EUBYTES: Interview Special

Happy New Year! And how best to start 2019 than with a treat for you? In October 2018 I held an interview with Peter Wilding, the man who invented the word Brexit. It is now time to bring you the second interview of EUbytes, with someone completely immersed in the gambling sector, but not from a political or legislative point of view. Rather, someone who understands the ins and outs of operations regarding the betting business. Joachim Marnitz visited the Time & Place Consulting offices, an expert punter who has dedicated his professional, and as I understand, quite a bit of his personal life to sports betting, both on behalf of other people and now himself and his business partner.

Joachim has worked for several years as a trader for one of the top three professional football betting companies worldwide. Along with his business partner he now manages his own company that specialises in turning a profit through sports betting as well, while maintaining a German-language blog dedicated to explaining betting theory, which you can find at crimsoncorporation.de.

So, let me just tell you quickly why I am so excited about having had the opportunity to get Joachim on record today. First of all, his experience and understanding of the betting business is indispensable for anyone who is looking to operate a betting business itself – i.e. not least from the get-to-know-your-customer perspective. Secondly, in an online world, especially when we seek to ensure that the providers of gambling services are legal operators and function with the utmost integrity (for the benefit of the consumer, civil society, public order and the reputation of the business), as a lobbyist I find it important to understand all aspects of the business. Otherwise, how can we help governmental stakeholders make the best decisions? There is also a third goldmine for all of us hidden within the expertise of Joachim: His understanding of how technology might affect the future of the betting business – no, the gambling business as a whole. That is why there will be a couple of questions on the future of blockchain and bitcoin in the world of gambling.

 

  1. Cezanne: From what I understand, and we have known each other for quite a while now, you are one of the lucky people to work in an area that you have a lot of passion for. How did it all start for you?
  2. Marnitz: I developed an interest in betting while I went to university. I placed an accumulator bet with my flatmate for a few bucks and we won €50 each. We felt like kings that day, and I was hooked ever since. At the time I was convinced it must have been skill, but it quickly became obvious after a few more bets that it’s a lot more complicated than I initially thought. Looking at my modest losses after a few months I figured that there had to be some systematic approach to this, so I started my long journey into researching betting theory and what makes a profitable punter.

 

GC:  Trying to turn a profit from sports betting is quite a courageous endeavour. Without telling me too many of your trade secrets, how does your system work? Do you look at patterns, do you use mathematics?

JM: The secret to profitable betting isn’t to pick the winning team, because there actually is no way of knowing. The future isn’t set in stone. Instead, you have to figure out what teams are mispriced – and bet on those. To figure out the mispriced bets I collect a lot of match data, and then try to separate the signals from the noise. There is a lot of luck involved in any sporting event, so the end results can be very misleading. Most people don’t realise that the league table does in fact lie, and it lies to you on a daily basis. My job is to find the skilled teams that were just unlucky, and bet on those – because their actual chances are usually very underrated by the market, so their odds tend to be off.
I try to measure the real skill of each team and then feed that information into an algorithm that I have created. The end result is a probability estimation of the chances of victory for each team, which I then adjust for soft psychological factors such as player motivation. If the market differs too much from my estimation (i.e. the odds are too high), I will place a bet. So yes, in essence I use statistics and mathematics to detect patterns of the past and try to exploit them in the future.

GC: When looking at patterns, information and your personal instinct are obvious key elements to the business model. What are other elements that you find significant?

JM: Betting psychology. There are quite a few people who could be betting profitably, if it only came down to mathematics and statistics. But even the soundest model will have significant downswings. I have personally had half-year periods that ended with losses, and have witnessed first-hand how even top syndicates with millions of yearly overhead costs have gone for a year without making a profit during that time. These downswings are very hard to deal with. It’s so bad that poker players even came up with the term tiltingto describe bad decisions that players make following bad runs.
Many otherwise promising people crack under the pressure of a downswing. This is usually coupled with bad risk management, as intuitively most punters will wager too much of their bankroll on a given bet. And naturally betting too much will only compound the psychological effects of a bad run.
Finally, the last important barrier of entry is logistics: There are plenty of profitable punters out there that don’t know where to turn to if they want to bet amounts that make the effort of building and maintaining a good betting model worth their while.

GC: I understand that when it comes to betting operators, not everyone is happy to accommodate your expertise as a customer. Without naming any names or specific cases, can you give me an idea about your experiences to this end?

JM: Sure, and this is in fact the logistics problem I just mentioned. Most bookmakers, especially European ones, will limit you quickly to small maximum wagering amounts, once their risk department determines that you will probably be profitable – and as such a likely liability to them. Some will even expel you entirely. In other words: If you’re winning, they won’t let you. They only accept you if you’re losing. TheEuropean exceptions to this generally are betting exchanges, as they charge a commission based on turnover and don’t lay the bets of the customer.

