Dave brings Brendan Poots on the show this week to share some insights on discovering betting edges within what are normally considered very efficient markets. Brendan operates The Priomha Group which is a hedge fund that invests systematically in sports betting instead of the typical stocks, bonds and mutual funds.
Brendan has a background in the financial investment sector and experience as a bookmaker. Combining skills learned in both fields, he has developed some interesting strategies for seeking out edges in liquid markets, hedging betting risks, managing funds and consistently seeing positive returns.
Punting Insights You’ll Find
- Why there are still consistent betting edges in liquid markets: and where you can look to find them.
- Specific tips and advice from a pro for a few sports markets including tennis, cricket, soccer and in play trading.
- How Brendan hedges his risk and manages his portfolio for consistent returns.
- Tax implications for your winnings and how his hedge fund pays out accordingly.
- Brendan Poots
- His Hedge Fund – Priomha Group
Brendan’s Closing Tip:
“What you’ll see a lot of the time, and it happened again in the recent cricket tests in New Zealand and England is that when a side is set 380 plus to win in the last innings, you just take the set against them because history says that its not going to happen.”
Episode 003 : David Digs into Uncovering a Betting Edge in Liquid Markets with Brendan Poots
Welcome to Betting 360, your number one source for horse racing and sports betting insights. Coming around the bend is your host, David Duffield with another expert interview to give you the winning edge!
David: Hello and welcome to Betting 360. I’m your host David Duffield and for episode three I’d like to bring on a special guest to help us once again look at punting from a different angle. Our expert today is Brendan Poots. He is a sports hedge fund manager at Priomha Capital. He has an interesting background in professional sports as a cricketer, also as a bookmaker and as an investment banker. He’s taken a lot of that experience and applied it to the sports betting world so he runs a fund with external investors and it’s his job to get them good returns. It’s a non-traditional type of investment, somewhat of a pioneer in the field I suppose you could say. But I wanted to have a chat to him about that today and also what the everyday punter can learn. He has some good insights in betting into soccer, also on tennis, and some in-play trading and some cricket as well so with the Ashes coming up I thought was worth chatting with him how best to go about trading or betting on cricket. So let’s have a chat with Brendan.
David: Hello again listeners, I’d like to welcome our special guest to the show. How are you going Brendan?
Brendan: I’m well, thanks Dave.
David: Good to have you on the show and thanks for joining us. We might as well start by explaining what to some might be a strange concept because they’re used to the finance investment world, but what is Priomha Capital?
Brendan: Okay well Priomha Capital is a sports hedge fund and I’ll sort of go back into the genesis of the idea first of all. I started playing county cricket a long time ago in the mid-90’s and during that time, one of the benefactors of anyone who plays cricket overseas is a rich guy who will look after you, give you the house and the car and what have you. My guy was a bookmaker so whilst I was playing cricket during the day with the long summer nights I would be a bookmaker at night.
It was during that period that I noticed the value of sports betting. Sports betting and sports bookmaking, particularly golf, cricket and tennis. It was heavily traded in the bookmakers over in England and that got me thinking. Fast forward five or six years later once I had realised my cricket ambitions weren’t going anywhere, I was working in finance and the genesis of this whole idea came when I was in Columbia University in New York. We were studying finance and looking at charts of the DOW JONES index and they were exactly the same as the charts that were coming out from Betfair in terms of price volatility and price changes. I wasn’t keen on working in finance but I knew everything about it, or at least I was getting taught everything about it so I thought I could apply the principles of finance and trading finance in shares to trading sports.
This was made a lot easier by the advent of Betfair and Betdaq and the other corporate bookmakers who allow you to bet in the run or online. So effectively we manage money as per the interest of a superannuation fund or a fund manager but whereas typically they invest in stocks, bonds and shares and more traditional investments, we trade sports markers for and on behalf of our clients. We have a pooled investment scheme and the way it works is we take a percentage of profits and a management fee. So we trade sport just as someone else would trade gold or someone else would trade stocks.
David: Alright so it’s a really interesting concept and I had Elihu Feustel on the show last week and he runs a fairly decent sized tennis betting syndicate, so similar to what you do but without a lot of external investors. One of the things that he spoke about and it’s pretty well known, is there’s a balance between the liquidity of the market and the edge you can normally get. Typically the bigger the market, the harder it is to beat. With a fund of your size you probably a need to make substantial bets, how do you find a winning edge in what should be pretty efficient markets?
