Jun 5, 2020
Jun 5, 2020

To restrict or not to restrict? That is the question

How does a traditional bookmaker work?

What makes a recreational bookmaker different?

Is a bet a contract?

To restrict or not to restrict? That is the question

Being restricted or banned isn’t something Pinnacle customers have to deal with, yet it’s one of the worst kept secrets in the betting industry. Why do bookmakers restrict winning bettors? Should they be allowed to? What’s the reason Pinnacle can afford to no restrict customers? Read on to find out.

If there is one thing more than any other to get bettors engaged in heated debate, it is the issue of bookmaker restrictions. Over the past number of years, attention has increasingly focused on the refusal by many bookmakers to accept the custom of a small proportion of sharper customers whom they claim to be unprofitable for their business.

Pinnacle is not one of those bookmakers; they operate a different model of bookmaking. In this article I’d like to review the differences between these two models, why they exist, what they mean for the bettor and what the future might hold.

Pinnacle: The traditional bookmaker

Pinnacle is now more than 20 years old. Their unique selling point (USP), for which they are famous and have built their reputation, is that they welcome winners (players who hold positive expected value or +EV). Leaving aside a few smaller exceptions and some Asian bookmakers where winners are also accepted, but arguably for slightly different reasons, there can only be one Pinnacle. The reasons for this are explained by former IG Index trader Matthew Trenhaile in his Haunted by ignorance article on Medium.

Pinnacle’s model is what we might describe as the traditional bookmaker, and one that requires high volume. The bigger the turnover of money coming through your markets, the more profit you should expect to take via your margin.

However, to attract that volume you have to have low margins to offer the most competitive prices. Some of Pinnacle’s margins are as low as 2% for their most popular markets; other bookmakers’ margins may be three times bigger for the same markets.

The consequence of offering small margins is that you have to be right a lot of the time. If your errors are systematically bigger than your margins, your sharp customers are going to pick you off and erode your profits. Pinnacle make it their business to be right, with highly efficient odds and keeping epistemic uncertainty in their models to a minimum.

Pinnacle’s Trading Director, Marco Blume, has explained that when it comes to managing his markets, it’s 100% data science, 0% money engaged. The idea of trying to balance action on a bet-by-bet basis is just a myth; it’s perhaps more applicable to samples of bets or markets as a whole via the law of large numbers. Pinnacle, as their CEO Paris Smith has explained, take positions, don’t lay anything off, put skin in the game and have confidence in their numbers.

Pinnacle uses the knowledge they get from their trading model and from the models of their “consultants” to make more efficient numbers.

Having the best models costs a lot of money. Pinnacle’s investment strategy is almost entirely devoted to data modelling, with little left over for advertising and marketing. Furthermore, refusing the business of the sharpest and potentially highest staking customers is going to be counter productive to operating a high-turnover model. By willingly accepting sharp customers, however, Pinnacle kill two birds with one stone.

Firstly, the winners welcome policy is a cheap form of self-promotion, spreading the USP of the product by word of mouth. Secondly, allowing the sharpest bettors to play helps Pinnacle improve the efficiency of their prices, ensuring that the proportion of +EV players is kept to a minimum.

The second of those points is backed up by the fact that Marco Blume calls his sharpest customers his “consultants” and he is always ready to upgrade them with superior versions. Bettors, he explains, are used as an information resource; Pinnacle are effectively incorporating customers’ models into their own via the process of price discovery.

Being sharp, however, as Paris Smith explains, is relative. There can only be one “most efficient bookmaker”. Market efficiency is a winner-takes-all competition. Pinnacle have been winning that competition for over 20 years. Yes, they take risks, as every traditional bookmaker should, but they are good at it.

The recreational bookmaker

If Pinnacle is the only truly traditional (or sharps’) bookmaker, other bookmakers are operating what might be called the recreational model, which caters for a much larger number of smaller-staking customers. From my own data, average stakes per customer can be an order of magnitude smaller for these brands.

Customer stakes at recreational bookmakers are smaller for two reasons. Firstly, Pinnacle offers bigger limits for its prime markets, attracting bigger volumes of money to generate its required turnover. Secondly, recreational bookmakers are in the business of restricting or refusing stakes from their sharpest customers. They have acquired a growing reputation of banning winners.

The term “recreational” implies that bookmakers using this model see their product as a form of entertainment only, rather than as a means for their customers to make money professionally. This appears to be sufficient to satisfy the appetite of the majority of them.

If you belong to the group who either don’t know how to or don’t care about beating a line, then the recreational model is nothing much to be feared.

In comparison to Pinnacle, far less investment proportionally is directed towards data science and modelling efficient lines, far more towards marketing and advertising of market variety, bonuses and best-in-market prices. Whilst on average Pinnacle might have the best prices because of their lower margins, this doesn’t imply they are the easiest to beat.

