Monday, 27 December 2010

Uneven Playing Fields

I'm not sure if the Premium Charge will kick in again this week or not, (the uncertainty is another annoyance with the whole thing), but one of the side effects of the PC is that it significantly affects the price at which a bet can be considered 'value'.

The commission structure on Betfair starts at 5% but can be as low as 2%. (I'm not aware that lower rates are available, but I may be wrong). Then of course, there are the PC payers who pay at 20%.

Leaving aside for the moment the debate on whether a 'true' price exists in sports, imagine a coin toss, where the true odds are evens, or 2.0 in exchange terms. If your commission rate is 5%, then you need to be able to back at 2.06 for this bet to be value after accounting for commission. If your commission rate is 2%, then a price of 2.03 (a price that is available on BETDAQ) is needed for the bet to be value, and if you are on 20%, then you need a price of 2.26. These are the prices you need for value if your bet is a "punt", by which I mean that you are in it for the lifetime of the bet.

Since it is extremely unlikely to be a common occurence that a 2.0 shot is available at 2.26, a Premium Charge payer might as well forget about "punting" on Betfair.**

However, as an entry with a view to trade, a Premium Charge payer would most likely take a price of say 2.08, if he believes that there is a reasonable expectation of being able to lay this bet to a 2% commission bettor at 2.03, or at 2.06 to a 5% commission bettor.

But a PC payer is at a distinct disadvantage here. While a 5% commission bettor may take 2.08 with a view to laying it off at 2.06 or better still 2.03, he can still expect to be profitable in the long run even if he is unable to lay off. The PC payer does not have this safety net.

** For some, who need a very slight increase in commission paid to avoid the Premium Charge, this might be a profitable strategy, but for someone who has had six profitable years, the extra commission on "punts" at borderline value, at least with the stakes that I would be comfortable with, is a drop in the ocean and no use for PC avoidance. Unless the extra commission takes you above the 20% line, then winning more on punts just increases your charge, and losing punts just means you've lost money! Last week, for example, my total charges amounted to 4.33%. It would take more than a few "punts" to get that number up to 20%.


Ben said...

Your calculations are wrong. Remember that the "punter" is not trading out of a position. Therefore, with true odds of evens, they are going to win half of these bets and lose half of them.

So, to get a true picture you need to consider the total profit after placing one winning bet and one losing one. Next, remember that you only pay PC if your ordinary commission is lower than 20% of your total winnings.

You'll find the situation is much improved when you do the sums correctly.

More importantly, this means that your "punters" are generally not the people who end up paying PC. It is the traders, or those that green up, who will run afoul of it. Your blog post has missed the point.

Cassini said...

Which calculation is wrong?

Speaking for myself, as a trader primarily with six profitable years behind me, my commission is way under 20%, so punting on evens shots isn't going to help unless I back with tens of thousands, and that's not going to happen!

I am well aware that traders are the PC payers. Punters are highly unlikely to be troubled by it.

The point of the post was to highlight that whether or not a bet is 'value' depends on your commission rate. Believe me, if I could eliminate the Premium Charge without deliberately losing, I would.