Brendan: Well I think you’re right, certainly in a couple of the markets we trade in, English Premier League as well as European Football Leagues as well as the major sports of tennis, cricket, golf, they’re very liquid. Now what we’ve found is that come kickoff in, let’s say the English Premier League, the market’s pretty close to what our market would be. But what we tend to find is that prior to kickoff when prices start going out on a Thursday for the Saturday round there’s quite a discrepancy. There’s an opportunity on a Thursday to put some trades in, be it either a back or a lay and you’ll be able to get out prior to the game generally with a small arbitrage type profit.
That’s what we try and do but the real value, and this is where I think our edge comes in, is once the betting is in the run and taking advantage of the events, because what tends to happen is the markets start at a relatively efficient and are close to the mark but once the even starts, there’s a huge overreaction to single events in a game. Be it a wicket falling in a Test match which in the scheme of things is not necessarily a huge event if the first wicket falls because you still have 19 to go before the Test match is finished. Or if there is an early goal scored or an early goal conceded in a football match, the market overreacts. A lot of our edge and a lot of our trading is actually within the match, after the match has kicked off because prior to the game, you’re right the edge is not necessarily there.
David: So I understand the in play trading, we’ll get to that in a moment but if the price has moved your way pre-game, a very simple example but if you’re on something at say $2.20 and it comes into even money at kickoff, do you trade out of it then to lock in your profits or do you think that you’ve got a positive EV and you’ll let it ride?
Brendan: We will trade out to take a little bit of the profit because the way we work is that our maximum trade is only 3% of funds under management. So say for instance, for argument’s sake we’ve got $100,000 under management. So our maximum trade or maximum liability at any time in a game can only be $3,000. What we’ll do before a match is because we know we’re going to trade out prior to the match, we might set our maximum liability to 10% or 15%. So what would happen is in the event of a pre-game trade, we would have our liability to $15,000, but then before kickoff we trade that out or hedge that out until it’s back to 3%. By doing that we’ll have guaranteed a profit and then reduced our liability back down to where we need to be.
David: And what about if it’s gone the wrong way and you’ve got that 10-15% exposed.
Brendan: We would be monitoring that between the Thursday and the Saturday so we’d have a stop-loss limit in. We would make sure that our analysis was such that we were confident, but we would make sure that come kickoff we wouldn’t have any more than 3% exposure. So we would have traded down our liability between the Thursday and the Saturday if the markets started going wrong, or going the other way.
David: So the Thursday betting, 24-48 hours out, is that mainly done with Betfair? Because I’d imagine you would have trouble to get on with all but the biggest bookies?
Brendan: Well it’s a combination and what we find is we spread out across a couple of exchanges and we have 4 or 5 bookmakers we currently use so you can spread it out across them, but predominantly its with the exchanges for pre-game.
David: Alright so for the in-game stuff, how restrictive is it for the fact that you’re Australian based, I know you’ve got people that are overseas, but how do you go trading with the legislation the way it is at the moment in Australia?
Brendan: Well that necessitated a big change in business this year. We got burnt a couple of times being stuck on phones in the middle of the night at our trading office here, getting caught out by goals in Premier League matches. So what we did middle of last year was we opened up a UK trading office which executes trades on our behalf. So what happens is one of us in Australia will be awake watching the game, but our guy in the UK he’ll be on Skype with us, talking to us all the time throughout the match because he can trade out at the flick of a button whereas a number of times we’ve been caught on the phone watching a goal being scored as we lose our money. Or we make money so what we’ve done is we now have an English office which executes trades for us.
David: Well I know you work closely with RMIT and they have a pretty strong stats team and I think some do have either academic or hands-on experience in terms of betting. Can you explain how you’re involved with them and how that works for Priomha?
Brendan: Sure. About three years ago, or actually to go way back, my previous job in corporate Australia involved taking a lot of interesting technologies out of universities and commercialising them. So turn them into a real business and float them or sell them off. Through that process, a long time ago when I was getting into RMIT, they told me about these mathematical and statistics based algorithms they were producing for sport. Now I was working for a large mining chemical company so clearly we couldn’t use it but that sowed the seed.
Then a couple of years ago, a chap invested in the fund so I’m managing some of his money. He was the guy that, and this is prior to me coming to Melbourne, but he used to write many years ago about his computer and how it tipped winners in the AFL. And how the AFL tipping was winning a lot so he was obviously already enamoured with the idea. So after speaking with him and getting his investment for the idea, he put me in touch with the guys at RMIT.
What they’ve been doing for a number of years now is they’ve been doing a lot of the statistics gathering an analysis for Australian Institute of Sport or Australian baseball. But predominantly what it’s been is statistics around performance, how to maximise performance of an athlete, but when I spoke to them, we talked about how those statistics and the exact same skills could be used to monitor or be predictive in terms of what may or may not happen in a sporting contest.