Because of their inferior market efficiency, it’s actually easier to systematically find expected value at a recreational bookmaker. Indeed, some of it might intentionally be offered as loss-leading value to attract new customers, and to promote the image of being a best-price bookmaker. The problem is that if they find you systematically exploiting it, they will take steps to prevent you from doing so.

Recreational bookmakers consider that customers who are price sensitive (colloquially described as coupon clippers) are engaging in arithmetic value betting and arbitrage. Given that Pinnacle’s price efficiency means recreational bookmakers are systematically on the unprofitable side of an arb, it is understandable why they would wish to stop this activity, and conversely why Pinnacle would welcome it.

Increasingly, however, customers of recreational bookmakers are grumbling about the unfairness of these restrictions. Do they have a point?

A bet is consensual; and a bet is a contract

A bet has always been regarded as an informal and consensual agreement between two parties to honour a redistribution of assets according to prior agreed terms based on the outcome of some event. In the UK at least, this honouring of debts was more legally formalised in the 2005 Gambling Act. It was achieved by bringing gambling under the umbrella of contract law. This legislates that once a contract is made, the terms are legally enforceable, and all debts are liable.

One crucial aspect of contract law is that parties are free to determine, without reservation or explanation, with whom they make a contract, and whether they may void one, provided they do not “override any other rule of law that prevents enforcement on the grounds of unlawfulness.” One obvious example of unlawfulness that is routinely cited by restricted bettors is discrimination.

Knowledge, however, can only be sold if someone is willing to pay for it. If your knowledge has value, a fair price in an efficient market will be paid.

The 2010 Equalities Act in the UK identifies a number of protected characteristics which have been identified as illegal to discriminate against. Gender, race and faith are obvious ones. Sadly, being a +EV bettor is not one of them. Discrimination it may be, but currently under UK law it is permitted. To change this would require a change in the law, or a legal challenge creating a precedent that reinterpreted the existing law.

With respect to the first, little headway has been made since 2018 when interested parties met with the Gambling Commission, the UK’s official gambling regulator, and MPs toiscuss the issue. Similarly, the action group Justice4Punters that investigated the opportunities for launching a legal suit have been advised against it on the ground that they would probably fail.

There has been more success in other countries. Last year in Spain, for example, one leading global bookmaker lost a two-year legal case and was ordered to unrestrict a group of customers, with the court ruling that the account restrictions were a form of discrimination and detrimental to consumers on the grounds the plaintiffs were not professional and were offered no right of reply, and that the contract terms were abusive.

In Australia, minimum bet guarantees removing the right of bookmakers to refuse any bettor with a winning record were introduced in some states for racing, greyhounds and trotting, beginning first in New South Wales in 2014, that allowed bettors to win up to $2,000 (AUD) per bet.

Surprisingly, the minimum bet guarantee has proved popular not only with bettors but with bookmakers too, who have found it easier to trade in a marketplace where turnover is strong, and a price must be honoured and available to all. Nevertheless, we should remember that it was introduced for only three betting markets. The remainder of sports, and presumably the majority of betting turnover, have been unaffected.

It should also be recognised that different nations have subtly different legal systems allowing for different interpretations and different opinions about what might be considered discriminatory or abusive. Perhaps more importantly different nations will have different cultural landscapes from which notions of fairness and discrimination are formed.

Australians, whether because of the way the national identity has been forged or for some other reason, may have a more binary sense of fairness hardwired, believing that everyone should get a fair crack. In the US, with a gambling heritage rooted in the mafia, I have wondered whether bookmakers might be more inclined to “honour” gambling contracts rather than “boot” players for beating the line.

Poker Joe, author of Sharper: A Guide to Modern Sports Betting, has said he’s never heard, from the “mobsters” he knew back in the day, any idea, EVER, of banning someone for winning. “I think they would have been humiliated.”

Invitation to treat

One crucial aspect of contract law is what is termed the “invitation to treat”. Cassini, author of the sports trading blog Green All Over, following the definition on Wikipedia, has previously articulated it nicely.

An invitation to treat (or invitation to bargain in the US) can be defined as an expression of willingness to negotiate. A person making an invitation to treat does not intend to be bound as soon as it is accepted by the person to whom the statement is addressed.

Cassini explains this is not an acceptance of a contract but an indication of a person's willingness to negotiate one. It's a pre-offer communication. As such, this is precisely what publication of the odds represents. It is a form of marketing or window dressing designed to attract the bettor but placing no obligation on the bookmaker to accept their money, should there be any offered.

If bettors choose not to make an offer, or the bookmaker chooses not to accept the bet, there is no contract. Provided the published price was not meant to deceive and is available to the majority of customers, the bookmaker is perfectly entitled to refuse money from bettors they have deemed bad for their business. In the UK at least, the law still permits them to do this.

