose �100 on 75 occasions. His expected profit/loss over the 100 races will therefore be
zero. This is consistent with the assumption that the market is efficient and that there is no profit
margin.
When Customer A backs horse 1 to win he is betting against Customer B who is backing horse
1 to lose. Customer B must risk �300 in return for the possibility of winning �100 if his chosen
outcome (ie horse 1 does not win) occurs. He is backing horse 1 not to win at odds of 1-3. If the
race is run 100 times, Customer B will expect to win �100 on 75 occasions and he will expect to lose �300 on
25 occasions. His expected profit/loss over the 100 races will therefore be zero. This is
consistent with Customer A also having an expected profit/loss of zero. Everything Customer B does is the
inverse of what Customer A does, starting with the fact that he backs horse 1 not to win at odds of
1-3.
Customer B is actually backing one of horses 2, 3 or 4 to win since if horse 1 does not win
then one of the other horses must win. This proved by the fact that if Customer B wants to back horse 1
not to win he can simply place �100 on horse 2 to win at 3-1, �100 on horse 3 to win at 3-1 and �100 on horse
4 to win at 3-1. If horse 2 wins he will win �300 on that horse but will lose �100 on horse 3 and will
lose �100 on horse 4. His net profit will be �100. Similarly if horse 3 wins his net profit will
be �100 and if horse 4 wins his net profit will be �100. However, if horse 1 wins he will lose �300 (ie the
total stakes placed on horses 2, 3 and 4).
This is exactly the same profile as when he directly
backs horse 1 not to win.
This example clearly demonstrates that "laying" a horse, which is merely
backing that horse not to win, is identical to backing the field (ie backing all of the other horses to
win).
This is the principle on which every single Totalisator system in the world is
based.
Exactly the same incentive for skulduggery therefore exists whether punters can bet directly
on a horse losing (as they can by "laying" on betting exchanges) or merely on every other horse
winning. What sets betting exchanges apart is their willingness and ability to provide precise details
on who is involved in any suspicious betting activity (whether it be backing or laying) so that the
appropriate authorities can act.
Detractors of the exchange model argue that once profit margins
are included, this theory goes out of the window. They claim that in reality, it is impossible to achieve the
equivalent of "laying" a horse on an exchange by backing the field against it. They are wrong. The most
recent high-profile examples of horses allegedly under performing as a result of betting exchanges"
demonstrate that very clearly.
KEY EXAMPLES
There have, recently,
been 2 examples of races in the UK where the opponents of betting exchanges have tried to claim that betting
exchanges undermine the integrity of the sport.
They claim that because punters were able to back a
horse to lose in each race the opportunity existed to benefit directly from that horse losing. They
sough to infer that this was only possible on a betting exchange.
Looking at the two races in
question it is easy to see that in actual fact this opportunity existed with traditional bookmakers as
well.
Ballinger Ridge
The first race was at Lingfield Park on 2nd
March 2003.
The race was won by the favourite, Rye, which had a starting price of 8/11. But
the race caused controversy because of the way the 15/8 second favourite, Ballinger Ridge, was beaten.
Some people claimed that comments allegedly made by Kieron Fallon, the horse's jockey (and subsequently
revealed in the press) that he thought the favourite would win, were evidence that people had deliberately
backed Ballinger Ridge not to win because they knew he would not. At no stage did Fallon say directly
that his own horse would lose; he is alleged simply to have said that he thought Rye would win. (The
obvious link between one horse winning and another horse in the race not winning - so clear here � is the
same one denied by those who claim that it is impossible to oppose one outcome simply by virtue of backing
the other).
Let us suppose that someone did know that Ballinger Ridge would not win and wanted to
guarantee a win of �100 as a result.
Clearly, this person could "lay" Ballinger Ridge (ie back it
not to win) on a betting exchange, accepting a stake of �100 and offering whatever odds he wanted. In
this instance, the person would leave an indelible audit trail which would include every single detail of his
bet, including his identity. Furthermore, if the bets were placed at unrealistically high odds then
this would alert authorities to something suspicious with the race.
Alternatively, the
person could have a series of bets with traditional bookmakers on the other horses in the race and still
guarantee himself winnings of �100. Had the person backed all the other runners in the field, it was
quite possibly, at SP, to return the same �100 profit as he could have managed by �laying� Ballinger Ridge on
the exchanges. Given that the vast majority of bets struck in the UK are struck at SP this is a fair
assumption.
It is immediately obvious that it is possible to guarantee a known return of �100 by
betting with traditional bookmakers if a punter knows that Ballinger Ridge will not win.
All of
these bets could have been placed with traditional bookmakers. But if they had been placed this way there
would have been no way of linking the bets together or tying them to an individual, known, identity because
they could all have been placed in cash. Similarly, there is no guarantee that there would have been
any transparency in the price movements to alert authorities to anything suspicious.
Ice
Saint
The second race involved a horse called Ice Saint and took place at Fontwell Park on
8th March. Again, if we assume that a person knew that the horse would not win then it would have been
extremely easy for him to guarantee a win of �100 by placing bets on the other 3 horses with a traditional
bookmaker, by taking the SP prices.
2.
Conclusion
The two real-life examples above demonstrate that backing horses to lose is not a new
phenomenon. Rather, it is something that has been around since betting began.
The long list
of betting scandals that pre-date the advent of betting exchanges is evidence that people have always sought
to profit from skulduggery. All that is new with betting exchanges is an enhanced transparency that
highlights when betting patterns are suspicious. As such, betting exchanges will improve, not
undermine, the integrity of the sport.
Many people have tried to claim that the notion that you can
back all horses in a race to win except the one you want to lose is fine in theory but does not work in
practice. The two examples above clearly demonstrate that this is not the case.
Another clear
demonstration that backing and laying are the same thing can be seen in the example below. There, a
punter using Betfair can either directly back a horse not to win by "laying" it or can do so indirectly by
backing all other horses in the same race simultaneously.
In conclusion, it is clear that backing
and laying are the effectively the same thing. They are two sides of the same coin, and both have been
available since betting began.
Betfair
Article created on 4-/-0/2004 11: 2Send this article ( BETTING EXCHANGES INFORMATION ) to a friend
