How betting markets work - the Queensland example

Sun, 01 Feb 2015  |  

The Queensland election result saw some people suggest "the bookies got it wrong" when at the close of the polls, the LNP were $1.10 to retain office while Labor were rank outsiders at $7.00. Labor won the election.

The bookies did NOT get it wrong. The punters did. The bookies made money and would have, regardless of the result.

Think of it this way, punter 1 had $100 on Labor at $7.00. Punter 2 has $636 on the LNP at $1.10.

If Labor win, punter 1 makes $600 profit, punter 2 loses $636. The bookie is $36 in profit.

If the LNP win, punter 1 loses $100, punter 2 makes $63.60. The bookie is $36.40 in profit.

Whichever side wins, the bookie makes a profit. This is how bookmaking works – odds are framed to attract bets and there is an in-built percentage assumed for the bookie regardless of the result.

While the punters in question in the example above take the fixed odds, over the course of time and the flow of bets, the bookmakers will adjust their odds, according to which side the money is placed.

If there is a flood of money on the LNP at $1.10, then the odds will narrow to $1.06 or thereabouts, which is what happened at one stage yesterday. If the money flowed for Labor at $7.00, the bookies would have wound those odds in. But the money did not flow towards Labor in sufficient volume for its odds to change.

The bookies don't care who wins an election or any event for that matter. They just want to see a good flow of cash on both sides of the ledger, weighted according to the odds.

What clearly happened in the case of the Queensland State election is that the money flowed strongly to the LNP or at least strongly enough to match the weighted average bets on Labor.

In framing betting markets on election results, the Melbourne Cup or race 4 at Dapto dogs, the bookies don't care who wins as long as the odds on offer attract bets across all possibilities that hedge out its market so it cannot lose.

Saying the bookies 'got it wrong' is like saying the foreign exchange market was wrong last week when the Australian dollar was at 80 US cents given that today it is under 78 US cents. The weight of money and fresh news causes currencies like the Australian dollar and stocks and betting odds to change.

Have no fear, the bookies didn't get the Queensland election result wrong, the punters did.

The bookies will be open for business a little while longer while some of the mugs who backed the LNP are licking their wounds.

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