epma roundtable professional punters dennis verrios

EPMA Roundtable

PROFESSIONAL PUNTERS

EPMA Roundtable

PROFESSIONAL PUNTERS

DENNIS VERRIOS EPMA PRESENTATION

DENNIS VERRIOSDIRECTOR BUSINESS DEVELOPMENT – TOTE TASMANIA

CHIEF OPERATING OFFICER – AGILITY INTERACTIVE

[email protected]

4 October 2010

DENNIS VERRIOSDIRECTOR BUSINESS DEVELOPMENT – TOTE TASMANIA

CHIEF OPERATING OFFICER – AGILITY INTERACTIVE

[email protected]

4 October 2010

TOTE Tasmania and Agility InteractiveTOTE Tasmania and Agility Interactive

� State Owned Company in Tasmania –TOTE Tasmania Pty Ltd

� Annual turnover of >$AUD 750 (>$USD 700) million

� Primarily wagering on racing but also offer growing sports betting

� Pride ourselves on being innovative and forward looking

� Have been first to market in new technology innovations within the


� Have been first to market in new technology innovations within the

wagering market

� Strong Partnership models – deliver TOTE prices via Betfair as well as

excellent partnerships with Market Movers

� Are constantly looking for new, innovative and engaging business models

� Agility Interactive is TOTE’s innovative customer solutions arm which

runs all Interactive business for TOTE and supports its international

business and “Very Large Professional” customers – The BETPRO Suite

My intention....My intention....

� To explain “Who or what a pro bettor/punter is”

� To explain the benefits of a pro punter to:

� Non Pros

� Industry

� Government


� Government

� Operators

� To give you an idea of what a pro needs to operate

� To explain how TOTE and Agility service these pros


BACKGROUNDBACKGROUND

Professional Bettors (Punters)

Setting the scene – We have Pros....Setting the scene – We have Pros....

Using 1993 as a base year:

�The blue line represents the total amount wagered on Racing in Australia each year

�The red line represents the hypothetical amount that Australia would have wagered

on races in Australia if they had gone up by the Reserve Bank of Australia’s inflation

rate.

As can be seen, the two lines are closely related, and as more sophisticated customers

enter the market in recent years, wagering (and pool sizes) have grown wagering to a


enter the market in recent years, wagering (and pool sizes) have grown wagering to a

level higher than the inflation rate, illustrating the strength of race betting.

Pros start organisingPros start organising

Pros openly servicedPros openly serviced

Professional Bettors – an overviewProfessional Bettors – an overview

� One of the benefits of Pari-mutuel models is the capacity

to support professional bettors

� I have dealt with the smallest bettor to the biggest ones in

the world and categorise them into the following groups

and sub-groups:


� AMATEUR – WANTS to WIN

• Seasonal Big Event

• Irregular – Acts on Tips

• Regular – Loves the sport of

racing or follows form

• ALL ARE ULTIMATELY SEEKING

ENTERTAINMENT AS THEIR

PRIMARY DRIVER – NOT PROFIT

� PROFESSIONAL – NEEDS to WIN

• Small Loser Professional

• Single Player Professional – low sophistication

• Single Player Professional – High sophistication

• Syndicated Major

• ALL ARE ULTIMATELY SEEKING PROFIT AS THEIR

PRIMARY DRIVER – NOT ENTERTAINMENT


� One common thing we have seen in Australia that matches

many other countries is a long standing view that Amateurs

are good for the industry and Professionals are bad.

� This is a very outdated, closeted and technically incorrect view

� You must remember why each group is in the business of


� You must remember why each group is in the business of

betting:

� AMATEUR = ENTERTAINMENT

� PROFESSIONAL = PROFIT


� The general argument against professionals goes something like this... “They are a leech who takes money from the everyday small customer“

� This opinion is linked to the fact that when a professional bets they are

using intelligence and information to bet, and they bet in a disciplined

manner on OVERVALUED opportunities.

� If I tossed a coin but offered you instead of Evens ($2 return per $1) on

HEADS OR TAILS I offered $3 per $1 on heads and $2 per $1 on tails – you


HEADS OR TAILS I offered $3 per $1 on heads and $2 per $1 on tails – you

would have to pick Heads. A professional has used “intelligence” to price

the flip at $2 on either side – but when the market offers them $3 they

buy it. Win or Lose on the single flip – this approach WILL be profitable

over the long term. Of course a horse race is vastly more complicated to

price than a coin toss.

