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February-28-2002,
Pariaction, inside out...By J on Booking & Betting

    During a recent stay in Costa Rica I took a cab out to La Aurora de Heredia to talk to the head guy at Pariaction. The Devil has set up the meeting for us so that I could report to MajorWager.s readers on a concept which, if it catches on and takes off, will change the mechanics of sports betting as dramatically as the pari-mutuel machine changed the protocols of betting on the races. In a nutshell, this company offers pari-mutuel pools on sporting events.

Pariaction.s business plan is to change what it is that a bookmaker does. Under the present system the bookmaker creates pointspreads and money-lines in advance of how bettors bet, and then of course moves his line or price to reflect the supply and demand of the betting market. The bookmaker, to speak of this in stock market terms, makes the market in the sense that he is committed to offering a price on a game without full knowledge of how supply and demand will ultimately set that price. Pariaction, in effect, would like to move bookmakers from market-making to order-matching. In other words, by sponsoring pools in which the pay-offs are in the direct ratio to the bet volume placed on each side they want to facilitate person-to-person betting. Their profit then comes from a small rake of each pool. The rake on NFL pools at this time is three percent, although in an effort to promote the idea of pari-mutuel sports wagering and increase the size of the pools, they have offered vig-free NFL betting this season up to the day of the game. The rake on other pools will vary from event to event, but is always clearly posted.

    In order to give bettors a clearer idea of the value offered by Pariaction, I constructed the following table from information off of their website. In this table I not only report the pool size and odds-to-a-dollar as given by Pariaction, but I also compute these odds less the three percent hold and translate the result into its money-line equivalent. I used the set of point-spread propositions Pariaction had posted for the November twenty ninth Giants-Eagles game because it is the first set of pools displayed on the most recent result page made available to the public. Here is the table:

Proposition Pool Size Odds / $ Odds / $ - 3% Rake As Moneyline
Eagles (-4) $64,192 1.33 1.29 +129
Chiefs (+4) $85,674 .75 .73 -135
 
Eagles (-3.5) $70,333 1.23 1.19 +119
Chiefs (+3.5) $86,218 .81 .78 -128
 
Eagles (-3) $80,318 .99 .96 -104
Chiefs (+3) $81,054 1.01 .98 -102
 
Eagles (-2.5) $88,110 .80 .78 -128
Chiefs (+2.5) $70,801 1.24 1.20 +120
 
Eagles (-2) $82,651 .77 .75 -133
Chiefs (+2) $63,583 1.30 1.26 +126

    Note that the odds given on the Pariaction website assumes a zero hold. This is legitimate since zero hold (or vig free) betting is available at certain times for certain pools. It could be confusing, however, since it is unlike the odds format that is used in the result charts of horse races. In the Daily Racing Form, for example, the odds-to-the-dollar result chart column takes into account what the track and state rake from the pools. Should you open an account with Pariaction be sure to get clear with the customer service representative when zero hold betting is available for your account, since different customers may be brought in under different agreements. Also, as with any new product, the pricing structure is likely to change as the product evolves. A chart like the above is not hard to construct, and it is worth seeing in black and white what a three percent hold looks like as a moneyline. The fourth column was derived by multiplying the non-cut odds (the ratio of the pool totals) given on the website by ninety seven percent. The reader can make the appropriate adjustments for other pools offered with other terms.

    Clearly Pariaction has a unique business plan, and its major advantage is easy to state. The company can eliminate most of the costs born by classic eleven-to-ten bookies. For example: Since the line on each pool is static Pariaction never gets sided or middled, nor do they have to employ anyone to evaluate their positions and move their numbers. Since they take bets exclusively through the internet they don.t have clerks to hire and train, so they never bear the cost of an ill-taken transaction.

