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INTRODUCTION to SPREAD BETTING

Spread betting has been around for a long time. Its origins though, are very much in the financial market arena where city traders buy and sell shares, indices, pork bellies etc that they do not own. In other words, they are betting on the future price of an entity – that the value of something will go up or down from when they place the bet. City traders are renowned for their massive incomes, Porches and general high-flying lifestyles. Conversely, the man in the betting shop is portrayed as a victim of an unsavory addiction, which swallows up the housekeeping money and alienates him from normal society!

Spread betting in the UK is currently free from any kind of taxation. As a result of this, many people are looking to financial spread betting as a long-term investment. No advisors cut, income tax, capital gains tax etc. It is easy to see how spread betting may be considered attractive!

SPREAD BETTING MARKETS IN DETAIL

STARTING PRICES

  number of runners at meeting x factor (of approx) 0.62.

There may be tweaks to this depending on the likely strength of the betting market, the field size spread, and the price of the favs, but this is the basic way the spreads are calculated.

To try to gain an advantage, let's look at the average SP per runner over a 6-year period for NH meetings. Average SP per runner is calculated as;

Aggregate SP's / number of runners.

Note that the max SP is 50/1 for the purpose of this market.

The data below shows that if there were 100 runners at Plumpton, we would expect an SP make up of around 67/68. If we can buy at 62, then we have a sensible bet which will yield a long-term profit. Who would have guessed at Plumpton topping this table? At the other end, 100 runners at Newcastle would make up on average 51. The spread firms do not appear to use this kind of analysis and the prices for a 100 runner meeting at either track will have a smaller spread than is indicated by this kind of analysis. However, the difference between an average make up of 51 and 67 is enormous. Selling the SP's at the lowest 3 or 4 tracks brings me a really nice profit each season.

As a general rule of thumb, the average SP per runner of a handicap will be higher than a non-handicap. This ties in with my logic given elsewhere that handicaps offer the best chance of finding value. Of course, the theory that all horses are handicapped to finish level is a bit of a nonsense; however, it is true to an extent. Not the case in a 20 runner maiden race. There will tend to be far fewer shocks as many of the horses are poor and have little chance. I would be certain that if you looked at the return from backing all horses at 20/1 - 50/1 the level stake loss would be considerably greater in non-handicaps.

The data I have given would work better with a biasing factor depending on the number of handicapped runners at a meeting as opposed to non-handicapped runners. I would expect the spread firms to use some kind of weighting when deriving their spreads.

Data for the past 19 seasons is available from the Racing Post website and from this data we can construct a spreadsheet as shown above for each course. This is necessary, as the earlier data did not make the important distinction between handicaps and non-handicaps. The blue line shows the average SP per runner for handicaps and it can be seen in all 19 seasons at Newcastle, the average SP per handicap runner beats that of the non-handicap runner (red trace).

The SP's market is the market that most lends itself to a purely mathematical approach and the formula is as follows;

(HcSP x HcRn) + (NHcSP x NHcRn) x NR Factor

HcSP = Average winning SP per handicap runner at the course
NHcSP = Average winning SP per non-handicap runner at the course
HcRn = Number of handicap runners at meeting
NHcRn = Number of non-handicap runners at meeting
NR Factor is a reduction based on the possibility of non-runners.

This is quite important as each non-runner will in theory reduce the likely make-up. If you have bought, then this is bad. For sellers, it is good news. It is impossible to predict this although care should be taken if heavy rain is forecast which may change the going or if the course is riding firmer than expected. In these instances, more non-runners would be expected.

What I do is to calculate assuming no non-runners. In the event of a buy, I will not place the bet until 1 hour before the first race or even later, allowing myself time to adjust the quote for non-runners coming in. If there is a sell opportunity, then I place the bet immediately knowing that any non-runners will work to my advantage.

There is always a bigger potential upside in buying this market than in selling. In theory, 6 or 7 50/1 winners are possible on a card whereas the potential profit in selling is much less. However, the value is arguably slightly geared towards selling, as people tend to prefer the bigger possibility option.

RACING POST FAVOURITES

Market Explanation;

'The aggregate of the points scored by the Racing Post favs at a selected meeting.'

Points are awarded 25 for a win, 10 for a 2nd and 5 for a 3rd.

This differs from the FAVs market because the favourite is pre-determined from the Racing Post betting forecast. In the event of joint favs, the first named is the horse included in the RPF market. I personally prefer this market to the favs but there are advantages and disadvantages to both. The main advantage is that you know in advance what selection you are on and can make a judgement on this basis.

To be successful in this market, a less mechanical approach to that highlighted in SP's will be necessary. However, there is still a strong mathematical element, which needs to be addressed before deciding on a bet. The basic formula for each race is as follows;

((% Chance 1st Place x 0.25) + (% Chance 2nd Place x 0.1) +
(% Chance 3rd Place x 0.05))

Each race total is summed to give the meeting total. The 0.25, 0.1 and 0.05 factors are because the scoring on this market is 25-10-5. More on this below.

How do we go about determining the chance a horse has of winning? And how about the chances of a horse coming second or third?

Step 1 - PRICE UP EACH RACE.

This is where the skill of the investor comes into play. It will be necessary to 'price up' each race. Many experienced punters do this and it is a very useful skill to learn. The way I approach it, is if I were the only bookmaker on the course, what price would I make each horse? Assume that no one will actually bet, so you can price up as you feel. Be bold, if you think a 2/1 shot should be a 4/1 shot, then price up at 4/1. Do this for each horse in a race.

You will then have a 'tissue' price for each horse.

Step 2 - CONVERT TO 100% BOOK

Having priced up your tissue, with some experience you have the over-round somewhere between 100% and 120%. However, it may be that you are under-round (95%) or have a huge over-round. This does not matter because in order to convert the horse’s tissue price to a calculated spread quote, you will need the book to be exactly 100%. To do this, and the steps that follow, I have created a spreadsheet to do all the maths for you. To illustrate the point, if you have priced 3 runners in a 3 horse race all at 7/4, then there 'true' odds must be 2/1. I hope this makes sense!

Step 3 - CALCULATE CHANCE OF WINNING, COMING 2nd, AND COMING 3rd.

Now the tricky bit! If we have our 3 horses, all at 2/1, then the chance of each winning is 33%. In this simplistic example, the chances of each coming second or third is also 33%. Using our formula then, we get;

(33.33 x 0.25) + (33.33 x 0.1) + (33.33 x 0.05) = 13.333333

As the total points awarded are 40 (25-10-5), then in this example each horse should get 40/3 = 13.33 points, as calculated above.

Now the tricky bit! What chance does a horse have of coming second? Let's look at a different example. Suppose another 3 horse race but this time the chances are

1/9
10/1
100/1