# Profit/Loss Ratio Analysis: Understanding and judging the betting ratio is the key

## Profit/Loss Ratio Analysis: Understanding and judging the betting ratio is the key

Profit/Loss Ratio and Kelly Criterion are both based on the analysis of the public betting ratio and analyze the profit model of the gaming company. The profit and loss index Profit/Loss Ratio is more direct than the Kelly index in its feedback on the profitability of the gaming company. The process of calculating the Profit/Loss Ratio is actually the cost accounting process of the gaming company to calculate the profit and loss of the gaming company. Its accuracy is naturally higher. Its shortcoming is that the Profit/Loss Ratio is more critical to the early stage of the gaming company, but the market outlook is obviously lacking. Therefore, the method of combining the Profit/Loss Ratio analysis with the Kelly Criterion analysis is very important for predicting and analyzing the game. The effect is more stimulating.

1. Important parameters of Profit/Loss Ratio analysis

This parameter is the ratio of public betting for winning, drawing and losing results of the game. According to this important parameter, the calculation formula of Profit/Loss Ratio analysis can be solved.

2. Calculation formula of Profit/Loss Ratio

The calculation formula of Profit/Loss Ratio is actually a copy of the financial accounting model of most gaming companies. The specific formula is as follows:

Profit/Loss Ratio of a certain game=90-the betting ratio of a certain result item×the European odds of a certain result

Take Manchester United (Weibo data) 0-1 Leeds United as an example, the odds of Manchester United's main win are 1.25, and the betting ratio of the main win is 80%. Assuming that the betting amount of this game is 100 yuan, then the Profit of this game /Loss Ratio is: 90-80%×1.25×100=-10 (90 in the formula is the average return rate of the gaming company). After calculation, it can be found that for every 100 yuan bet, the gaming company needs to pay: 80%×1.25×100 yuan=100 yuan, and the Profit/Loss Ratio is 90-100=-10. In other words, the gaming company will lose 10 yuan for every 100 yuan bet on this game. Obviously, Manchester United's play is not a result that the gaming company is willing to accept.

To give another example, on April 5, 2010, in Wolfsburg 4-0 Hoffenheim match, Ladbrokes home win odds were 1.82, the official betting ratio was 52%, and the average return rate was 90%. Note 100 yuan. According to the formula: 90-52%×1.83×100=-98.16. According to the calculation results, for every 100 yuan bet, the gaming company needs to pay: 52%×1.83×100=95.16 yuan, and the Profit/Loss Ratio is 90-95.16=-5.16 yuan. The company will lose 5.16 yuan for every 100 yuan injected.

Having said that, we are about to face a very critical issue. Regardless of whether it is calculated through Kelly or through profit and loss calculations, once a party with high public expectations such as the Bundesliga plays a positive result, the dealer will suffer huge losses. Since the betting company will lose money if the result is right, then what is the practical significance of Profit/Loss Ratio to us? To solve this problem, it is necessary to figure out how bookmakers achieve breakeven through odds.

Ladbrokes' odds of 1.82 for Wolfsburg's main win already include Ladbrokes' handling fee, that is to say, bettors get income at 1.83 without paying any fees. Then according to the payout of 1.82, the player bets 100 yuan. When Wolfsburg wins, the player gets back 183 yuan, of which the profit is 82 yuan.

Assuming that the bookmaker earns commissions for this game to achieve profit (i.e. the principle of non-gambling), we assume that the total amount of betting in this game is X, and the main winning betting ratio is Y, then the corresponding home team winning betting ratio is (100-Y ), the dealer’s total profit formula is (100-Y)×X. Also take the Bundesliga as an example, and calculate according to the actual situation. According to the review of Betfair transaction data, assuming that the total betting amount of Ladbrokes is 100,000 Hong Kong dollars, the following conditions can be set:

Home Team Betting Ratio: 52% - Y

Home team winless percentage: 48%

Suppose the total betting amount is 10,000 yuan

The total profit of the banker: 48%×10,000=4,800 yuan

We can conclude that the banker’s profit on the betting draw and Hoffenheim’s victory is 4,800 yuan, and this part of the profit will be used to make up for the loss of Wolfsburg’s betting. According to the betting ratio Y of Wolfsburg, after excluding the principal included in the odds, the return of this part of the payout is: X (odds -1) Y. From this, a new profit and loss calculation formula is derived:

Bookmaker's profit and loss: 0.90×(1-Y)×X- X×(odds-1)×Y

Calculate according to the formula:

0.90×(1-0.52)×10000-(1.82-1)×0.52=×10000=56

After recalculating the derivative formula, we can see that the actual profit of the banker in this game is 5.6%. Just imagine, for a big company like Ladbrokes, a profit margin of 5.6% can be achieved in just one game. It can be seen that Wolfsburg's play is absolutely acceptable to the dealer.

3. Matters needing attention

When using Profit/Loss Ratio to analyze the game, you should pay attention to the following points:

(1) The profit and loss analysis method is highly dependent on the betting ratio. Therefore, it is particularly important to understand and judge the real situation of the betting ratio when using this method.

(2) Ways to understand the betting ratio: Betfair trading volume, online betting surveys, and official information on online betting platforms.

(3) When observing the betting ratio of the Betfair exchange, it should be noted that a lot of the trading volume is often hedging funds. Therefore, the betting ratio announced by Betfair is not always the result of the tendency of the public players.

(4) The analysis method of the profit and loss index cannot be applied blindly. Before analyzing the profit and loss index, the first thing to define is the premise of "strength market", that is, the aforementioned "principle of non-gambling" by the banker. Otherwise, it is not recommended to use this method for predictive analysis of competitions.

(5) It is not always possible that the bookmaker will make a profit in every game. If only the profit and loss index analysis is used to make a betting conclusion for a certain game, it is likely to be misled by the partial loss of the bookmaker, thus making a reverse conclusion. Therefore, a comprehensive analysis model combining profit and loss analysis with other forecasting methods should be advocated.