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Each month, Australian bookmaking legend Tom Waterhouse publishes a newsletter from Waterhouse VC, his gaming and wagering-focused venture capital fund.

Since inception in August 2019, the fund has achieved a gross total return of 1,860% through to 31 March 2023.

In collaboration with iGaming NEXT, the April edition of Waterhouse VC looks at the complexity of professional punting and syndicate betting.

Are you feeling lucky?

David Walsh and Zeljko Ranogajec (business partners) are professional bettors, whose syndicate bets about $10bn per annum across horse racing, sports betting and lotteries, according to the AFR.

Walsh spent $75m to re-open Hobart’s Museum of Old and New Art (Mona) in 2011.

“Finding a system that works and is stable and works for a long time is extremely difficult. If you’ve had a system that works for 20 years, it’s not as a result of skill. You acquire the system that worked by luck, then once it worked, it might keep working.”

David Walsh

In our December newsletter, we discussed the niche but highly lucrative field of professional betting.

Betting successfully is incredibly challenging, with other market participants always trying to take your ‘edge’. This dynamic means that betting strategies must be adjusted all the time.

Rebating the competition away

The large betting syndicates receive generous rebates from pari-mutuel/tote betting for providing liquidity.

This gives them a significant edge (varies depending on pool/jurisdiction) over other participants.

To receive this rebate, bettors need to turnover vast sums of money. For example, US totes typically only offer rebates to bettors who wager over $5m per year (Sports Trading Network).

The largest pari-mutuel markets are in the US, Australia, Singapore, Japan, Hong Kong and France.

It is incredibly difficult for new entrants to compete with the handful that currently dominate because they are already behind.

The compounding of their rebate advantage has generated incredibly lucrative profits for the largest syndicates.

Data is competitive and costly

Alan Woods (deceased) and Bill Benter are other examples of successful professional bettors focused on racing.

Benter grew up in Pittsburgh and studied physics at university before taking on Las Vegas casinos at blackjack.

Woods grew up in Murwillumbah, a small Australian town. Woods was an actuary, who became a gambler with particular horse racing expertise.

After being banned from casinos, Woods and Benter partnered in 1984 to bet on horse racing in Hong Kong.

Their system developed an edge by betting on overlays but it was several years before they were generating significant profits.

In the first two years, they lost most of their $150,000 starting bankroll.

After a split from Woods, Benter started his own model using only 16 factors.

Over several years, the number of factors used in the model grew to over 100 and complex data began to play an increasingly important role.

Today, syndicates have large teams of statisticians and data analysts assessing 100s of unique factors.

For example, analysts of horse racing assess factors related to each horse, the racecourse, turf conditions, the trainer, the jockey and track configuration.

While the largest syndicates would win without the rebates from the totes, the rebates effectively provide further funding for their investments into data analysis capabilities, strengthening their competitive advantage.

This ‘rebate / data investment’ flywheel makes it extremely difficult for newcomers to break into professional betting.

Furthermore, in our discussions with professional betting syndicates, they told us that you usually need up to 5000 individual events to work out whether you have a real betting advantage that meets expectations, with lower advantages requiring more individual events.

For example, sports betting models require more events, given their typically lower advantages than horse racing models.

As Benter and Woods experienced early on in their racing betting, unfortunate luck in these first few thousand individual events easily bankrupts hopeful syndicates.

As shown by the deviations of the red line (cumulative result of actual dice rolls) above and below the blue line (expected value of dice rolls), it takes many events to determine the actual advantage (in this example, there are 6000 events and it is still unclear if there is an advantage).

Artificial Intelligence in betting

There has never been more data and technology applied to professional betting as there is today.

The increasing power and prevalence of artificial intelligence (AI) is the latest wave of technological disruption, which presents opportunities and threats to existing and emerging betting syndicates.

As discussed above, incumbent syndicates are best funded to further strengthen their dominance through investing in AI capabilities.

AI could improve the speed and efficiency of a syndicate’s automated betting processes, ultimately bringing down the cost of placing bets.

Consequently, the speed of bet placement is likely to become even more competitive.

From the bookmaker’s perspective, AI can identify new patterns and insights from betting data to ultimately make better predictions, adjust odds and minimise their losses to professional bettors.

For casual bettors, AI allows bookmakers to personalise each user’s experience according to their betting data.

In November last year, Walsh said that he was focusing his time on finding methods to protect his syndicate’s income from AI, with the belief that having data sets with unique observations could favourably impact his syndicate’s betting results.

Some of the world’s largest global investment firms are applying their expertise to professional betting.

For example, Susquehanna International Group (SIG) was founded in 1987 and has grown to around 2000 staff and $1bn of annual revenue primarily through trading in financial markets.

SIG established Dublin-based Nellie Analytics in 2017 to focus on sports betting.

In 2022, SIG took a 12.8% equity stake in PointsBet, which gave Nellie Analytics the opportunity to explore a partnership to provide sports analytics and quantitative modelling services to PointsBet.

Betting on tennis betting

Again in December, we discussed Tom Dry’s professional betting syndicate, which is focussed on tennis. Dry has been professionally betting on tennis since January 2020.

He has prior experience working for Tony Bloom (owner of Brighton Football Club), both as a data scientist and as a football analyst.

Through his experience working for Bloom, who is widely viewed as the world’s best football bettor, Dry developed both the analytical and operational skills required to build a professional betting business.

Dry’s operational metrics are very impressive and we believe that he has the ability to further scale the team, increase liquidity in tennis and also expand into other sports.

Despite the challenges of breaking into professional betting, Dry has built specialism in a unique sport, which is much easier to leverage than multiple sports.

We believe that Dry’s edge in tennis betting would be difficult to replicate due to the quantity of proprietary historical data he possesses and the proprietary factors that he applies to his model.

On 1 July 2023, Waterhouse VC will make an investment in the syndicate.

For bettors who are driven to put in the work and apply the latest innovations in technology, there are significant potential rewards.

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