The data is the same, the skill set to analyse it is the same, the only thing that is different is what variables to put in and what variables to weight accordingly. So the deal we have with the RMIT at the moment is they do all the statistical analysis and build all the algorithms for us for English Premier League.
David: Alright so you’ve got what you’ve proven to be a profitable edge both in the research phase and then in actually betting it. How do you manage or assess it and then manage risk vs. reward and I believe you use stop-losses if things aren’t going your way?
Brendan: Yeah, and basically the output of this algorithm, and coming from a finance background was always to try and make the whole trading and analysis part of the operation as automated as possible. But not giving up the subjectivity of an opinion, whereas in the stock market they have a lot of these bots working where they just basically high frequency trade. They are not trying to take advantage of the psychological aspects of the market. What happens with the algorithms that are produced, they will produce a price on an event happening and then we’ll put our subjective measure to it.
The typical thing was recently with Alex Ferguson, what was going to happen the other night against Swansea. Well you would think that Man United would be desperate to win so you could probably shorten them a little bit even though a model might say they are $1.30 or $1.40 which I think if the starting price probably more realistically is $1.20 because they’ll try a lot harder. So what we’ll do, say we get a price out that someone is $2.20 by our model, but in the market you can get them for $2.80 or $2.90 we’ll bet into the trade. We work on a 10-15% margin so if we rate them at $2.20 then we want into it if the markets gotta be $2.50 or above, somewhere like that. And then we would have an exit strategy based on effectively what our maximum liability is and we’d put a stop-loss or a back bet in so if things go wrong we get matched and we can get out.
David: Now I don’t expect you to give away exactly what’s working for you I mean you’ve got a fund to run and you’ve got staff but just in general terms, say someone is interested in tennis betting, is there any pointers you can give them on where they could look to find value?
Brendan: Yeah. I think there’s a lot of value in men’s tennis throughout the year. To give you an example, in the Grand Slams, you’ve got the best of five sets. And you’ve got Novak Djokovic playing whoever. And Novak in the best of five will be $1.05 or $1.06 or something like that. And then you’ll see during the course of the year over the best of three sets, you’ll still be paying $1.05 or $1.06 yet the conditions are completely different. Whereas in a five set match you have to lose three sets to lose, in a three set he could quite easily lose the first set and then he’s only one set from being knocked out of the tournament which happened recently.
So what we tend to find is that there is a lot of value going against some of the big guys in the tournaments throughout the year. A. Because they aren’t primed for the big-time tournaments, you look at Federer, Djokovic, Murray, they’re now looking to win Grand Slams as opposed to necessarily winning some of these smaller tournaments. What you tend to find is that the odds don’t change, yet the risk increases greatly of one of these guys losing. So if you’re $1.20 over five sets, over three sets you should be a little bit more because the risk is you could lose the first set, you have one broken serve and you’re out of the tournament.
In terms of tennis, you look at the guys in the tournaments outside of the majors, because the majors they’re primed and there’s not really value there. But outside of the majors in the best of three set tournaments, a lot of value to take a set against Federer, take a set against Murray, take a set against Djokovic because you’ve already seen up to now this year they’ve already been knocked out early rounds a couple of times. That’s all you need when they’re $1.05 you don’t even need them to be knocked out one or two times and you make a lot of money.
David: And what about EPL, obviously it’s a massive betting market, where do you think people can find value there?
Brendan: Well, huge value in if you look at the pure stats, Man United when they play at home should be paying $1.15 or $1.16 or something like that. Depending on what you decide is value, some people might find that $1.30 is not value and it should be $1.15 but if you’re looking at getting a little bit of a free hit, if you included Man United in all of your muliti’s throughout the year when they’re back at home at more than $1.15 that’s a good start. There are a couple of ways of trading which are very profitable and again, take advantage of the market overreacting. One is in the unders/overs markets, when there’s 2.5 or 3.5 goal market.
What you tend to find is that a goal is scored in the first half and the unders and the overs markets overreact incredibly to it so the people that think it’s gonna be over 2.5 goals, the price will drop incredibly and unrealistically. And then what you can do is bet against that because over the course of the next five or ten minutes it immediately gets back out and you’re already in the money. So there’s a bit opportunity with the overreacting to events in play particularly the over and unders markets as well as just in the outright win-loss markets. Again, once there’s a goal scored there’s a real overreaction quickly that you can take advantage of.
David: So am I right in saying you’ve got charts or matrixes where you might have a scenario where if the $1.30 favourite scores in the first five minutes, you’ve got data that says here’s what’s likely to happen in the next 5, 10, 15?
