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Fans, supporters, dupes.. uh, dudes, the mr. ham show has finally returned! Mainly because that humourless editor of a human threatened to sue me for my neglecting contractual duties, or else I would happily have stayed in Hamerica enjoying my extremely lucrative Cult Leader gig, and as you can see, I'm not particularly worried if I piss off the audience. Would you be, if you had just been awarded SEED magazine's Young Cult Leader Of The Year Award?  Excuse me while I do an irreverent jig on the set. *wiggles fuzzy butt* But because I'm such a wonderful hamster, I will indeed share some of my pearls of wisdom. As you lot doubtless remember, my family is in the loansharking way (just a bit more capital, and we can call ourselves a bank), and closely related to that is the art of bookmaking, which is today's topic after I spotted a copy of Double or Nothing: How Two Friends Risked It All to Buy One of Las Vegas' Legendary Casinos that Mr. Human borrowed from the library. The book is the story of how one entrepreneur used the millions he earned from selling Travelscape (now part of Expedia), a hotel reservation website, to buy the Golden Nugget, a Vegas casino, and his adventures in running it. Tellingly, he notes that being the fastest travel website was important (something which Google realised), as well as having a fast reservation process taking five clicks or less. But that's not what I'm going to talk about. My expertise, as a reformed (hee hee) gangster is, naturally, gambling, something which has kept hitting the headline payout-line in this little nation. For one, the Marina Bay Sands malfunctioning jackpot case has been settled in favour of the customer, who will get the displayed S$416,742.11 instead of an initial make-up offer of S$50,000 and a S$258,962 car (which comes up to over S$300,000) Here, we can spot a difference in mentality between Singapore and the USA, even though the Sands has basically been transplanted here not much more than a year ago. Double or Nothing tells the story of Steve Wynn trying to get a hobo to quit after going up US$1.2 million in blackjack with his Social Security (i.e. CPF) money, realising that it would make for great publicity (the hobo refused, and proceeded to lose it all, as Wynn probably knew was likely). In contrast, the local incarnation appears to have squandered some of its reputation for a net gain of barely S$100,000 (and now, not even that) You goody-two-shoes may be happy at that, but then again, with demand surging to the extent that local bosses (some under clearly ineffective exclusion orders) are sending their poor foreign workers to gamble (and if unlucky, eat the losses) on their behalf, the casino may well have figured it could afford to lose some business - and indeed it has been one of the most profitable in the world, in part thanks to the locals making up a third of the clientele.  Loanshark protip: Hire girls to front your operation if possible (Source: sgloancritic) [Quick aside: A recent study (see original paper) shows that, when photos are attached to resumes, attractive men were 50% more likely to get an interview, but attractive women were 30% less likely to get one! If this sounds odd, consider the gender makeup of most HR departments] This may or may not have anything to do with the parallel boom in moneylending operations, so much so that they had to be banned from advertising in newspapers, but I'm assured by my bros watching over my loansharking enterprise that they are doing brisk business. At this rate, we may be headed for an IPO soon. Now, it is not that it is impossible to beat the house. The problem is beating the house consistently. Take it from a bookie: there are longtime gamblers, and there are lucky gamblers, but there are next to no longtime lucky gamblers. The very worst thing that can happen to an impulsive sort is getting beginners' luck, and consequently gaining an unshakeable perception about his "skill".
