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Why do bookies pay out early?

Early pay-outs, where a bookie will pay before the outcome of the bet is final, have become common. Is it, however, also counterintuitive: why would a bookie pay on a bet unless they have to? Especially in betting markets where last-minute upsets are not unknown or there are lots of variables that might confound expectations.

Although early pay-outs are commonplace now, the concept is a relatively recent phenomenon, generally recognised as only starting as recently as 1998 when Betfred made an early payment on Manchester United winning that year’s title. Interestingly, it was also the first high-profile example of the bookie getting it wrong. Perhaps because of Betfred’s links with Manchester, and founder Fred Done’s support for United, they assumed United’s twelve point lead over Arsenal with seven games left was enough. Sadly for United gamblers the payout was a consolation prize. Within a fortnight of the payout Arsenal had reduced the gap to just three points and by the end of the season The Gunners had clinched the title.

The mistake cost Betfred £500,000 and, allegedly, a personal demand from Sir Alex Ferguson to Fred Done that he avoid jinxing United with an early pay-out again. Sir Alex’s concern only appears to have caused Done to pause, though. Betfred made another early pay-out on for United winning the title in 2012, only for local rivals Manchester City to win the championship on goal difference on the very last day of the season.

But despite this bad start, and plenty of other high-profile mistakes since, it’s not hard to find early pay-outs not just for high-profile events and bets, but offered routinely as a perk or a feature by a bookmaker. But there are lots of good reasons why bookies weren’t put off by that early mistake.

Publicity

In a business like bookmaking there are a limited number of ways to have a competitive edge. The most obvious method of offering better odds has a limit and can only go so far before it starts having an impact on the bottom line. This is especially true when the internet has made the market open and totally transparent to the punter and it’s easy to switch between bookies; the average online gambler has three accounts.

Early payouts, particularly in high-profile events, offer that priceless commodity of free publicity. A decision to pay out early can move the bookies’ name from adverts in the sports pages to the front page. Paying early on an election result, for example, becomes news itself and the bookie can find their name featured in news and opinion pieces that they would never, otherwise, feature in.

Even in more traditional betting markets, like sport, a decision to pay early generates publicity. Paying early on the outcome of a league competition, for example, may carry the risk of an upset, but has the upside of that publicity that improves name recognition with gamblers looking for their next bet.

Payouts are often reinvested

And those punters looking for their next bet are another good reason for bookies to payout early. Research by the Gambling Commission shows that a significant proportion of the UK population are regular gamblers.

If you exclude the National Lottery, nearly 30% of the UK population will have gambled in the last four weeks. This is despite the restrictions introduced on live sport during the coronavirus pandemic which, in turn, have limited the opportunities for sports betting. Of those who bet, well over half, nearly 61%, bet at least once a week; for many who make bets it is a hobby in which they invest a regular amount. For the bookmaker paying early, this means that it’s likely that many of their customers will use their winnings to fund their future bets, thus minimising the risk of an early payout.

It’s an easy way to close a betting market

While bookies get the publicity for paying out, rarely does that publicity highlight that they have closed the bet; obviously they will not take any more stakes on something they consider closed. While the bookmaker has the risk of paying out on an event or result that does not happen, they will also be hoping to minimise their losses on a bet that many might see as a sure thing.

Despite the uncertainty of betting, there are some bets that come close to an investment. Even when the odds offered are poor, and even accounting for tax, in these days of record low interest rates it’s impossible to find a bet that, if successful, doesn’t offer a better return than a bank account. And in uncertain times when the stock market is volatile some might consider some bets to have a lot more certainty.

By paying out early, bookies can close a market where some people might be happy to place large stakes, even with poor odds, because of the perception of a guaranteed return. The bookie can minimise their losses, but do so in a way that makes them look generous, rather than stingy.

Bookies don’t get it wrong that often

The bookies have made some mistakes when paying out early. But it is human nature that these get highlighted far more than the many times they pay early and got it right. Notable examples include the 2016 US Presidential election. At the time the election broke records for the number of bets placed, but despite some large sums being placed on Donald Trump to win there was a consensus that Hillary Clinton would emerge victorious. While she handily won the popular vote, Trump’s electoral college victory saw him elected President.

Paddy Power was a big loser. Having paid out on a Clinton win three weeks before polling day they then had to pay out again to those who had backed Trump to win. The decision is reckoned to have cost the bookmaker £800,000. However, their decision was not seen as bad at the time and while it certainly got them publicity (perhaps even £800,000 worth) it merely represented the view of most analysts that Clinton was the likely winner. Nate Silver, who had developed a strong reputation for his accurate predictions of US political events, put her changes of success in the election at well over 90%.

But for every high-profile mistake there are plenty of times bookmakers get it right. Paddy Power, for example, will pay for a win in a football match when a team goes two goals up. In a game where playing to the whistle is one of the unwritten laws this might seem risky. However, statistics bear them out. While not exactly the same situation, Opta Joe reported (responding to a rhetorical Twitter query by Gary Lineker) that up to 2016 there had been 1,061 occasions a team was 2-0 up at half-time in the Premier League, but on only 22 of those, or 2.1%, did the trailing team manage to overcome the deficit. It seems that, like their punters, bookies are also playing the odds when it comes to early pay-outs.

In short, paying out early makes sense

Early pay-outs might no longer have quite the impact they once did, but they remain good business sense. First, it’s great publicity. A half-page advert in The Daily Mail currently costs around £23,000. The value of free publicity, repeated across a range of newspapers and other media, adds up rapidly. But even without that publicity it helps engender customer loyalty and goodwill. Even if the customer was confident they would win the bet and get the pay out, it’s hard not to feel a bit better when you get it early.

It also saves the bookmaker money. Aside from the free advertising, being able to close a market and stop people betting on a sure thing means there are fewer bets that the bookmaker has to pay out on. It might seem generous to be paying early, but if the bookmaker was being really generous it would let lots more people benefit from a near-certain winning bet.

And finally the bookmakers don’t get it wrong that often. They might make high-profile mistakes but, generally, they are considering the likely outcomes and weighing up the advantages and disadvantages of an early payment. In making the decision to pay early, or even set it up as a regular offer, the bookmaker will expect to get some of their calls wrong but will consider that to be more than offset by the advantages it brings them.

In this context early pay-outs are, perhaps, now just a part of every day business for the bookmaker. Most of the time they would pay out anyway, but in those where they get wrong the money could just as easily be considered a marketing cost as a loss. Ultimately, early pay-outs benefit the bookie and give their customers something — as well as their win — to be happy about so there’s no reason to expect early pay-outs to stop anytime soon.