GC: Without necessarily taking into account what you have just told me, how do you see the betting markets in Europe compared to the international markets?

JM:  The one thing that European betting markets have going for them are betting exchanges. There aren’t any good contenders in this niche outside of Europe. The reason for that is probably that the most important bookmakers from Asia and Curaçao already follow a business model that is based on low margins and high volume, similar to how an exchange operates. These bookmakers rely on their odds makers to turn a profit, rather than simply limiting successful customers like European bookmakers tend to.

Obviously winners aren’t welcome with every Asian book either, but there are a few that don’t mind winning customers because they help them set more efficient odds. The turnover and profit of those bookmakers dwarf the European markets by a long shot. In terms of price movements, the European markets usually just follow what has happened in Asia, not least because professionals are forced to bet there in the first place.

GC: From a regulatory perspective, as a lobbyist I always have the challenge of helping decision-makers understand how new technology affects business. Of course, there is often, if not always, that syndrome of governments being one step behind technology which doesn’t always help a market to grow ideally. What is the technology which will affect the betting market, if not all of gambling in the future?

JM: Bitcoin already has affected gambling markets significantly, as there are already sizeable operators that deal in Bitcoin only. The catch here is that none of them require you to register your name or address, all you need is a loaded wallet and an e-mail address to open the account. In theory you can already bet anonymously there, as well as move bitcoin directly from one bookie account to another.
In a sense we are already witnessing a libertarian revolution in this area, even though most people are blissfully unaware of it at this point. The genie is out of the bottle in many ways, and from a regulatory perspective I imagine it will be a nightmare to deal with for governments, if it’s even possible at all.

Advertisement

GC: It was actually you that taught me how in some cases gambling operators could become obsolete because of blockchain technology like Bitcoin. How would that be the case?

JM: Ethereum is another cryptocurrency with a blockchain – it’s similar to Bitcoin, but it also allows for smart contracts that resolve automatically if certain conditions are met. This in turn provides the necessary infrastructure to create a decentralized exchange that isn’t operated on a website any more, but instead on the Ethereum blockchain itself. That has several implications:

  1. a) It’s virtually impossible for anyone state to enforce a shutdown of the exchange, because there is no central website or server that can be switched off.
  2. b) There is no need for a betting operator anymore, because properly defined smart contracts can take care of receiving wagers and distributing the winnings automatically, therefore taking out the middle man entirely. The bookie is essentially replaced with programming code.
  3. c) There is no need for accounts anymore and therefore no need to trust a bookmaker with your funds, because you can place bets directly from your Ethereum wallet into a smart contract.

GC: How far down the road are we on this?

JM: One decentralised exchange has already been created. Its name is Augur and it already has been functional for almost half a year now. It’s important to realize that Augur isn’t a betting operator, it simply is a platform, a piece of infrastructure that no-one controls. Anybody with an Ethereum wallet can place bets on Augur and even create markets on anything. So far, the liquidity on Augur isn’t great, but that is to be expected during the early days. It already works pretty well for major sporting events and betting on politics. There is even a sizeable portion dedicated to betting on financial markets, especially cryptocurrencies.

GC: Bitcoin as a payment method. How do you see this evolving?

JM: At the very least Bitcoin, Ethereum and similar cryptocurrencies will remain an alternative to the existing banking system, and as such a payment method that will gain traction over time – and it already has been embraced by some betting operators. It’s worth noting that the only reason Wikileaks survived financially was Bitcoin, which tells you how powerful the idea is. In case of a major financial crisis I can even see cryptocurrencies partially replace the current banking system over time.

GC: Is there any specific direction in technology you yourself would like to see to help your business model?

JM: Decentralisation as seen with Augur is the most desirable direction for my company, because right now the environment for professional betting is rather fragile. There are only a few key operators, and if one or more have to close up shop for one reason or another it certainly wouldn’t be pretty. Two of the five most important operators for us are based in Manila for example, and the political situation there is rather unstable.

GC: One last question. Any recommendations you would have for, on the one hand betting operators and the other, punters?

JM: Make yourself future-proof. As a betting operator you might have to figure out how to port your business model on to a decentralized exchange like Augur. As a punter on the other hand you should explore all options available to you. A key part of regulation is usually to protect the customer. The Augur model is so interesting for punters mainly because you don’t have to trust a third party with your funds any longer.

 GC: I can’t help myself. There is one more last question. If you were to visit a casino, what games would we see you play? And, why?

JM: Craps! I recently visited Las Vegas and instantly fell in love with this casino game. It has a very low house edge on the main bets, and it often creates an awesome group dynamic because the players at the table usually all win and lose together. Best entertainment value for money all around!

 GC: Thank you, not only for coming here for an interview, but also for being so open. It is much appreciated.

JM: The pleasure was all mine.

Greetings from Brussels.

0