Unsurprisingly, it is the invitation to treat that causes the most consternation amongst restricted bettors. Bookmakers, they argue, should not be window dressers, they should be risk takers. If you put up a line or a price, then you should be prepared to stand by it, not discriminate according to which of your customers you believe think you’ve mispriced it. That, after all, is what Pinnacle is, a traditional bookmaker with skin in the game, not merely a facilitator of entertainment.

Knowledge is power

In an information market, knowledge is power. Sharp bettors use it to gain expected value and make a long-term profit. Pinnacle uses the knowledge they get from their trading model and from the models of their “consultants” to make more efficient numbers, with which to attract higher volumes from arbitrage players and others on the wrong side of value. In a sense the two parties are engaged in a reciprocal and mutually-benefitting, if informal, contract: you scratch my back and I’ll scratch yours.

The consequence of offering small margins is that you have to be right a lot of the time. If your errors are systematically bigger than your margins, your sharp customers are going to pick you off and erode your profits.

Knowledge, however, can only be sold if someone is willing to pay for it. If your knowledge has value, a fair price in an efficient market will be paid. The model the recreational bookmakers are operating, however, no longer requires bettors’ knowledge. They have traders who already know roughly what an efficient number is, and what they lack they can simply get from Pinnacle or the exchanges effectively free of charge.

Why bother paying customers who beat soft recreational numbers when you don’t need them to tell you what the true odds numbers? Such knowledge, to a recreational bookmaker at least, is effectively worthless. Many recreational numbers, after all, are intentionally inefficient and designed to attract more customers.

There’s simply no point paying the estimated 5% of customers who know this and try to exploit it, since they are telling you something you already know anyway. Restricting them results in bigger profits than spending your budget, as Pinnacle do, making efficient lines and paying your “consultants”. Since there can only be one Pinnacle, let Pinnacle be Pinnacle, and you can make money window dressing. Well, that at least is the theory.

What does the future have in store?

The dichotomy between these two models of bookmaking may seem stark, and in some ways overly so. Certainly, recreational bookmakers do care about efficient numbers to an extent. If they simply posted any old number and restricted everyone who beat it, they wouldn’t have many customers and much reputation left. Furthermore, like Pinnacle, they will also be taking risk positions and facing liabilities. Even recreational bookmaking is not simply a matter of making your front window look nice.

Nevertheless, the distinction between the two models has important consequences for the future of sports bookmaking. With the relaxation of betting laws in the US, the fear amongst bettors there is that the UK and European way of doing things is going to spread there too. Would that be such a bad thing? Well, that depends on your point of view.

If you care about a sense of fairness and what a bookmaker should traditionally be supposed to be doing (taking risks as opposed to dressing windows), or one of the few sharps to hold +EV, then you will presumably be appalled. In contrast, if you belong to the much larger group who either don’t know how to or don’t care about beating a line, then the recreational model is nothing much to be feared.

Indeed, it can be argued that curtailing the current freedoms that recreational bookmakers hold through contract law would be detrimental to the interests of the majority who DO just see betting as a form of entertainment. Forcing them to accept winners could either see increases in margins or a move towards more efficient markets more generally.

Both could be seen as being detrimental to the majority of bettors in terms of their losses, including those who currently hold a profitable edge via hitting soft numbers and coupon clipping. Many of those currently complaining the loudest about being restricted might find themselves complaining about something worse: losing. Always beware the unintended consequences of what you wish for. It’s much easier to look sharp at a recreational bookmaker than at Pinnacle.

Some final words

There’s probably a place for both the traditional bookmaker and the recreational bookmaker to coexist together. They probably need each other. Pinnacle’s turnover model is supported by the recreational money that floods in on the wrong side of arbitrage bets. Conversely, they signal to the rest of the market, better than anything else, what the true prices of things are.

Perhaps there can only be one Pinnacle. But a market with none just seems to jar against a bettor’s sense of fairness. Even if they will never be sharp enough to win, perhaps it’s having a realistic hope and means of trying that matters. By accepting winners, Pinnacle can facilitate that hope for those who are able to use them.

Ultimately, as Marco Blume says, customers vote with their money. To date it would seem the majority of customers who bet with recreational bookmakers are quite happy with the product they are being offered. If they weren’t, they would leave, right?

Should that change, then those bettors who are registered in jurisdictions where Pinnacle is licenced know that there will always be at least one bookmaker ready to take their custom, no matter what. They’ve been doing it for more than 20 years and presumably will continue to offer the winners welcome policy for many more years to come. After all, if you’re the best at something, why change a winning formula?

Betting Resources - Empowering your betting

Pinnacle’s Betting Resources is one of the most comprehensive collections of expert betting advice anywhere online. Catering to all experience levels our aim is simply to empower bettors to become more knowledgeable.