In this article, you will learn the differences between a sharp bookmaker (e.g. Pinnacle) and a recreational bookmaker (e.g. Bet365). We will also see whether a bet is a contract between a bookmaker and a punter... or not.

If there is one thing that, more than any other, engages punters in heated debate, it is the issue of restrictions imposed by bookmakers. Over the past few years, attention has increasingly focused on the refusal of many bookmakers to accept business from a small proportion of the sharpest customers (the winners), whom they consider unprofitable for their business.

Pinnacle is not one of these bookmakers; it operates a different bookmaking model. In this article, I'd like to review the differences between these two models, why they exist, what they mean for punters and what the future might hold.

Pinnacle: the world's sharpest bookmaker

Pinnacle is now over 25 years old. Its unique selling point, which has made its name and reputation, is that it welcomes winners (players whose expected value is positive or EV+). With a few small exceptions and some Asian bookmakers who also accept winners, but probably for slightly different reasons, there can only be one Pinnacle. Matthew Trenhaile, former trader at IG Index, explains why in his article Haunted by ignorance on Medium.

Pinnacle's model is what you might call a traditional bookmaker, which requires high volume. The more money that flows through your markets, the more profit you can expect from your margin.

However, to attract this volume you need to have low margins in order to offer the most competitive odds. Some of Pinnacle's margins are as low as 2% for the most popular markets; other bookmakers' margins can be three times that for the same markets.

The consequence of offering small margins is that you have to be right most of the time. If your mistakes are consistently bigger than your margins, your most demanding customers will catch you out and erode your profits. Pinnacle has made it its mission to be right, by offering highly effective odds and maintaining epistemic uncertainty in their models.

Marco Blume, former COO of Pinnacle, explained that his markets are 100% data science and 0% committed money. The idea of trying to balance the action on a bet-by-bet basis is just a myth; it may be more applicable to samples of bets or to markets as a whole, thanks to the law of large numbers. Pinnacle, as its ex-CEO Paris Smith has explained, takes positions, deposits nothing, invests in the game and is confident in its numbers.

Having the best models costs a lot of money. Pinnacle's investment strategy is almost entirely devoted to data modelling, with little money left over for advertising and marketing. What's more, turning away the most demanding customers with the highest potential stakes runs counter to running a high turnover model. However, by willingly accepting the most demanding customers, Pinnacle kills two birds with one stone.

Firstly, the policy of welcoming winners is an inexpensive form of self-promotion, spreading the benefits of the product by word of mouth. Secondly, allowing the sharpest punters to play helps Pinnacle improve the effectiveness of its prizes, ensuring that the proportion of +EV players is kept to a minimum.

The second point is borne out by the fact that Marco Blume calls his sharpest customers his 'consultants' and is always ready to offer them superior versions. Punters, he explains, are used as a source of information; Pinnacle effectively incorporates customers' models into its own through the price discovery process.

However, as Paris Smith explains, finesse is relative. There can only be one 'most efficient bookmaker'. Market efficiency is a competition between winners. Pinnacle has been winning this competition for over 25 years. Sure, they take risks, like any traditional bookmaker, but they do it well.

The recreational bookmaker

While Pinnacle is the only truly traditional (or 'sharp') bookmaker, other bookmakers operate what might be called the recreational model, which caters for a much larger number of customers with smaller stakes. According to my own data, average stakes per customer can be an order of magnitude lower for these brands.

Customer stakes at recreational bookmakers are lower for two reasons. Firstly, Pinnacle offers higher limits in its core markets, attracting higher volumes of money to generate the necessary turnover. Secondly, recreational bookmakers restrict or refuse bets from their more demanding customers. They have acquired a growing reputation for banning winners.

The term "recreational" implies that bookmakers using this model see their product as a form of entertainment only, rather than as a way for their customers to make money professionally. This seems to be enough to satisfy the appetite of the majority.

Compared to Pinnacle, the investment in data science and effective line modelling is proportionately much less than the investment in marketing and advertising market variety, bonuses and market-leading prices. While Pinnacle offers the best prices on average due to its lower margins, this does not mean that it is the easiest to beat.

Because of the lower efficiency of the market, it's actually easier to consistently find the value you expect from a recreational bookmaker. Indeed, some of that value may be intentionally offered at a loss in order to attract new customers and promote the image of a bookmaker offering the best prices. The problem is that if they see that you are systematically exploiting it, they will take action to stop you.