� WHAT WOULD YOU DO IF I OFFERED YOU $3 PER $1 BET

ON A COIN TOSS ACROSS 32,000 EVENTS PER ANNUM?

Professionals: Advantages and Disadvantages Professionals: Advantages and Disadvantages

� Disadvantages

� Lower Churn for Amateur - but not substantial (around ½ a bet1)

� Reduced Profitability of Amateur - but they will never be profitable

(reduced by 9%1) – They are looking for the CORE GOAL of

ENTERTAINMENT / EXCITEMENT

� Advantages


� Advantages

� More money for Industry = More and Better Quality Races = Excitement

and Entertainment + Employment (More information in the next section)

� Increased Memorable wins on medium and Long Shots (Favourite Longshot

Bias2

) for Amateurs due to Pros predominantly backing short to medium

runners = INCREASE OF CORE GOAL OF ENTERTAINMENT / EXCITEMENT

� Increased tools, data and products helping those who wish to exit Amateur

to become better punters – this would not have happened without Pros.

But what if the Pros get too big in the market!But what if the Pros get too big in the market!

� When considering whether to allow professionals into the

market, one should remember that they are self-regulating.

� If too many professionals are in the market they are unable to

make a profit and they then withdraw from the market. They

are unable to flood the market and so there will always be a

place for smaller punters.


place for smaller punters.

Are they really good for the industry?Are they really good for the industry?

� There are three broad impacts a professional has on the

industry as a whole:

1. The PRO PUNTER MULTIPLIER EFFECT (PPME) – for each additional

dollar placed in the pool causes the pool to grow by a greater amount3

Final pool (Y) = small money (M) + pro money (P) Y = M + PIn the case where there are No Pros Y = M and M = m0 + m1Y

What if we add Pros? Y = m + P and P = p + p Y


2. Lowers average transaction costs – excellent for operators and profits

3. They create a market for information and data – thereby making the

cost of it lower and more accessible to the average punter

0 1

What if we add Pros? Y = m0 + P and P = p0 + p1Y

Therefore Y = 1 / (1 Y = 1 / (1 Y = 1 / (1 Y = 1 / (1 –––– pppp1111) x m) x m) x m) x m0000

In Australia professionals add as much as:

42.9%42.9%42.9%42.9% Increases revenues to GovernmentIncreases revenues to GovernmentIncreases revenues to GovernmentIncreases revenues to Government

27.9% Increase revenues to industry27.9% Increase revenues to industry27.9% Increase revenues to industry27.9% Increase revenues to industry

Pool Estimated P1 Y = 2008 –

2009 turnover

(in millions)*

m0 (in millions) PPME %

increase from

pros

NSWTAB 15% of Pool 5,000 4,250 17.6%

UNITAB 20% of Pool 3,200 2,560 25%

The PPME in the Australian IndustryThe PPME in the Australian Industry


UNITAB 20% of Pool 25%

SuperTAB 30% of Pool 6,400 4,480 42.9%

An increase in the value of p1 causes a disproportionally larger percentage

increase to the pool size. E.g. from p1 = 20% to p1 = 30% there is a 50%

increase, the value of the multiplier increases from 25% for UNITAB to

42.9% in SUPERTAB, which is a 71.6% increase. Therefore, the larger the

value of p1, the larger the roll on effect for the pools and the industry, with

SuperTAB using it the strongest out of the three pools in question.

