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Metric Gaming – Pricing up the World Cup

Chris Taylor, Head of Football at Metric Gaming, looks at the challenges sportsbook traders face during major tournaments, such as the World Cup.

The World Cup has delivered a run of surprise results to date; Argentina, Spain, Portugal and reigning champions Germany have all been eliminated. And perhaps the biggest shock of all – England beat Colombia in a 4-3 penalty shoot-out win to progress to the quarter Finals.

The explosive start to the tournament has captivated football fans all over the world, but it is causing chaos for bookmakers and their trading teams as they struggle to keep pace and strike the right balance between risk and reward.

Take, for example, the odds of England winning the World Cup. They began the tournament at a realistic 16/1. However as soon as the tournament kicked off events have created a perfect maelstrom for the Three Lions and their hibernating supporters.

“Fluctuating odds and markets are only part of the huge challenge”

The odds have changed

  • On the 17th of June, Germany’s loss to Mexico combined with Argentina’s draw the previous day with Iceland shortened England to 14/1.
  • On the 18th after the last gasp winner against Tunisia they shortened to 12/1.
  • Four days later Argentina lost to Croatia and England shortened to 10/1.
  • On the 24th after beating Panama they dropped to a single figure price of 9/1.
  • Despite losing to a superior Belgian outfit, their position in the benign side of the draw shortened them to 8/1 on the 28th.
  • By the time Spain lost to Russia, England dropped to a low of 11/2.
  • They drifted back to 6/1 and 13/2 as the markets saw a flood of bets for Colombia before their encounter with England, with odds on Colombia progressing to the quarter-finals shortening by as much as 4.5/5%.
  • On Tuesday, England beat Colombia on penalties to go 4/1 making them the joint second favourites with France.
  • As of Tuesday, England are the shortest of the four favourites to qualify for the semi-finals at 2/5, and the shortest to win their match in 90 minutes at 19/20.

Traders under pressure to keep pace

These fluctuating odds and markets are only part of the huge challenge operators and traders face during major tournaments. Additional pain points include:

A bad run of results can do untold damage to bottom line

The World Cup consists of just 64 games – the Premier League and Serie A are made up of 380 games – so variance can have a huge impact on such a small data set. Bookmakers can have a horrendous run of results across just 64 games, which would invariably even out over the course of a nine-month season.

During the 64 games the entire focus of the business bears down on the football desk, and when pricing strategies are driven by an ultra-competitive landscape where all that matters are turnover and acquisition numbers, there’s nowhere to hide when variance is unkind.

“Reacting to events in tournaments like the World Cup is crucial”

Long-term prices take up valuable resource

It is also the one time of the year that football desks release and update hundreds of long-term prices daily (tournament winners, top goal scorer, etc).

Some of these are not linked to the match prices, which means they have a lot of mutually inclusive prices that are not algorithmically linked.

These prices therefore take up a huge amount of physical resource which often amounts to little genuine turnover. These markets will attract the savvy mathematical punters disproportionately, whilst the recreational customer has little interest in the top Costa Rican goal scorer.

Less games, more pain

The truncated format of the tournament means there can be up to four games a day, funnelling customers’ activity into fewer betting opportunities than they would have during the regular football season. Customers who place multiple bets generally display very similar betting patterns and invariably, if all the favourites win the bookmakers take a big hit.

Unexpected events and statistical blips

Reacting to events in tournaments like the World Cup is crucial; some books got wise to the unusual number of penalties being awarded in the opening games, others just moved their lines up 3-5% and got caught as they didn’t respond to the tournament events.

Own goals have also been a statistical blip. Interpreting the data and the trends is vital for any trading department but is also one of the hardest areas to understand; 64 games is not really an adequate data set to work with.

“The industry and the market often overreact based on one or two results”

Tips for traders

Traders need to constantly re-evaluate teams that have out-performed their odds. However, in such a short format, variance and luck can play a huge part in who qualifies and who doesn’t. The more matches that are played, the more the best team will triumph, but cup competitions will always produce anomalies.

The industry and the market often overreact based on one or two results when the reality is probably somewhere closer to the initial expectations for that match a day before the tournament started. The skill is to quickly fit the revised expectations into the model before someone else has fit them into their model.

I’d always recommend running a model based on the expectations the day the tournament started to reference against current market prices. This will help you rationalise the weight the market is attributing to the circumstances that unfold once the tournament starts.

Traders should fit the current expectations into a model and continually run the model to remain within the market. Metric are currently developing football products that will automate some of these issues, and that will prevent a company from internally arbitraging with themselves between match prices and long-term pricing.

There is still a long way to go in the 2018 World Cup, with plenty more surprises in store. This will undoubtedly keep traders on their toes, but by following the above advice they stand a much better chance of coming out on top.