Recreational bookmakers see price-sensitive customers (colloquially known as 'coupons') as engaging in arithmetic value betting and arbitrage. Given that Pinnacle's price efficiency means that recreational bookmakers are systematically on the unprofitable side of an arbitrage, it is understandable that they would wish to put an end to this activity and, conversely, that Pinnacle would welcome it.

However, more and more customers of recreational bookmakers are complaining that these restrictions are unfair. Are they right ?

Is a bet consensual or a contract ?

A bet has always been seen as an informal, consensual agreement between two parties to honour a redistribution of assets on pre-agreed terms depending on the outcome of some event. In the UK at least, this honouring of debts was legally formalised by the Gambling Act 2005. This was achieved by bringing gambling under the umbrella of contract law. This law states that once a contract is entered into, its terms are legally enforceable and all debts are due and payable.

A crucial aspect of contract law is that parties are free to determine, without reservation or explanation, with whom they enter into a contract and whether they can cancel it, provided that they do not "disregard any other rule of law which prevents performance on the ground of illegality". An obvious example of illegality, regularly cited by restricted punters, is discrimination.

The UK Equality Act 2010 identifies a number of protected characteristics from which discrimination is considered unlawful. Gender, race and religion are obvious characteristics. Unfortunately, being a +EV punter is not one of them. It may be discrimination, but it is currently permitted under UK law. To change this would require a change in the law or a precedent-setting legal challenge that would reinterpret the existing law.

With regard to the former, little progress has been made since 2018, when interested parties met with the Gambling Commission, the UK's official gaming regulator, and MPs to discuss the issue. Similarly, the Justice4Punters action group, which has been exploring the possibilities of taking legal action, has been advised against doing so on the grounds that it is likely to fail.

Other countries have had more success. Last year in Spain, for example, a major global bookmaker (Bet365) lost a two-year court case and was ordered to unblock a group of customers. The court ruled that the account restrictions were a form of discrimination and prejudiced consumers, on the grounds that the plaintiffs were not professionals and had no right of reply, and that the contract clauses were unfair.

In Australia, minimum bet guarantees removing the right of bookmakers to refuse any punter with a winning record were introduced in some states for racing, greyhounds and trotting, starting first with New South Wales in 2014, allowing punters to win up to $2,000 (AUD) per bet.

Surprisingly, the minimum stake guarantee proved popular not only with punters, but also with bookmakers, who found it easier to negotiate in a market where turnover is important, and where a prize must be honoured and available to all. Nevertheless, it should be remembered that it was only introduced for three betting markets. Other sports, and probably the majority of betting turnover, have not been affected.

It should also be recognised that different countries have subtly different legal systems, allowing for different interpretations and opinions on what may be considered discriminatory or abusive. Perhaps most importantly, different nations have different cultural landscapes from which notions of fairness and discrimination are formed.

Australians, whether because of the way the national identity was forged or for any other reason, may have a more binary sense of fairness, believing that everyone should have a chance. In the US, where gambling's heritage is rooted in the mafia, I wondered whether bookmakers might be more inclined to 'honour' gambling contracts rather than 'kick out' players who don't play by the rules.

Poker Joe, author of Sharper: A Guide to Modern Sports Betting, said he had never heard, from the "mobsters" he knew at the time, any idea, EVER, of banning someone for winning. "I think they would have been humiliated.

Invitation to negotiate

A crucial aspect of contract law is what is known as the 'invitation to treat'. Cassini, author of the sports trading blog Green All Over, based on the Wikipedia definition, put it nicely earlier.

An invitation to treat (or invitation to negotiate) can be defined as an expression of willingness to negotiate. A person who makes an invitation to treat does not intend to be bound as long as it is accepted by the person to whom the statement is addressed.

Cassini explains that this is not an acceptance of a contract, but an indication of a person's willingness to negotiate one. It is a communication prior to the offer. As such, this is precisely what the publication of quotes represents. It is a form of marketing or window dressing designed to attract the punter, but in no way obliges the bookmaker to accept his money, if he so wishes.

If the punters choose not to bid, or if the bookmaker chooses not to accept the bet, there is no contract. Provided the published price is not intended to mislead and is available to the majority of customers, the bookmaker is perfectly entitled to refuse money from punters he has deemed bad for his business. In the UK at least, the law still allows them to do so.

