Ascot

Jeevan Jeyaratnam, Abelson Odds: Too Big to go Under?

Two ‘titans’ of the sports betting industry in the UK – bet365 and Sky Bet – came under fire for refusing certain four-horse and all five-horse accumulators on Frankie Dettori’s rides for the final two days at Royal Ascot.

However, restricting such bets came as little surprise to Jeevan Jeyaratnam, Head of Compilation at Abelson Odds, who believes – given liabilities could quickly have reached the point of being “dangerous to the company’s existence” – this was simply evidence of responsible risk management.

At the same instant that Frankie Dettori was weaving his way to victory on the wonderful Stradivarius, trading offices throughout the industry were reaching panic stations. Dettori going four from four to open the card at Royal Ascot is a nightmare scenario for the risk assessors. The recreational pull that a man like Dettori has garnered over the years simply cannot be underestimated.

He has form for creating his own ‘Black Swan’ events; the last time he caused havoc was back in 1996 when he rode the aptly named “Magnificent Seven”. There will be recreational punters that have followed him blindly since that meeting in the hope that he does it again.

Fast forward 23 years and the industry has changed, risk management has changed and the internet happened. It is now far easier to place a bet, and as such the industry is far bigger. We also have ‘Best Offer Guaranteed’ pricing, which means customers are assured of nabbing the bigger early prices.

Driving money to the course to smash the SP simply doesn’t have the impact on the multiples business that it would have in 1996. So why were the prices for Turgenev & Questionare, his mounts for races five and six, compressed to such an extent? Part of the answer to this lies with the development of cash-out options. Cash-out, though posed as a punter friendly ‘invention’, is really a bookmaking tool for mitigating risk.

Sending money to the course (or to the betting exchanges, which then impact the on-course market) allow for the compression of the horses’ prices. Being able to offer customers a chance to close their position early, via cash-out, the bookie can help manage risk themselves. This satisfies the client, but also reduces the bookmakers’ liability. As the prices on-course are shortened the cash-out offers for punters increase, looking more and more attractive until they are, hopefully, taken.

Dettori riding through the card at Ascot is an example of an extremely popular multiple; all the operators would understand hedging options would be limited should the first three or four go in. This was clearly the case here.

Given the nature of the wager, and the sport, insuring against an event of this type would be next to impossible, and so leaves very little room for manoeuvre should the worst occur. It is little surprise then, that in the following two days, the two biggest UK bookmakers restricted multiple opportunities for Frankie’s rides.

Allying recency bias and intense media coverage meant the already popular Frankie multiple would have been seen as attractive to more punters than usual on the final two days of the meeting. Sky Bet have said that the Saturday Frankie six-fold would have paid 3,000,000/1 to anyone taking their early prices.

Even with a maximum pay-out limit of £500,000, it really doesn’t take too much cash to escalate liabilities to the point of being dangerous to the company’s existence. It is absolutely sensible that they pulled the plug.

As soon as the liability is met, they simply have to pull the chance to do so. This is responsible risk control. As we have explored, there simply aren’t any hedging mechanisms for firms of this size. They simply couldn’t offload enough risk, if they don’t have the cash to pay then they are being incredibly irresponsible and in contravention of their rights to the customers.

Sky Bet have shareholders to appease, but no board would warrant taking risks that would bury the business, especially given the upside for the bookmaker in these instances is so minuscule. Cash-out is one way to mitigate risk already undertaken but another other liability control technique is to offer these “Frankie Multiples” as if they were related contingencies.

Sky Bet did exactly that on Saturday morning. It brings into discussion the whole idea of related contingencies. On one hand, it is very hard to warrant how a horse for John Gosden could be connected to a horse for Simon Crisford; indeed, they aren’t. However, from an operator point of view, the connection is simply the jockey.

Experience tells us that if one jockey rides the winner of the opening four races on a card, their mounts in races five, six and seven will have shorter prices attached at the ‘off’ than their true chance suggests. Therefore, it could be argued that treating a jockey’s multiples as a related contingency is fair.

In truth, this is only really likely to be an issue at major meetings and with star name jockeys. Ruby Walsh at Cheltenham, Frankie at Ascot, for example. This is preferable to “SP only” quotes, as they are hugely detrimental to the majority of punters interested in singles business, while it is still hard to measure the total risk if you continue to allow punters to add SP multiples to their bet slips.

So, while bet365 and Sky Bet have taken plenty of flack for their limited, or banned, Frankie accumulators, they are entirely within their rights. I’d even go further and suggest they were being responsible. Ensuring that anyone that did have a winning bet could be paid out and that the business can continue to operate the day after Ascot is the primary concern.

I’d wager that there were a few other big firms that would have relished the chance to stop the Dettori multiples, but due to platform limitations, simply weren’t agile enough to do it.

The banking crisis of 2008 taught us that no firm is too big to get into trouble. bet365 and SkyBet are titans of the industry in the UK but, unlike their banking counterparts, they know that the government wouldn’t be there to bail them out if they ran out of cash.

In an era of general hostility towards the sector the responsible nature of two of the biggest players should be a positive story, not spun as story of corporate venality.

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