    From the point of view of the bettor the advantages and disadvantages of pari-mutuel sports wagering have yet to be sorted out because the idea is so new, but in theory this way of running the betting market could be a boon for gamblers. The major advantage Pariaction offers, of course, is that the company is able to pass its operations savings along to the bettor. The company.s claim is that week in and week out they offer the lowest regular vig in the industry to nickel sized bettors (whose wagers aren.t heavy enough to tilt the pool). Simply put, one will pay less vig to the house in three percent pari-mutuel pools than one would laying eleven to win ten or even against a dime line. The disadvantage of a pari-mutuel system, though, also leaps to the mind of the practiced handicapper. While a three percent rake is a significant reduction from the four and two tenths percent hold that eleven-to-ten imposes on the fifty-percent picker, in any particular case the pay-off for picking a winner might be less than one would receive laying eleven for ten. Readers of this column know that you tend to get the best of the number when you bet your favorites early and your dogs late. At Pariaction, though, there is no advantage in anticipating how the public will come in on a game because early and late bettors receive the same odds. Someone who studied these pools, however, might find edges in seeing how the propositions are being valued. Because one is competing directly against other gamblers, it might be possible to read and bet against their particular tendencies. It is for this reason that I think it would be to Pariaction.s advantage to post those pool totals all over the net. They are currently available to members at the website, but they are not set up for easy access to anyone who might want to study them day after day.

    The conspiracy minded bettor thinks of another drawback to betting into pari-mutuel pools. Let.s say a pool offered a big obvious overlay at the moment when it closed. What would prevent someone inside the system from betting that overlay on the last flash? Within seconds of the game starting the pools are available for inspection and this fact limits any of the grosser forms of pool jogging. But there is that concern that insiders might have access to the pool for one flash after it has been closed to the public and before the final numbers are posted. When I raised this concern with the head guy, he acknowledged it forthrightly.  .Anything and everything we can do to assure the bettor concerning the integrity of our pools we.re looking into,. he said, .for example I.ve had talks with a couple of the big seven accounting firms about serving as auditors for those pools. We.ve also considered having them held and bonded by a large highly reputable financial services company. Until that happens, though, I would urge your readers to check out our pools and see if it looks like anything funny is happening. It.s not. Bettors are smart people and would pick up on it. Besides, we think we can be the software source for what will be in a decade a half trillion dollar industry, and we.re not going to mess that up by spoiling our own gambling product before it even takes off.. For what it.s worth, this writer was convinced by the head guy.s argument.

    We also talked about networking, encryption, and internet security issues. These are a major concern for all on-line books, but especially for one offering pools. I am no keen judge on these matters, but the head guy clearly saw them as crucial to his vision and spoke knowledgeably and willingly about cyber-security. He told me that his previous business background had been in the Silicon Valley, and his expertise was evident in our conversation. In fact his long term vision for Pariaction is not so much for it to become a huge book on its own but something more like a hub book.or as mentioned the largest supplier of pari-mutuel software.should the idea of sports betting pools take hold.

    Pariaction is the company that bought out Direcbet, and we also talked about that deal. .Basically DirecBet.s problem had nothing to do with their operations, but with the non-performance of some of their investors. The Direcbet guys had worked at Pinnacle for a long time, and I thought they were topnotch operations people. They.re also native Curacaoeans with a strong commitment to keeping the industry strong in Curacao. Since we thought that they had the knowledge and savvy to turn themselves around we saw our investment in them as an investment in the industry. I mean it would have been a disaster for everyone if that book would have gone down, and we saw it in our interest as well as the interest of the industry to make sure it didn.t.. The head guy noted that he had to put some controls on the free twenty-five dollar accounts because too many of them were being opened by people.s brothers, sisters, and pets. He also admitted the ten percent added to the pari-mutuel prices had been a disaster for DirecBet. But he again insisted on the soundness of the key people and his confidence that he and his associates had made a good investment. He also pointed out that it was a Costa Rican book, operating in an unregulated market that had bailed out the book in where a government sponsored licensing procedure is supposed by some to be the best guarantee of a sportsbook.s fiscal soundness.



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