Measuring Bookmaker Risk

The sports betting industry made estimated gross winnings of over $40 billion in 2014 and this industry has been growing significantly especially in European markets where it is liberalised. However there has been no development of a regulatory framework similar to Solvency II for insurers or Basel III for banks that specify the minimum capital required for a bookmaker (betting company) to conduct business. This usually means that the bookmaker is over-reserving or purchasing additional protection for contingency purposes which leads to inefficient use of capital. Alternatively it may result in a bookmaker not having significant funds to cover for adverse outcomes. My work shows the key requirements on odds set by a bookmaker and extends this by calculating the overall risk faced by a bookmaker with a portfolio of bets. This can be used to evaluate the minimum capital requirement for each bookmaker