Brendan: Yeah so the way it works is we’ll have Man United vs. Swansea and we’ll have data which pops out saying, here’s the head to head Man United vs. Swansea, here’s the Swansea vs. top team playing away, Man United vs. a mid team playing at home data. So what will happen, and here’s the beauty of what’s been built, is say Man United scores in the first 38 minutes, what happens next. That will give you an idea of when the next goal is potentially or most likely to be scored. If the next goal is going to be scored at the 60 minute mark, then there’s an opportunity there for you to bet against the unders or bet against the overs rather because you know there’s another half hour before another goal is to be scored and you can trade in that period. So basically it’s all probability and if there’s a probability you can tie that back to price. If there’s a discrepancy between probability and price, then we add a little bit of subjectivity like watching the match and we see whats happening, then we’ll take a play.
David: And what about cricket, any pointers there for keen cricket punters with the Ashes looming?
Brendan: Yeah well it’s a wonderful sport. Obviously it’s a sport I used to play but one of the great things about cricket is that there’s so much history to it and there’s so much data available. Ultimately cricket hasn’t changed that much in terms of Test cricket. A good example last year or might have been the year before was one of the trades we made, Sri Lanka was playing South Africa in Durban. Sri Lanka had left South Africa 445 or 450 to win in the last innings.
And that has only happened twice or three times before in the history of cricket, yet South Africa were $3.00 favorites to win the match still representing a 30% chance, you had over 2.5 thousand Tests and it’s only happened twice. So because of the history, a lot of the data or a lot of those milestones stack up. What you’ll see a lot of the time, and it happened again in the recent Tests in New Zealand and England is that when a side is set 380 plus to win in the last innings, you just take the set against them because history says that its not going to happen. If you do that every time, you’ll make a lot of money. Certainly this year, as far as the Ashes goes, you’ll see that a lot. You know when the last innings come about, the side batting last needs 350 or above and they’re paying $3.50 or something like that, then you take the set against them because it just doesn’t happen enough to justify those odds.
David: Fair enough. Some good pointers there for the sports punters who are listening in. Specific to Priomha though, can you tell listeners what your results have been over the last say three years?
Brendan: Sure, well the last three years we’ve been taking external investors money since the start of 2010, and up until the end of last year the return has been about 130% to the positive. So, that’s gross before our fees.
David: You mentioned fees, what are they and how do they apply?
Brendan: Typically, it’s 2 and 20. It’s a 2% management fee and a 20% performance fee but the management fee, importantly, is only charged in arrears at the end of the year on the provisor that we’ve made more than 2% for the client. Typically what would happen in most managed funds or hedge funds is if you gave someone $100,000 they would take their fees up front so you’re only playing with $96,000 or something like that. So you’re behind the eight ball from the word go whereas what happens with us, if someone were to give us $100,000, we would have to make sure they’re at least at $103,000 by the end of the year, and if we were, we take out our management fee.
David: Yep, and is there a minimum amount to get involved if people are interested?
Brendan: No, basically we are still looking to grow the business and one of the things that we know is that the more people we have involved in the business, the more likely they are to talk to other people. Then the whole network and the brand builds. At this point there’s no limits per say, be it down side or upside.
David: Okay, pretty good result and a decent sized fund. You must be able to get some reasonable sized bets and trades on.
Brendan: Yeah, as mentioned we’re looking at the 3% as our number, our maximum trade. If you spread that across different people or different price points, you can do that relatively easily. It becomes a little bit more complicated with respect to the administration of it but it’s definitely doable.
David: I know you’re not an accountant by trade, you mentioned your background, but people get their own advice and this isn’t a sales pitch, but I wanted to make people aware of an interesting concept. What are the tax implications as far as you understand it if people have the money with you?
Brendan: Well again you pointed out well that we do advise everyone to take their own advice, but what we’ve found is that we’ve had tax attorneys as well as accounting practitioners speak with us. To the best of their understanding, the dividends that we produce are tax free. That’s predominantly because there is no precedent. It has been suggested that we go to what’s called a private ruling and that’s something we’re considering at this point, but at this point the information that we’ve received from two different tax attorneys and two different accounting practices is that to the best of their knowledge, because there is very little precedent in it and historically, gambling winnings have been tax free, the dividends are tax free. Which obviously is a big kicker when we’re getting some of the results we’re getting.
David: Exactly. Alright, we’ll leave it there for now, really appreciate you coming on the show. If people want more information, head over to Priomha.com.
Brendan: That’s the one, or just drop an email to [email protected] and we’re happy to talk.
David: Excellent, appreciate your time Brendan.
Brendan: Brilliant Dave, thank you.
Thanks for tuning in to Betting 360. Get more in depth analysis, tips and that betting edge by heading over to ChampionPicks.com.au where you’ll find a full transcript of this episode. If you liked the show, share us with a fellow punter or drop by iTunes to leave us your thoughts. Betting 360, punting from all angles.
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