Ben had a comment on my last post, which has left me a little confused. He wrote:
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.Well, the point of the blog post was to highlight that a value bet doesn't depend on the price alone, but rather on the commission rate that people are on. The bleating about the Premium Charge was a bonus!
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. [My commission last week was 4.33% of Gross Profit, well under the 20% needed to avoid it]
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.
Unfortunately, Ben doesn't say which calculation he thinks I have wrong. I admit that I tend to write on this subject from my own situation, but I don't see anything wrong with what I wrote.
Yes, punting on evens shots, I will win 50% and lose 50%, but the losses don't help increase the charges paid other than the 'implied commission' on them. They do reduce the winnings on which I pay the charge, but it's the charges that I need to increase, not the winnings that I need to decrease - that would be simply cutting off my nose to spite my face. I'd rather pay 20% on winnings of £1,000 than 20% on winnings of £500.
My profits from trading far outweigh those from "punts" and I suspect that like most traders, losses are (usually) rare and small since I cut them short and let the winners run. I say usually, because there are the occasional disasters where trading out isn't possible, and I take a hefty hit, which is why I've been spared the Premium Charge since March.
I agree that in theory, if I could find enough value punts, and had the balls to put big enough money on them, then I could increase the total charges to 20% of my gross profits, but finding value pre-game is not easy, and as I have written before, while I have no problem putting four or five figures on in-play, I'm not comfortable punting with the kind of money I would need for this tactic to work. Whoever came up with the idea of the Premium Charge certainly did a good job on the loopholes.
Finally, I liked the NBA.com headline concerning the Orlando Magic team bus that illustrates this post.
Well, it was the PC calculation bit that I was really moaning about, but in general, any look at the %
ReplyDeletecharges will go wrong if you only consider one winning bet.
So, imagine someone who pays the premium charge, and also is on 5% commission, betting on the new
Betfair 'virtual coin flip' exchange games markets (I really wouldn't be surprised if they introduced
this... anything to make BF more money!)
The gamblers backs £100 at 2.06, and being an evens shot, they can expect to win as often as they
lose. So we'll look at the results after one win and one loss:
Gross profit from the win: £106. Commission at 5%: £5.30, profit: £100.70.
Losing bet: £100 loss. Gross win from both bets: £6. Total profit: £0.70
This punter has paid a massive 88% of their winnings in commission!
But wait, the premium charge comes to the rescue...
Let's say this gambler already has £1000 gross win for the week, with £100 paid in normal commission:
£1000 gross win, £100 commission, that's 10% and so BF add on a £100 PC charge => £800 net profit.
Now, add in the two coin flip bets: £1006 gross win, £105.30 normal commission. Thats 10.47%. Betfair
will still want their 20%, which is £201.20. Net profit now is £1006 - £201.20 => £804.80
Do you see? If this person DID NOT pay PC, they would have made £0.70 from their bets. But because
they pay PC, their additional profit is actually £4.80
Paying PC has meant that the gambler has made *more* profit from these bets. In other words, they have
a bigger profit margin, and could be making money from these coin flip bets by backing as low as 2.02.
(Apologies in advance for any errors in my calculations. I haven't had any coffee yet)
Well, it was the PC calculation bit that I was really moaning about, but in general, any look at the % charges will go wrong if you only consider one winning bet.
ReplyDeleteSo, imagine someone who pays the premium charge, and also is on 5% commission, betting on the new Betfair 'virtual coin flip' exchange games markets (I really wouldn't be surprised if they introduced this... anything to make BF more money!)
The gamblers backs £100 at 2.06, and being an evens shot, they can expect to win as often as they lose. So we'll look at the results after one win and one loss:
Gross profit from the win: £106. Commission at 5%: £5.30, profit: £100.70.
Losing bet: £100 loss. Gross win from both bets: £6. Total profit: £0.70
This punter has paid a massive 88% of their winnings in commission!
But wait, the premium charge comes to the rescue...
Let's say this gambler already has £1000 gross win for the week, with £100 paid in normal commission: £1000 gross win, £100 commission, that's 10% and so BF add on a £100 PC charge => £800 net profit.
Now, add in the two coin flip bets: £1006 gross win, £105.30 normal commission. Thats 10.47%. Betfair will still want their 20%, which is £201.20. Net profit now is £1006 - £201.20 => £804.80
Do you see? If this person DID NOT pay PC, they would have made £0.70 from their bets. But because they pay PC, their additional profit is actually £4.80
Paying PC has meant that the gambler has made *more* profit from these bets. In other words, they have a bigger profit margin, and could be making money from these coin flip bets by backing as low as 2.02.
(Apologies in advance for any errors in my calculations. I haven't had any coffee yet)
Oops, sorry for the double posting.
ReplyDelete