* Difficult to verify the final pools – but principle is same

The Effect of the PPME on the Industry and the GovtThe Effect of the PPME on the Industry and the Govt

PaidPaidPaidPaid to:to:to:to: $$$$ before before before before

professionalsprofessionalsprofessionalsprofessionals

$ after $ after $ after $ after


% change with % change with % change with % change with


WeightedWeightedWeightedWeighted

average for each average for each average for each average for each

sectorsectorsectorsector

Government

Taxes

.0161 x Y =

16,100

.0161 x Y =

23,000

42.9%

42.9%42.9%42.9%42.9%

Increase to Increase to Increase to Increase to

GovernmentGovernmentGovernmentGovernment4444Sales Tax .0147 x Y =

14,700

.0147 x Y =

21,000

42.9%


Racing Product

Fees

.013 x Y =

13,000

.013 x Y =

18,571

42.9%

27.9%27.9%27.9%27.9%

Increase to Increase to Increase to Increase to

industryindustryindustryindustry444450% of op’s

gross profit to

industry

.03 x M + .015 x

P = 30,000

.03 x M + .015 x

P = 36,429

21.4%

TOTAL TOTAL TOTAL TOTAL 73,80073,80073,80073,800 99,00099,00099,00099,000 34.1%34.1%34.1%34.1%

Therefore it can be seen that the introduction of professional money, has increased

government revenue (through gov and sales tax) by 42.9% and increased industry

funding (through product fees and 50% of gross revenue) by 27.9%


SERVICING PROFESSIONALSSERVICING PROFESSIONALS

How do we service the professional?

What are the types of Professional bettors?What are the types of Professional bettors?

There are three distinct types of pros

operating in the industry who are

differentiated by the way they determine

the value of a horse (similar to stock

market analysts):

Technical �� much like technical analysis in the stock market, technical pros observe changes in the ‘price’ of a horse in order to determine ‘the future’, and assume all

Fundamental �� In the stock market this means someone who looks into all information regarding the share to evaluate the shares value in the future, and a fundamental pro is similar. They evaluate the entire field and determine, as a consequence of studying form and every aspect affecting the horse, what the chances


changes in the ‘price’ of a horse in order to determine ‘the future’, and assume all information in forming that price is correct.

This can be seen with the following example: in a race of however many starters, one horse’s odds have widened to 4 to 1 while another horse’s odds have shortened to 4 to 1. In simple terms, a technical pro believes this represents that the horse whose odds have shortened has a higher chance of winning than the horse whose odds have widened, even though the same odds are being offered.

studying form and every aspect affecting the horse, what the chances of each horse of winning the race is.

Hybrid �� uses both technical analysis and fundamental analysis to determine who will win the race. For example they may have determined the form of the race but then also watched fluctuations in the market and take note of horses coming in or out.

What are the key items required?What are the key items required?

� Technical

� Constant stream of data in regards to runners paying dividends and pool sizes

� Historical pool and price movements

� Fundamental

� Access to historical video footage

� Sectional timings (they create these if not provided)


movements

� Advanced models regarding price movements and impact across pool types

� Fast transactional processing systems

� Detailed market information including trainers and jockey info

� Environmental data: Weather, Going etc

� Large Database and regression systems

VIP SERVICE – FIRST AND FOREMOSTVIP SERVICE – FIRST AND FOREMOST

� The CRM is the first point of contact for the clients, they are assessable 24/7

� Transfers and deposit transactions are completed upon request 24/7

� Prompt CRM service and communication (product managers speaking to

clients on a regular basis and instantly when problems occur)

� Support clients in obtaining greater profits via specialised products e.g.

Betpro.


Betpro.

� Attend “prestige” events with clients

� Communicate “Priority” benefits to the client on a one on one basis (call,

invite out to lunch)

� The CRM division work closely with the Call Centre and IT departments to

ensure The TOTE account holder benefits are maintained and meet.

VIP TECHNOLOGYVIP TECHNOLOGY


VIP TECHNOLOGY – WEBSITEVIP TECHNOLOGY – WEBSITE

� BETPRO website – www.betpro.com.au

– The BETPRO website was created as a result of demand for a high-end wagering

system for pari-mutuel racing product, It is only available to a select group of customers

– Integrates with customers, often complex, wagering strategies. This additional level of

personal service offers customer flexibility with new functionality such as the upload of

personal ratings, interrogation of rating information against current market information

and the placing of bets either manually or automated based on user defined conditions


VIP TECHNOLOGY – BATCH BETTINGVIP TECHNOLOGY – BATCH BETTING

� BETPRO – FILEBET

– This is a simplified text file batch betting application used by a segment of customers

that owned existing wagering tools (Semi-Sophisticated) however these wagering tools

were not compatible with online interfaces. File Bet is a smart client application that

takes a batch of bets in text file format and processes them though Bet API.


