On The Inside

One of the more interesting Twitter accounts I follow is A Lucky A Day and you can all thank him for being the trigger behind today's post.

While most people talk about the betting market for an event in singular terms, Lucky challenged this idea writing in response to a comment about "beating the market":

He is, in my opinion, totally correct. Each sportsbook has its own market, with prices driven by supply and demand, which vary from book to book, resulting in differing lines and prices. 

Because there may be several markets for the same event, spread across multiple jurisdictions, each with their own regulations and rules, it seems quite reasonable to say that there is not a single market. Soft books and sharp books also offer different markets, in that who is allowed to be active varies.

As Lucky further explained:

There are several different prices depending on the market place. Because there is not free movement of money across these markets and the terms/regulations of each market are different I think the concept of "the market" is flawed.

If there was one single market, then clearly the avenue of arbitrage which many people seek to exploit would not exist. 

The only pure markets are those on the exchanges, where supply meets demand, and anyone can play. The days of significant arbitrage opportunities between them are also long gone, with a change in prices on one exchange being almost instantaneously reflected on others.

Lucky's point on the market letting you play is also critical. Not everyone has access to every market, so beating a market that you don't have access to might be academically pleasing, but from a financial point of view, it's pointless. It's a waste of time, and time is money. 

Coincidentally, I had an exchange with Lucky last night in which the topic of 'insider information' was touched upon.

As readers of this blog will know, I do not get involved in horse racing following the personal revelation almost 40 years ago, that insiders possess rather vital information such as that a horse will not win. 

As with all sports, this is far less of a concern the more prestigious or valuable the event, but at the lower end of the scale, insider information is a risk. You would certainly expect insiders to make the most of their inherent advantage, but that advantage means the outsider is at a disadvantage. 

The traditional term 'insider information' comes from the world of finance and is defined thus:

Insider information is a non-public fact regarding the plans or conditions of a publicly-traded company that could provide a financial advantage in a securities market.

Substitute "horse" for "publicly-traded company" and "betting" for "securities" and you have the horse racing equivalent. If the stable, and those close to the stable, know that their horse is not being run to win, that is "insider information".

A further explanation of "insider information" states:

Insider information is a non-public fact regarding the plans or condition of a publicly-traded company that could provide a financial advantage when used to buy or sell shares of that or another company's securities. Knowing about a company's significant, confidential corporate developments, such as the release of a new product, could provide an unfair advantage if the information is not public and only a few people know about the developments. Insider information is typically gained by someone who is working within or close to a listed company.

Again, it's not difficult to modify this to fit the horse racing markets, or any other individual sport market for that matter. However you frame it, "insider" means "someone on the inside, or someone with privileged information", and definitely not this:

By definition, insider information is the opposite of public. It's private. 

If someone with no horse racing connections is in their parent's basement and has information on a horse race, it isn't insider information. It makes no difference to the definition of an "insider" how efficient the market is, an insider is someone on the inside. 

Similarly, information that is publicly available is public, even if it might be hard to discover.