It is popularly supposed that gangsters are dumb. Well, not so those in the loansharking and bookmaking lines! While they may not have excelled in school due to the curriculum including useless rubbish like geometry and calculus, you might be astounded at how quickly the average gold-chain-garlanded underboss in floral-print shirt can multiply, divide and shift numbers in his head. The business partner of the author of Double or Nothing started out as a small-time bookmaker while still in his teens, and committed the cardinal mistake of acting as a bettor himself instead of seeking to balance his books (the contest in question). Now, whether you're the Sands or a neighbourhood hustler, the basics are the same - seek to set things up such that no matter who loses, you win. We shall go about it the way I do with my young recruits (quite a few whom thereby gained a love of applied math). Consider two football teams, Fat Ham FC and Honey Star FC. Bets with binary outcomes are simpler to talk about, so take an Asian Handicap of Fat Ham (-1.5), and let's say that you think Fat Ham has an 80% chance of making that. Then, the fair odds are $1.25 to the dollar on Fat Ham, and $5 to the dollar on Honey Star, because the expected return would be even in both cases, i.e. 1.25*0.8=5*0.2=1. Typically, however, a bookmaker would offer slightly less than fair odds to get his cut, something like $1.20 for Fat Ham and $3.75 for Honey Star. Ideally, the bookmaker would then collect something like $800 of every $1000 bet on Fat Ham; if so, if Fat Ham makes the handicap, the bookmaker pays out $160, but keeps the $200 from Honey Star backers, making $40 on the $1000. Otherwise, they pay out $750, and keep $250 (yay). In this example, the outcome to the bookmaker is asymmetrical, which can be fixed by simply letting the bet proportion multiplied by the payout be equal to a fixed ratio.  Totally irrelevant mood-inducing photo (Source: guardian.co.uk) For instance, if the bookmaker wants to earn $100 out of every $1000 wagered with him, he would adjust his payouts such that 0.8*FatHamPayout=0.2*HoneyStarPayout=0.9, which comes out to offering $1.125 to the dollar for Fat Ham, and $4.50 to the dollar for Honey Star. It seems common to offer slightly less on the long odds, though, perhaps because the marginal differences make less of a difference there (800%, 900%, what's the diff?), or to lower the variance. At this point, it is inevitable that some of my proteges will dash out of the door to rustle up punters, only to realise that the business isn't quite that simple. For one, they don't know beforehand what the actual proportion of bets will be, and will swiftly find that their book gets unbalanced big time if their guess was wrong. The way around this is to adjust the odds as bets come in - therefore, if fewer people bet on Fat Ham than expected, the payout on Fat Ham should rise to become more attractive, and fall on Honey Star. Much like financial traders, come to think of it, although we don't pretend to be the good guys. Now, the problems. What if a flood of bets comes in almost exclusively on one side? In this case, the book may become horribly unbalanced almost instantaneously. The bookmaker may bound his risk by declining to take bets after some margin is breached, and indeed all of them do, but larger bookmakers have less need to reject business since a wide spread of customers generally reduces volatility (see also this), and they have deeper pockets besides. While we are on this point, it can be noted that the bookmaker misjudging the initial probabilities is actually not that big of an issue, as long as he lets the odds float (we usually just copy the big boys if we don't feel equipped to make an estimate). Of course, there are many technicalities, such as the effect of large single outlier bets, and how often to adjust the odds (since it would be frustrating for punters to have to continually reconfirm their bets because the odds have changed in the meantime) In practice, however, it all usually works out - we're certainly not waiting for some egghead to write a paper on this - and experienced bookmakers like me generally gain a feel for how to adjust the odds. Of course, for newcomers, I strongly suggest sitting down with a notebook in front of the telephone, and keeping a running total of your earnings for all possible eventualities (hopefully all positive). When starting out, be conservative about maximum bet limits, and strongly consider tapping into existing networks to trade risk. Us gangsters usually appreciate industry, and many will let you in for a cut (but take out some life insurance just in case)
Clever audience members may realise at this point (or already know) that it follows that odds may differ across providers on the same event, which can be exploited through arbitrage. Say Bookie B is giving 1.22/4.90 on Fat Ham and Honey Star respectively, as opposed to Bookie A's 1.40/3.27 (note that both bookies' offerings are, by themselves, coherent). The idea is to examine the better of the deals from each bookie, in this case 1.40 on Fat Ham from Bookie A, and 4.90 on Honey Star from Bookie B. We may verify that there is an arbitrage opportunity as 1/1.40+1/4.90<1. Then, some primary school mathematics shows that if we have $100, we can wager $77.80 on Fat Ham with Bookie A and $22.20 on Honey Star with Bookie B. Then, magically, no matter which of Fat Ham or Honey Star actually wins in the end, we are guaranteed nearly $9 in profit! Even better, this works for any amount (up to the individual bookies' limits), so $1000 means $90 in profit, and so on. Now, obviously this is no big secret, so opportunities are often quickly arbitraged away (unless you can find suitable fixed odds), bookmakers have their measures to discourage it, and any taxes and withdrawal/currency exchange fees can quickly eat away the margins; however, this is not to say that it doesn't work, since there's basically nothing between this and High Street financial arbitrage, excepting maybe the glamour. Yes, do I see a hand in the audience? I will be available for autographs at $10 a pop after the... what, why should you listen to a hamster with such an atrocious football betting record? Ah, yes, I was coming to that:
As you can see, I have come within a single goal of winning a bet five times. It must be an anti-ham conspiracy, and if not, it is surely a one-in-fifty-years event. Don't worry, I am in it for the long term. Have I been hanging out with derivatives brokers or top civil servants lately? No, why do you ask? But take it from me, being any of these professions, or even a gangster, has nothing on being a Cult Leader! When I was a loanshark, I had to give people money first, and moreover chase them for the interest; when I was a bookie, I had to pay out money sometimes. However, now that I am a Cult Leader, I have people lining up to hand me money with a smile on their face! In what other industry can you get this deal? Next: 999-RIP-OFF
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