Unsurprisingly, it is the invitation to deal that causes the most consternation among restricted punters. In their view, bookmakers shouldn't be window-dressers, they should be risk-takers. If you post a line or a price, you should be prepared to stick to it, and not discriminate on the basis of customers who you think have mispriced you. After all, that's what Pinnacle is, a traditional bookmaker with a say in the game, not just an entertainment facilitator.

Knowledge is power

In the information market, knowledge is power. Smart punters use it to get expected value and make a long-term profit. Pinnacle uses the knowledge it derives from its trading model and the models of its 'consultants' to build more efficient numbers, to attract higher volumes from arbitrage players and others who are on the wrong side of value. In a way, both parties are engaged in a reciprocal and mutually beneficial, if informal, contract: you scratch my back and I'll scratch yours.

Knowledge, however, can only be sold if someone is prepared to pay for it. If your knowledge is valuable, it will be paid for at a fair price in an efficient market. The model used by recreational bookmakers, however, no longer requires the knowledge of punters. They have traders who already know roughly what an efficient number is, and what they lack, they can simply get for free from Pinnacle or exchanges, such as Betfair.

Why bother paying customers who beat soft recreational numbers when you don't need them to know the real odds? Such knowledge, for a recreational bookmaker at least, is actually worthless. After all, many recreational odds are intentionally inefficient and designed to attract more customers.

There's simply no point in paying the 3% or so customers who know this and try to exploit it, as they're telling you something you already know anyway. Restricting them allows you to make greater profits than spending your budget, as Pinnacle does, creating effective lines and paying its 'consultants'. Since there can only be one Pinnacle, let Pinnacle be Pinnacle, and you can make money by blowing smoke. At least that's the theory.

What does the future hold ?

The dichotomy between these two bookmaking models may seem abrupt and, in some ways, exaggerated. Certainly, recreational bookmakers are concerned, to some extent, with the efficiency of numbers. If they simply posted any number and restricted anyone who beat it, they wouldn't have many customers or a reputation left. Moreover, like Pinnacle, they would be taking risky positions and facing liabilities. Even recreational bookmaking is not just about window dressing.

Nevertheless, the distinction between the two models has important consequences for the future of sports betting. With the relaxation of betting laws in the US, punters fear that the UK and European way of doing things will spread there too. Is that a bad thing? It depends on your point of view.

If you care about a sense of fairness and what a bookmaker should traditionally do (take risks rather than look after the windows), or if you are one of the few 'sharps' holding the EV+, then you will probably be appalled. On the other hand, if you belong to the much larger group of people who either don't know how to beat a line or don't care, the recreational model isn't really anything to fear.

Indeed, it could be argued that curtailing the current freedoms of recreational bookmakers through contract law would be detrimental to the interests of the majority of them, who see betting as mere entertainment. Forcing them to accept winners could either increase margins or move towards more efficient markets more generally.

Either way, the majority of punters could be seen to be taking a loss, including those who currently hold a profitable advantage through boosted odds and freebets. Many of those who currently complain about being limited could find themselves complaining about something worse: losing. You should always be wary of the unintended consequences of what you wish for. It's much easier to look smart at a recreational bookmaker than at Pinnacle.

A few words in conclusion

The traditional bookmaker (Sharp) and the recreational bookmaker probably have their place to coexist. They probably need each other. Pinnacle's turnover model is underpinned by money from amateur bookmakers who flock to the wrong side of arbitrage betting. Conversely, they signal to the rest of the market, better than anything else, what the true prices of things are.

Perhaps there can only be one Pinnacle. But a market without Pinnacles seems to go against punters' sense of fairness. While he'll never be clever enough to win, perhaps it's having a realistic hope and the means to try that counts. By accepting winners, Pinnacle can facilitate that hope for those in a position to use them.

Ultimately, as Marco Blume says, customers vote with their money. To date, it would appear that the majority of customers who bet with recreational bookmakers are happy with the product on offer. If they weren't, they'd leave, wouldn't they ?

If that were to change, registered punters in jurisdictions where Pinnacle is licensed know that there will always be at least one bookmaker willing to accept their business, no matter what. They've been doing it for over 25 years and will probably continue to offer a welcome policy to winners for many years to come. After all, if you're the best at something, why change a winning formula ?