VIP TECHNOLOGY – APIVIP TECHNOLOGY – API

� BETPRO – API

– BetPro API is a collection of web services used to connect sophisticated punters with

existing wagering tools to pari-mutuel pools. In simplified terms Bet API allows a

customer to receive racing and sports information, place a bet and get detailed

transactional information, including balance, through their own unique betting system.


VIP TECHNOLOGY – DATABASEVIP TECHNOLOGY – DATABASE

� BETPRO – PRO PUNTER FORM (PPF)

– Tool developed for small professional customers. PPF allows customers to record their

personal form information in a user friendly database. New input variables can be

created on-the-fly by the customer without need for a developer resource.


VIP TECHNOLOGY – BETBOTVIP TECHNOLOGY – BETBOT

� BETPRO BETBOT Solution

– Rules based automated betting system that draws information from a diverse range of

race data sources. BetBot allows a customer to validate runner selections against a

variety of predetermined rules or specifically created rules in order to determine value.

Upon determining a value bet, BetBot will begin it’s automated place bet function into the

pools selected by the customer. Upon completion of the placebet function BetBot will

continually re-assess runner selections for value bets until the event has closed. This

product is intended to run autonomously with minimal ongoing input from the operator.


VIP TECHNOLOGY – BUSINESS PROVIP TECHNOLOGY – BUSINESS PRO

� BETPRO BETBACK Solution

– Automated Risk Management solution of placing bets both in attended and unattended

mode to allow a bookmakers or punters exposure on certain events and outcomes to be

placed back into the market thereby either reducing or negating the position. This

includes, but is not limited to, the exposure at a book or customer level and will also allow

certain positions to be followed allowing the system to take advantage of market

intelligence provided by a bookmaker's customer's actions


VIP DATAVIP DATA

� Advanced Data - Dataflows

– A state of the art – PUSH Datafeed that alerts customers of every price and

pool change

� Price and Pools Databases

– We maintain one of Australia’s largest and complete price movements

database.


� Historical Form

– We purchase from key suppliers large volume and high quality historical form

VIP REWARDSVIP REWARDS

� For LARGE (>$5m per annum) we have a banded rebate system – below

this it is inefficient to offer as a cash rebate (as it is not churned again)

� For SMALLER PRO’s we have Evolution Rewards. This was the first loyalty

program introduced to the Australian wagering industry launched in 2008

� There are 4 member status levels which accumulate points at different

rates per dollar of turnover depending on annual turnover with the TOTE.


rates per dollar of turnover depending on annual turnover with the TOTE.

� VIPs belong to Platinum & Gold: contribute 86% of ALL points

accumulated through the program;

� Existing members of the TOTE who joined the Evolution Rewards program

have increased their average monthly turnover by 15.6%;

� Monthly promotions to Evolution Rewards members have resulted in

average increases of 19.1% in turnover for the promoted products,

resulting in increases in incremental revenues with total R.O.I of 68.4%;

EVOLUTION REWARDSEVOLUTION REWARDS


Please note the maths in this section is indicative and an


MATHSMATHS

Please note the maths in this section is indicative and an

opinion. The maths is reflective of the principles that we

have seen at work.

