Mastering risk management in sports betting: Proven strategies for achieving success as bookmakers and betting operators

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Sports betting is a rapidly growing business across Europe, Asia, and the U.S. According to the latest studies, the sports betting market was valued at $83 billion in 2022 alone, with the industry estimated to reach $90 billion by 2030.

However, as the industry and number of customers continue to grow, so does the risk associated with running a sports betting business. From bad faith actors looking to exploit vulnerabilities in systems to internal infrastructure outmatched by the influx of people flocking to sports betting businesses due to the proliferation of the internet, the challenges operators face are bigger than ever.

OddsMatrix, the sportsbook platform, is well aware of the challenges betting operators have to tackle in an ever-evolving competitive landscape and their need for a solution that allows them to manage the associated risks. In this article, we will explore those challenges and how OddsMatrix can help operators not only surpass them but grow and scale their business.

What is risk management in sports betting?

Risk management in sports betting involves the creation and implementation of processes and contingency plans that ensure the stability and profitability of sports betting operations.

In order to stay ahead of the curve, sports betting operators need to balance managing risk with providing an optimal player experience.

Unfortunately, hitting that sweet spot is trickier than it sounds. Operators could, for example, set betting limits to filter out unprofitable players. However, by doing so, operators could impose unnecessary restrictions on profitable players and push them to competitors. More crucially, setting betting limits can lock operators out from gaining access to valuable insights and data necessary to optimize their operations.

Further, as operators strive to stay relevant in an increasingly competitive market, they face the challenge of managing risk and protecting their profits against well-informed and sophisticated players. This alone speaks volumes about the importance of risk management. In the absence of an optimized risk management process, being too restrictive could eliminate players from both camps, which naturally leads to lower profits.

Being too generous could lead to skilled players winning huge amounts of money, thus attracting unprofitable players lured by the prospect of an easy win.

Then there’s the internet. The proliferation of the internet has undoubtedly made betting more accessible than ever. On the other hand, it also enables players to make instant comparisons between operators and simply choose the one providing the best odds. Players can simply go to gambling Twitter and tap into the literally infinite well of betting insights and know-how and make an informed decision based on their research.

Operators have somewhat counteracted this by increasing the number of events, but there’s a catch here too. These events often have less public information available, which gives “informed” players a disproportionate advantage over other bettors.

As you can see, saying this problem is “multifaceted” would be an understatement. So what can sports betting operators do?

Risk Management in Sports Betting 101 – Understand and Identify Industry-Inherent Risks

For one, operators could start by identifying the risks inherent in the sports betting business. These risks include:

  • Market risks such as short and long-term shifts in betting trends;
  • Operational risks (for example, system failures)
  • Changes in gambling legislation
  • Reputational risks like frauds and scandals (knock on wood)

Now let’s deep-dive into some of the risks associated with this industry. We will propose a solution to mitigate each type of risk mentioned below.

Financial Risks

Financial risks are associated with:

  • Cash flow
  • Currency fluctuations
  • Credit risks

The simplest example in this sense would be a situation where a significant amount of winning bets on a particular event can result in significant payouts that affect the bookmaker’s financial stability.

There are several ways in which OddsMatrix can help:

  • Real-time data feeds. OddsMatrix pulls data from numerous sources spanning a wide array of sports and betting markets globally. Bookies can rely on these data feeds to set precise odds, thus reducing the risk of offering unfavorable odds that could lead to financial losses.
  • Risk Management. OddsMatrix’s powerful algorithms are trained to automatically adjust betting odds and limits on factors such as market movements, betting patterns, and even individual player behavior. This automated system mitigates a significant amount of financial risk posed both by internal factors and fraudulent betting behavior.
  • Detailed reporting. Operators have access to detailed betting activity reports to identify patterns or trends that may lead to business losses.
  • Sophisticated financial tools. OddsMatrix provides tools that help bookies track and analyze financial performance in real-time.
  • Player profiling. This feature allows operators to classify players based on betting behavior and profitability.
  • Customizable settings. Operators can set customizable betting limits for individual players, events, or markets.
  • BonusEngine. Provides the ability to offer engaging bonus campaigns such as Free Bets, Odds Boost, Stake Back, Risk-free Bets, and Cash Bonus. In the long run, it increases retention and reduces bonus costs, thus minimizing financial risk.

Fraud risks

Although the industry has seen significant improvements in combating fraud in the sports betting industry, it will always be a work in progress due to bad actors inventing sophisticated ways to exploit vulnerabilities. In 2022, Betfred was fined $3.5 million “after accepting tens of thousands of pounds from gamblers without performing adequate safety checks.”

This is just one example, as fraud encompasses a larger number of elements, both internal (employee theft) and external (customer fraud, credit card fraud, data mining).
Solution: OddsMatrix provides sophisticated fraud detection and prevention tools that help bookies proactively identify and manage fraudulent activity.

Technological risks

Technology plays a huge role in successful sports betting risk management.

As the pandemic has accelerated the sports betting industry’s transition to the Internet, so has the demand for sophisticated and reliable infrastructure to facilitate online betting.

