What is Dutching?
Dutching is a market analysis strategy that allows you to distribute your investment across multiple selections so that you achieve the same return regardless of which selection wins. Unlike focusing on just one outcome, dutching manages risk while maintaining consistent return potential across all covered outcomes.
The name comes from Dutch Schultz, who developed this technique based on mathematical probabilities in the 1920s.
When to Use Dutching
The dutching strategy is particularly useful for sports portfolio management when:
- You've identified multiple likely outcomes in an event through data analysis
- You want to manage exposure by spreading capital across several choices
- The available odds offer sufficient mathematical value
- You want to eliminate statistically unlikely outcomes
- You're working with liquid markets with many participants
The Mathematics of Dutching
The fundamental principle of dutching is to distribute investments proportionally to the implied probabilities of each selection.
Basic Formula
To calculate individual investments:
1. Calculate the sum of implied probabilities:
Sum = (1 / Odds1) + (1 / Odds2) + ... + (1 / OddsN)
2. Calculate each individual investment:
Investment(n) = Total × (1 / Odds(n)) / Sum
3. Calculate expected return:
Return = (Total / Sum) - Total
Practical Example: 3-Horse Race
Let's work through a detailed example of a race with three participants.
Scenario
You've analyzed a race and believe only three participants have real chances of winning:
- Participant A: odds 3.50
- Participant B: odds 4.00
- Participant C: odds 5.50
You have $150 to invest and want to use dutching to optimize return if any of these three wins.
Step 1: Calculate Implied Probabilities
- Participant A: 1 / 3.50 = 0.2857 (28.57%)
- Participant B: 1 / 4.00 = 0.2500 (25.00%)
- Participant C: 1 / 5.50 = 0.1818 (18.18%)
- Total Sum: 0.7175 (71.75%)
Step 2: Verify Viability
Since the sum (0.7175) is less than 1, this is a viable opportunity! The return margin will be:
Margin = 1 - 0.7175 = 0.2825 or 28.25%
Step 3: Calculate Individual Investments
Investment on Participant A:
150 × (0.2857 / 0.7175) = 150 × 0.3982 = $59.73
Investment on Participant B:
150 × (0.2500 / 0.7175) = 150 × 0.3484 = $52.26
Investment on Participant C:
150 × (0.1818 / 0.7175) = 150 × 0.2534 = $38.01
Verification: 59.73 + 52.26 + 38.01 = $150.00 ✓
Step 4: Calculate Returns
Let's see what happens in each scenario:
- If Participant A wins: 59.73 × 3.50 = $209.06
- If Participant B wins: 52.26 × 4.00 = $209.04
- If Participant C wins: 38.01 × 5.50 = $209.06
In all three cases, we receive approximately $209.00, resulting in a return of about $59.00 on the $150 investment.
Dutching vs. Arbitrage: What's the Difference?
Although similar, dutching and arbitrage have important differences:
Arbitrage
- Covers ALL possible market outcomes
- Return is mathematically calculated (free from market risk)
- Uses different odds providers
- Opportunities require constant monitoring
- Margins generally smaller (1-5%)
Dutching
- Covers only SELECTED outcomes based on analysis
- Market risk exists if an uncovered outcome occurs
- Can be executed at a single provider
- More flexible and frequent
- Margins can be larger based on analysis quality
Advanced Dutching Strategies
1. Dutching on Exchange Markets
On exchange platforms, you can combine traditional dutching with lay operations (selling positions) to create opportunities based on price inefficiencies.
2. Partial Dutching
Instead of guaranteeing the same return on all outcomes, you can adjust values to prioritize certain outcomes you consider more likely.
3. In-Play Dutching
During the event, odds change rapidly. Live dutching can take advantage of these fluctuations, but requires very quick decisions.
Calculating Dutching Quickly
Doing these calculations manually during a live event is impractical. Use tools like:
- Our Dutching Calculator - Automatically calculates optimal values
- Pre-configured spreadsheets you can customize
- Mobile apps with real-time calculation
- Custom scripts for professional traders
Common Mistakes to Avoid
1. Ignoring Commissions
Exchanges charge commission on gains (typically 2-5%). Always include this in your calculations or your return margin may disappear.
2. Dutching with Sum > 1
If the sum of implied probabilities is greater than 1, you'll have mathematical loss! Always verify before operating.
3. Not Considering Odds Changes
Odds can change while you're placing your orders. A significant change can transform a viable opportunity into a loss.
4. Overtrading
Dutching on too many events without proper analysis. Quality > quantity.
5. Inadequate Capital
Dutching requires operating on multiple selections simultaneously, demanding more available liquidity.
Real Example: Tennis with 2 Players
Let's see a simpler case with just two outcomes:
Situation
- Player X: odds 1.80
- Player Y: odds 2.30
- Total investment: $100
Calculations
Sum = (1/1.80) + (1/2.30) = 0.5556 + 0.4348 = 0.9904
Since the sum is very close to 1 (99.04%), return will be minimal:
Margin = 1 - 0.9904 = 0.0096 or 0.96%
Investments:
- Player X: 100 × (0.5556 / 0.9904) = $56.10
- Player Y: 100 × (0.4348 / 0.9904) = $43.90
Returns:
- If X wins: 56.10 × 1.80 = $100.98
- If Y wins: 43.90 × 2.30 = $100.97
Return of only $0.97. In this case, dutching isn't worth it considering time and effort!
When Dutching is NOT Recommended
- Very low margins: If potential return < 5%, probably not worth the risk and effort
- Events with many outcomes: Covering many possibilities can dilute return too much
- Rapidly changing odds: In very volatile markets, odds may change before you complete all orders
- Stake limits: If you can't allocate the calculated amounts, the strategy fails
Capital Management for Dutching
Dutching requires rigorous financial discipline:
- Reserve sufficient capital: 20-30% of your total capital per event is a prudent limit
- Keep records: Document all operations, odds, and results
- Calculate real ROI: Include losses when uncovered outcomes win
- Set stop-loss: If you lose X% in a day/week, stop
- Reinvest profits gradually: Don't increase positions drastically after a few wins
Essential Tools
To succeed with dutching, you'll need:
- Dutching Calculator: Use our free calculator
- Odds Comparator: To find the best available values
- Control Spreadsheet: To record all operations
- Sport Knowledge: Statistics and analysis are fundamental
- Multiple Accounts: More options = better opportunities
Conclusion
Dutching is a powerful strategy that combines mathematical analysis with sports judgment. When executed correctly, it can provide consistent returns with controlled risk.
The keys to success are:
- Deep understanding of mathematical calculations
- Careful selection of events and outcomes to cover
- Rigorous verification that sum of probabilities < 1
- Use of calculation tools for speed and accuracy
- Disciplined capital management
- Meticulous recording of all operations
Start practicing with small amounts using our Dutching Calculator. As you gain experience and confidence, you can gradually increase your investments.
Remember: dutching doesn't eliminate risk completely like arbitrage, but when well executed, it can be significantly more efficient than traditional operations.