1 HOW DID WE ARRIVE AT THAT?

How did I arrive at that? Some basic maths…


How did I arrive at that? Some basic maths…

ASSUMPTIONS NO PROS LOW CASE AVG CASE HIGH CASE

PROF: Share of Pool 0.0% 25.0% 25.0% 25.0%

Failing Pros 10.0%

AVG Takeout Rate 15.6%

PROF: Win Rate 0.0% -4.0% 0.0% 4.0%

Average Industry Return 4.0%

AMATEUR BETS $ 100.00 $ 100.00 $ 100.00 $ 100.00

PROF BET $ - $ 25.00 $ 25.00 $ 25.00

TOTAL POOL $ 100.00 $ 125.00 $ 125.00 $ 125.00


TOTAL POOL $ 100.00 $ 125.00 $ 125.00 $ 125.00

TAKEOUT $ 15.60 $ 19.50 $ 19.50 $ 19.50

INDUSTRY REVENUE $ 4.00 $ 5.00 $ 5.00 $ 5.00

PROFESSIONALS RETURNS (after Failing Pros) $ - $ 21.60 $ 22.50 $ 23.40

AMATEUR RETURNS $ 84.40 $ 83.90 $ 83.00 $ 82.10

AMATEUR LOSS $ 15.60 $ 16.10 $ 17.00 $ 17.90

CHANGE IN LOSS 3.2% 9.0% 14.7%

AMATEUR $ CHURN 6.4 6.2 5.9 5.6

CHANGE IN $ CHURN 0.2 0.5 0.8

� The argument is even better when you look at complex exotics – with

almost no loss and mostly gain from every $ from a Professional


Economic Theory – it’s complicated!


Economic Theory – it’s complicated!

� The Favourite Longshot Bias (FLSB) means that, on average, punters tend

to overvalue "long shots" and undervalue favourites. That is, in a horse

race where one horse is given odds by a Bookmaker of 2 to 1, and another

50 to 1, the true odds (as determined by an efficient market mechanic

such as Pari-Mutuel) might for example be 2 to 1 and 100 to 1

respectively. Betting on the "long shot" is therefore a much worse

proposition than betting on the favourite.


proposition than betting on the favourite.


The PPME – Part 1


The PPME – Part 1

To illustrate the effect of the PPME – some basic maths is used:

Final pool (Y) = small money (M) + pro money (P) Y = M + P

In the case where there are No Pros

- each dollar added to pool by professionals adds more

than a dollar in total


In the case where there are No Pros

Y = M and M = m0 + m1Y

m0 = a bet placed regardless of pool size; an entertainment bet

m1 = a bet that is influenced by pool size

� As small punters place bets for entertainment it is likely that the value of

m1 is very close, if not equal to zero

Therefore we can say Y = m0


The PPME – Part 2


The PPME – Part 2

What if we add Pros?

Y = m0 + P and P = p0 + p1Y

p0 = a bet placed regardless of pool size; an entertainment bet


p1 = a bet that is influenced by pool size

�As pros bet for monetary gain it is likely that the value of p0 is

very close if not equal to zero

Therefore Y = m0 + p1Y

After finding this we can use algebra to find the value of Y:

Y = m0 + p1Y

Y – p1Y = m0

Y (1 – p1) = m0


The PPME – Part 3


The PPME – Part 3


Y = 1 / (1 – p1) x m0

Therefore it can be seen that the final pool is dependant on both

the investments of the small punters and also the amount that

professional punters bet dependant on the size on the final pool

As seen before, Australian professionals account for 30% of the final SuperTAB pool, and let’s therefore presume, given the market is self correcting and at a mature stage professionals are aiming for (30%) of the final pool. Therefore p1 = .3, and let’s say that m0 = 1,000,000

Y = 1 / (1 - .3) x 1,000,000


The PPME – Part 4


The PPME – Part 4


Y = 1 / (1 - .3) x 1,000,000

Y = 1 / .7 x 1,000,000

Y = 1,428,571

As can be seen, with the professionals aiming for 30% of the pool, they have unintentionally made the pool grow by 42.9%, and this would hold true regardless of the size of m0


The Effect of the PPME on the Industry and the Govt


The Effect of the PPME on the Industry and the Govt

Background � The weighted average commission rate is 16.1%. This is then divided up by:

After running costs the operator has 6% gross profit from ‘small money’ and 3% gross profit from professionals. Of this, 50% is given back to the industry in the forms of sponsorship, facilities upgrades, etc.

Of the 16.1%Of the 16.1%Of the 16.1%Of the 16.1% Of the total Of the total Of the total Of the total

poolpoolpoolpool


facilities upgrades, etc.

The affect of professional on the industry and government will now be explored, with m0 = $1,000,000 and p1 = .3 like in previous examples.

poolpoolpoolpool

Government

Taxes

10% 1.61%

Sales Tax 9.1% 1.47%

Product Fees 8.1% 1.3%

Operator 72.8% 11.72%

Thank you for your time. Please feel free to contact me

regarding any questions or alternative points of view:


QUESTIONSQUESTIONS

regarding any questions or alternative points of view:

[email protected]

epma roundtable professional punters dennis verrios

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