The Hidden Cost Of Slippage

There are lots of hurdles to overcome before you can expect to turn a profit from following a tipster. First and foremost of course it’s the tipster’s skill to identify value prices. Secondly you want the tipster to advise his bets at prices from a reputable bookmaker who does not restrict their customers. Additionally you need to deduct subscription fees from potential profits and bet placement fees if you happen to place your bets automated through a bot (like I do). Something that is not so obvious and sometimes hard to estimate is slippage, which also has a hefty influence on your bottom line.

Slippage is the difference in profits between betting at advised and betting at obtained prices. Say, you follow a tipster and his yield across 1000 picks is +4.50%. Let’s also assume that the actual yield you have achieved from these bets (by sometimes being forced to take lower odds) is +3.30%. Your slippage would then be 1.20% (4.50% – 3.30%).

Please be aware that slippage only affects winning bets. For a losing bet using 1 point level stakes your p/l is always -1, regardless of the odds you took beforehand.

Consistently taking lower than advised prices can eat massively into your profits as we will see below. In fact it can be the difference between winning and losing depending on the popularity of the tipster. Generally speaking the more popular the tipster the greater the slippage will be.

But just how much of slippage are we talking about? I will try to quantify this figure below.

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Q & A #1 – Questions from Tim & Benjamin

Tim and Benjamin asked the following questions on twitter.

@t_i_m_1_3 What’s your academic background? Have you worked in the betting industry before turning pro gambler? Are you only living from your gambling winnings or any side jobs etc?

@PinnacleBen I understand you played poker for a living before moving into sports betting. How different is the lifestyle of a professional poker player vs. professional sports bettor?

I chose these questions to tackle first as they serve as a good entry point and a little bit of an introduction to myself. Also I enjoy talking about poker back in the days which was an absolutely weird and almost self-destructive experience…

So, yes I have an academic background. Studied maths, physics & statistics, however didn’t graduate in any of those subjects. 4 years into university I was introduced to poker and I sensed I could be successful using my statistics/maths background. I didn’t see the benefit of a degree anyway so I abandoned university to pursue playing poker full-time. It was a bit of a gamble as I didn’t know what to expect. But I was young and free and had nothing to lose. And I was never afraid of gambling anyway if the odds were in my favour… 🙂

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The 80-20 Rule

When it comes to poker, sports betting or any other game of chance your profits are almost never determined by your skills alone, but also by your opponents’ skills.

I was merely in the upper middle class of poker players and needed to be in a game with some bad ones to be a favourite to make money. Fortunately, there were plenty of these bad players – what poker players call fish – during the poker boom years.

There is a learning curve that applies to poker and to most other tasks that involve some type of prediction. The key thing about a learning curve is that it really is a curve: the progress we make at performing the task is not linear. Instead, it usually looks something like the figure below – what I call the Pareto Principle of Prediction.

using-the-pareto-principle-in-betting-graph

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My Life As A Gambler

I have been involved in gambling for basically my whole life in one way or the other. At the age of 15 me and a few of my best friends launched a betting ‘syndicate’ and decided to crush our local books big time. A few months later reality had caught up on us and we had lost all our money. It was a significant sum for a 15-year old and I was hard pressed to explain that to my parents! Looking back from a distance now we were naïve at that time, to say the least. We have comitted the same mistakes over and over again to make sure not to end up with a profit. However I don’t blame us now. We just didn’t know better.

By the time I was 20 I was excessively gambling in casinos. I was especially addicted to Black Jack – a card game – and was convinced I had an edge over the house, which of course was ridiculous thinking. I was a compulsive gambler and had lost four figure sums in a matter of a few weeks. In one of my last attempts to enter a casino I was asked for a proof of income by the staff members (this was required by law). I was a student without a regular income, so of course couldn’t provide such a piece of paper. As a consequence I was banned from casinos for the time being. Desperately I was seeking an opportunity to satisfy my gambling needs and gladly came across a casino platform on the internet. I managed to lose another four figure sum in a very short period of time and couldn’t believe my bad luck. In terms of money my grandma helped me out so I could somewhat hide the big losses in front of my parents, although I knew they must have smelled that something wasn’t right with me. In fact I was in deep trouble!

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