Why risk management has never been more important for sportsbook operators

With rising volatility and growing product offering complexity, effective risk management is now essential for long-term sportsbook success.

The global sports betting industry is entering a new phase of complexity and opportunity. With increased regulation, the growth of bet builder and advances in AI and automation, managing risk has never been more important for successful sportsbooks.

From a casual glance, the sports betting landscape might appear reassuringly prosperous. Increased regulation worldwide has dramatically expanded the total addressable market for operators. Simultaneously, technological advancements allow sportsbooks to deliver an ever broader, deeper and more entertaining product offering. This product diversification has, for many, led to what seems like consistently increasing trading margins.

Here at Kambi, where we manage over €17 billion in global liquidity, we’ve certainly observed this sustained margin growth, leading us to increase our long-term operator margin guidance earlier this year from 8–9% to 9.5–11%. For those who’ve worked in trading and risk management across the industry for decades, such consistent margins were once considered impossible. Today, it feels like the new normal.

The unseen risk management challenges: volatility and “black swan” events

However, this carries its own set of less attractive possibilities. The increased popularity of multi-leg bet builders and player prop markets has fundamentally shifted the concentration of play. It’s no longer just about the big leagues and main lines. Instead, activity is increasingly focused on the edges of the product offering where pricing confidence can be lower and potential payouts significantly higher.

Let’s look at some tangible examples from Kambi’s experience. For Super Bowl LIX this year, Bet Builder bets accounted for 27% of Kambi’s turnover – a product that didn’t even exist for NFL at Kambi in 2016. Since then, Kambi’s player props offering has expanded an incredible twelvefold, and we now offer 227% more events globally. While this diversification fuels growth, it also brings greater exposure.

This evolution introduces new layers of complexity and heightened exposure to what we call “black swan events” – those highly improbable but severely disruptive occurrences that can have a significant and often unexpected financial impact. We’ve already seen these risks begin to materialise in some instances across the industry.

Last year in the NFL, for instance, a higher-than-expected win rate for favourites, particularly towards the playoffs, led some US-facing operators to issue profit warnings. Other sportsbooks have suffered when inefficiently priced same-game parlays led to multi-million dollar payouts. While not yet full-blown “margin-denting” black swans, these incidents clearly demonstrate that the inherent volatility of the product is increasing, even amidst overall margin gains.

Operator risks: what can go wrong for sportsbooks?

Conventional wisdom suggests that if a sportsbook simply gets its probabilities right and applies a healthy margin, revenue will naturally follow. But the reality is far more nuanced. When a bookmaker sets their odds, there are two critical unknowns: the actual match outcomes and the unpredictable betting behaviour of players. Players have free agency, and their choices cannot be fully known in advance.

Consider the infamous ‘Magnificent Seven’ incident at Ascot Racecourse on 28 September 1996. What started as a typical day of racing turned into a catastrophic event for bookmakers when jockey Frankie Dettori won all seven races on the card. The pre-race odds of this occurring were over 200,000 to one, meaning a single £1 bet could trigger a significant liability. Due to Dettori’s popularity, UK bookies were taking combination bets on him winning all his races early in the day.

The crucial problem was the lack of real-time liability visibility. Most bets were placed in shops or over the phone, meaning no immediate overview of accumulating risk. It wasn’t until Dettori had won his first two or three races that bookmakers truly grasped the potential scale of the catastrophe. As news spread, betting momentum snowballed. Books found themselves locked into unquantified and growing risk positions. Their options were severely limited: drastically reduce odds on remaining races or attempt to hedge with other books already in similar peril.

By the end of that day, millions were lost across the UK industry, severely damaging the finances of major books and even driving smaller ones out of business. It underscored that sports betting is a fundamentally volatile product requiring robust risk management to avoid financial peril.

The fundamentals of sportsbook risk management

At Kambi, risk management is specifically defined by three core pillars: liability management, stake acceptance and player profiling. These areas form the basis of an effective risk management strategy.

1. Liability management

This is perhaps the most visible aspect, focusing on predicting and detecting accruing liabilities early so bookmakers can act. While it includes straightforward calculations like potential wins or losses on a major championship, in Kambi’s AI-driven sportsbook, it’s far more complex. Kambi processes millions of bets daily, with trillions of potential combinations available. Our systems pinpoint the critical liabilities amidst the vast swathes of data.

2. Stake acceptance

All liabilities aggregate from individual bets. This pillar ensures we’re accepting the right bet at the right price. This is particularly vital for complex wagers like bet builders, where accurate correlation pricing is paramount, beyond just simple single or straight combination bets.

3. Player profiling

This focuses on ensuring we’re taking the right bets from the right players. At Kambi, we deploy advanced machine learning technologies within our player assessments. This provides accurate, real-time predictions about every player’s behaviour within the Kambi network, looking not just at past performance but also predicting future play.

What effective risk management strategies should look like

To meet today’s challenges, high-performance sportsbooks need a modern, structured approach to risk management. Effective risk management can’t be a bottleneck that slows down betting activity. Instead, it should create an environment where product reach can be expanded freely, with confidence that appropriate safeguards are always in place.

Risk management also shouldn’t be confused with pricing management. While both are vital for a successful sportsbook, they serve distinct functions. Pricing and trading teams are responsible for generating accurate and competitive odds, ensuring odds confidence. Risk teams, on the other hand, focus on assessing and managing the exposure associated with individual bets and player behaviours.

Operationally and strategically, pricing and risk work in a symbiotic relationship. The more confident both sides can be, the better product and service we can provide to the market.

As a B2B supplier with over 60 partners worldwide, Kambi faces an added layer of complexity. Each sportsbook partner has their own unique strategy and risk tolerances. Some may embrace margin volatility if it aids aggressive player acquisition or strong revenue growth, while others prefer a more conservative approach. We leverage our powerful network advantages of deep betting and risk data to optimise not just our pricing and offering, but also our customised risk control for all these diverse operators.

Proactive

Strong risk management means anticipating problems before they emerge. This includes identifying unusual betting patterns through player profiling, assessing the exposure of key markets via liability management, and using real-time data to inform decisions on stake acceptance. During bet placement, the player profile directly impacts the stake that Kambi accepts. Preventative actions — like limiting high-risk bets or adjusting market limits — help operators stay ahead of threats instead of reacting to them after the fact, thereby safeguarding financial margins. Post-bet placement, an updated player profile assessment is made, allowing for continuous adaptation of risk strategy.

Data-driven

Advanced analytics and automation now play a central role in sportsbook risk management strategies. Predictive modelling, player segmentation through player profiling and live market analysis enable faster, smarter decisions that protect both financial margins and player experience. As discussed in our piece on how deep data drives sports betting success, the ability to operationalise data is a key differentiator for leading operators.

Kambi has also invested significantly in AI-powered pricing and trading — technology which now accounts for more than a third of operator GGR across its network. This investment has not only enabled more efficient trading and margin growth but has also made it possible to expand the breadth and depth of the sportsbook offering in line with player demand.

Confidently manage risk with Kambi’s Turnkey Sportsbook

Kambi’s industry-leading Turnkey Sportsbook offers operators a powerful, built-in risk management framework. Designed for scale and flexibility, it supports real-time liability management, intelligent stake acceptance at the bet level and continuous player profiling. These tools are fully embedded into the end-to-end sportsbook platform and configurable to an operator’s individual risk appetite. Learn more about the Turnkey Sportsbook today.

For deeper insight into the future of risk management, don’t miss our session Optimising risk management in the age of AI at the Festival of Sportsbook, where we explore how technology, data and expertise are shaping the next generation of sportsbook risk management.