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CASE STUDY
WHY RISK
MANAGEMENT
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Risk management. We talk about it a lot, but what does it mean for us and for our partners? The definition:

“Risk management is the identification, evaluation, and prioritisation of risks followed by the coordinated and economical application of resources to minimise, monitor, and control the probability or impact of unfortunate events or to maximise the realisation of opportunities.”

In terms of the betting industry, risk management is regarded as a bookmaker’s practice, although it’s clear that more committed bettors will also have their own processes in place. After all, maximising the “realisation of opportunities” is what both the bookmaker and the bettor are after.

From our point of view, risk management incorporates everything from the initial pricing of a sporting event, to every odds movement, every bet taken, and the analysis of the liabilities held and where that money has come from. In essence, it runs through the whole trading department, with every decision made by a trader or their tech tools aimed at minimising risk and maximising opportunity.

Whereas a bettor might use more simplistic risk management strategies to decide on bankroll management, staking strategies, and perceived value, we as a risk management partner, look at how those bettors react to price changes, what the latest information is telling us, and most importantly, what the best way to react to the latest balance of liability and price is. That’s across thousands of simultaneously live bets, every minute of the day, every day of the year. It doesn’t stop.

 

What’s the standard industry risk management model?

In general, bookmakers have a few tools at their disposal when it comes to ‘risk management’. These start with the more obvious bet limits and betting margins, and can be added to with stake factoring, sometimes called player limiting or restricting.

As an event goes live, a sportsbook may keep bet limits low, offering shorter prices and accepting minimal bets from those customers they deem to have an edge against them. As game day nears, limits and margins may be raised, with prices moving fluidly throughout. The problem with the standard practice is that it’s oversimplified and inherently means that operators lose out on potentially profitable revenue.

 

How Pinnacle Solution does risk management

Firstly, let’s deal with stake factoring. Yes, professional bettors may be profitable over the long term against certain operators, but stopping them from betting means you’re turning away potentially valuable knowledge that could be used to shape your odds better in the short term.

We believe that the value gained from the early information gathered from sharper bettors can, if managed in the right way, be not only a driver of more revenue, but also of greater hold in the long run.

Elsewhere, it’s important to note the weight that some operators put on risk management compared to others. Some see manually trading markets as best practice across the board, despite being up against potentially millions of customers who are ready to bet. Some prefer human knowledge to be the key decision-making tool, and some purely see risk management as keeping liabilities low, irrelevant of what the perceived risk is, or keeping prices in the middle of the market.

We see true risk management as a delicate balance between technology and human decision-making, after all, it’s our people that develop the tech that we integrate into our systems.

 

Automation and efficiency

Manually trading all markets in today’s environment is simply not sustainable. Instead, we look to watch trends and see how liabilities rise and fall, all while keeping an eye on outlying factors that may have affected certain events. Our Trading Director, Marco Blume, has said “Sports betting at its core is about risk management, and I believe a defining principle of a good trader is to have a good grasp on risk management.”

To complement this valued human factor, we’ve honed pioneering machine learning and AI-driven techniques, unique to the betting industry. These algorithms process every bet placed, be it a dollar staked or a hundred thousand dollars, to see if the price needs changing to maximise the opportunity, and if it deems that markets are out of line, it will act accordingly.

This proven technology, finessed over decades trading in some of the most demanding sports and betting markets around the world, gives Pinnacle Solution the confidence to offer higher limits earlier, more flexible margins to partners, and take more revenue from bettors who may have been shut off at an earlier instance by other operators.

 

Working for you

But we also understand each partner has their own betting methodology, and we work to those demands. We manage risk on the individual client basis, not a one-size-fits-all approach, and we appreciate that different partners have different levels of comfort. We can manage high volume, should that be the way a partner wants to go, and likewise, we can optimise hold on lower margin prices for the same reason.

Whatever the case, our risk management specialists and advanced tech has been proven to drive revenue, enhance hold, and give customers a better sportsbook experience. And if you’d like to know more about how we can help deliver more value to your trading function, get in touch today.

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