How a spread better can save £288,400

Sports spread betting can be fun and profitable. But get it wrong, and it can be disastrously expensive. Tim Bennett relays a cautionary tale of massive losses, and explains how you can avoid doing the same thing.

"Every wicket felt like a stab in the heart. By the end of the night I felt like I'd been scalped". That's how the former Liverpool midfielder and German international footballer Dieter ('Didi') Hamann describes in his recent autobiography a costly spread bet on the outcome of a cricket match between Australia and South Africa. It cost him £288,400. Clearly, no-one wants to lose that sort of money ever, let alone as fast as he did. So what was the bet he put on, and how can new sports spread betters ensure they don't follow his disastrous example?

Sports spread betting can be fun and profitable. There are countless sports to bet on these days rugby, cricket, tennis, football, snooker - you name it. A popular football match, for example, could attract over 100 different types of bet, ranging from the number of goals score, to the number of corners, penalties, and even the number of yards covered by a particular player!

The ability of a spread better to go 'short' as well as 'long' opens up some interesting possibilities. For example, although the obvious thing to do as a football fan is bet on your team to win, you can also do the reverse and bet on them losing. It sounds a bit disloyal, but at least that way you get to walk away from a bad result with enough money to pay for the consolation beers afterwards.

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Hamann picked cricket. It's a good sport for spread betting (and was one of the first to be used this way) because the range of outcomes (say the number of runs scored by the winning side) is large, and therefore so is the scope to win - or lose - a lot of money. He decided to "buy Australia for £2,800 at 340 runs". In short that's a bet that Australia will score more than 340 runs every run above that total could have won him £2,800. Pity then that Australia managed only 237 runs "a score I remember well" he says, unsurprisingly. The difference between the price he bought the bet at 340 runs and the price he sold to close the position 237 runs is 103 runs. At £2,800 per run, that's the £288,400. So how can you avoid such a horrendous loss yourself?

Keep bets small

First off, keep bet sizes small. Very few people indeed make a living from sports spread betting the objective for most people is to have a bit of fun. After all, watching a horse race is just a little more exhilarating if you have some money on it. Needless to say, however, a bet of £2,800 per 'point' (a single run in a standard cricket bet) is crazy. As a rule of thumb, keep your bets at £10 or less per point.

Don't always bet long

Next, there's a spread betting saying: "shrewdies sell, mugs buy". The problem for most sports fans when it comes to betting is they want to back a winner it's human nature. Plus, they will always tend to overestimate their team or players' chances when it comes to scoring goals, winning penalties and so on. And spread betting firms know it.

So don't always bet long, as often the (high) spread will actually give better odds to someone betting short, simply because there are fewer of you and a broker needs to set the price so they are covered against an army of longs.

Use stop losses

Finally, use stop losses - especially as a novice. These get you out of a losing bet with a capped loss, and save you having to make a frenzied call from the terraces when a bet backfires.

Combine all three tips, and you shouldn't end up £288,400 out of pocket the way Didi did.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.