And with more and more bettors shunning the physical in favor of their phones, operators face more risks than ever before – cybersecurity attacks, data breaches, hacking incidents, and many others. Since bettors trust bookmakers with their banking credentials, even the smallest data breach can have serious reputation consequences.

OddMatrix provides a whole suite of tools that help bookmakers manage technological risks:

  • Cybersecurity measures. OddsMatrix incorporates advanced security systems, including encryption protocols for sensitive data, secure servers for data storage, and stringent access controls to prevent unauthorized access to data.
  • Infrastructure reliability. OddsMatrix’s infrastructure is designed from the ground up with the handling of high volumes of transactions and user interactions in mind. This reduces the risk of downtime/service interruptions that could lead to revenue losses.
  • Scalability-friendly infrastructure. OddsMatrix scales according to the bookmaker’s growth.
  • Integration with other systems. OddsMatrix can be integrated with external systems and tools, providing bookmakers with a high degree of flexibility in their risk management efforts.

Reputational risks

The tricky thing about reputational risks is that they can be multifaceted. Reputational risks can encompass:

  • Regulatory risks. Regulatory risks are the most straightforward and, at the same time, difficult type to deal with because it involves navigating and untangling Byzantine webs of hard-to-parse legislation. Regulatory risks involve everything from tax laws to outright bans on certain forms of gambling.
  • Changes in local, regional, or international laws can affect a bookmaker’s operations significantly.
  • Legal risks. Potential lawsuits or legal actions against bookmakers arising from disputes with customers, breaches of contract, or non-compliance with laws and regulations.
  • Credibility crisis. In a field as heavily regulated as gaming, any scandal and negative publicity can lead to customer loss and even more regulatory scrutiny.

OddsMatrix mitigates these multi-branched risks by:

  • Being licensed and regulated across multiple jurisdictions globally.
  • Offering player benefits like competitive in-play coverage
  • Collaborating with multiple video streaming partners

Other risks

Finally, we’ve compiled a list of miscellaneous risks that betting operators can face:

  • Liquidity risks involve the risk of having insufficient funds to cover operational costs and payouts to winners. OddsMatrix’s Automatic Settlement Engine accounts for any potential liquidity issues by ensuring prompt settlements for pre and live bets.
  • Market risks are an inescapable part of the sports betting industry because it’s impossible to predict match outcomes with 100% certainty and set odds accordingly all the time. However, with OddsMatrix’s wide selection of events, betting types, and sports, bookmakers can diversify their portfolios and, by extension, minimize market risks.
  • Competitive risks. Since bettors are more connected to the day-to-day realities of the industry than ever before, the risk of bleeding customers out to competitors is significant. OddsMatrix’s solution provides all the tools necessary for bookmakers to offer their customers a wide range of betting options and stay competitive.

How can I develop a successful sports betting risk management plan?

While there is no one way to develop a risk management plan, there are a few best practices bookies can follow. Ideally, this plan should account for every type and risk and include measures to mitigate and transfer the risk.

For example, system failures can be prevented through quarterly infrastructure checkups. Financial risks can be mitigated through insurance.

So let’s explore a few best practices that bookies can implement in their risk management plans right now.

Manage Odds and Lines Effectively

Successful bookmaking comes down to building margins into odds and balancing the books.

The process is straightforward: first, bookies look at factors such as historical data, public opinion, expert predictions, injuries, and even the weather and then set the odds accordingly

The odds themselves reflect the bookmaker’s authoritative estimation of the outcome. Most crucially, the odds are adjusted over time to “balance the book” – so that no matter what happens, the bookmaker comes on top.

Managing odds and lines effectively is a multifaceted and crucial sports betting risk management measure. It’s a multi-step process involving keeping up to date with sports news and events, understanding the betting market, and using statistical models to calculate probabilities.

Implement Robust Financial Controls

Robust financial controls are key to managing financial risks. One tactic involves having strong internal controls, such as separation of duties and regular audits, to prevent fraud and errors. Another relates to effective cash flow management to ensure that you can meet your financial obligations.

Set betting limits

This falls under the umbrella of “responsible gambling”, a broad concept that encompasses several policies that ensure the highest standards of quality and safety, both for operators and bettors.

As far as betting operators are concerned, betting limits are one of many safety measures against criminal activities. Like any other industry, betting can be affected by criminal activity in the form of malicious software and hacking operations.

Another reason why setting betting limits is an essential risk management strategy is that these limits help combat losses from a single bet or customer, whether acting in bad faith or not. This way, no single event can cause a catastrophic loss for the business.

Utilize Technology and Data

Technology and data can be powerful tools in risk management. Betting operators tap into vast amounts of data to identify betting patterns and trends, detect potential fraud, and make informed decisions about odds and lines. For that reason, technology is key in automating risk management processes and improving efficiency.

Regularly Review and Update Your Risk Management Strategies

Risk management is not a one-time activity. It requires ongoing monitoring and review to ensure that strategies are working effectively and to adjust them as needed. Reviewing risk management strategies regularly can go a long way to ensuring that they reflect changes in the market, whether regulatory or competition-wise.

Use OddsMatrix to perfect your risk management processes

Our commitment to delivering the best betting odds in the market, together with time-tested sports data feeds and sports data API solutions, makes OddsMatrix the perfect product that will handle your risk management processes.