A (not so) grand day out with Paddy Power

The Irish bookmaker has risk-management systems that would sit well in an investment bank, though that didn't save it from a £2m payout when Comply Or Die finished first. James Moore watches the Grand National with the firm that knows its hedges from its Hedgehunter

1.00p.m. It is around 1pm at the rather nondescript building on a Dublin industrial estate that is the headquarters of Paddy Power. There is an air of anticipation and just a hint of tension in the building. Today is Grand National day on the other side of the Irish Sea, and this will be the biggest betting day the company has yet seen.

Dermot Golden, the bookmaker's head of risk, is keeping a close eye on the firm's book on the main event. Paddy Power will take more bets on this race than all the others today put together, and will ultimately pay out around £2m.

At this stage Mr Golden seems reasonably happy. He knows he will do well to break even on the company's "place" market – Paddy Power has been offering each-way punters five places on the Grand National for years, even though the rules only require it to pay out on four, something most of the big bookies stick to.

The "win" market, though, looks healthy: just four horses out of a 40-strong field have the potential to lose the company money and one of those, Contraband, is a 150-1 outsider that no one with even the vaguest of knowledge of horse racing would back at 500-1.

"You've probably got a few people backing it because of the name," he says. "Perhaps the criminals have had a few quid – you know, Contraband. It can happen like that," he laughs. "I'd always take a book like that, though." No wonder.

Unusually, even the long-time favourite, Cloudy Lane, will generate a substantial return for the bookie if it wins.

However, there is one horse who has the potential to inflict serious pain. Hedgehunter, the winner in 2005, has been tipped on Ireland's ever-popular Late Late Show the night before. He will be trying to do what no horse since Red Rum has achieved – winning under top weight – and at 12 he is close to collecting his pension. But Irish punters, generally seen as shrewder than their British counterparts, do love to back Irish-trained runners in big races.

1.50p.m. The first race has gone to the 10-1 shot Pearl King. Relatively unfancied, it's a good result for the bookies, which have had a wonderful Aintree since the programme started on Thursday, as a string of short-priced favourites have gone down in flames.

So far, all the systems are working perfectly, which was one of Mr Golden's two big worries. "You can rehearse as much as you like, but you never really know whether it's going to work until the day," he sighs.

"The IT department has taken down some of the features from the website with the aim of preventing the system from gumming up.

2.30p.m. Mr Golden allows himself a smile: Tidal Bay has won the second race. The horse was a 6-4 favourite but was still a winner for the bookie. "He won at the Cheltenham Festival and they have all been going down. The punters haven't wanted to back him. They're getting fed up."

His risk-management operation is highly impressive. On his screen he can see the amount of money placed on each runner, the odds, how they have changed during the day, and the bookie's liability on each horse as well as the maximum bet that the company's staff can accept without needing to refer it higher.

The systems that Mr Golden has installed in the bookie's risk room are reminiscent of those one might find in an investment bank. This comes as little surprise given his background: "I started off as a trader," he says, eventually running a €40bn (£32bn) book at an Irish wholesale bank.

He was involved in various consultancy roles when approached by Paddy Power. "I thought they had to be mad at first, but then I considered it and decided to join. It's nice to be part of a growing industry – unlike financial services at the moment. I love this job. I work six days a week here and I'd do seven if I could."

Dun Doire, who has crept in to the race at the bottom of the handicap, has suddenly attracted Mr Golden's attention because the horse has drifted out to 33-1. "That's a great price," he says of Dun Doire, which ran well last year. Mr Golden decides to back it each way, taking advantage of his company's five-place offer.

3.00p.m. Al Eile has won the Aintree hurdle. The 11-4 favourite is an Irish horse, and around two-thirds of Paddy Power's business is home based (with most of the rest from the UK). It's the first bad result of the day.

The phone lines to the company's telephone operation have been going non-stop. Usually it's a bit more stop-start, and some people are even facing a short wait to get through. But PR man Ken Robertson has another worry. He's been involved with a radio promotion in Dublin, and the winner of the competition has been given an automatic €500 (£400) winning bet on the Grand National, to be paid at whatever the official starting price of the victorious horse is. If that is a 100-1 shot (four such rank outsiders have won in the past), the bookie will take an €50,000 hit and Mr Robertson will be getting some very dark looks from the finance department.

"You know," he comments, "I've even started to worry about Contraband."

4.15p.m. It's just before the off of the big race after another bad result: the well-backed Forest Pennant won at 9-2 under the Irish champion jockey Ruby Walsh.

The Irish gamble on Hedgehunter has continued apace and Mr Golden has opted to hedge some of the exposure. "It's not something we'll always do. But we will if need be hedge with other bookies, betting exchanges or on course."

Surely, though, a 12-year-old horse under top weight can't win the National? "Every horse can win," says Mr Golden with a worried look in his eye.

Finance director Jack Massey has come in. "Have we hedged that?" he asks, with a nervous glance at the screens. "Oh, aye," says Mr Golden, tapping his head. "It's all up here."

The room fills up with other senior staff members, all anxiously watching the Grand National. It's a strange place to be: usually one watches races among punters, screaming for the favourites to win; these men need them to lose.

And they don't. Comply Or Die, under an inspired ride from Timmy Murphy, takes the race. Paddy Power actually makes a small profit on the 7-1 favourite (most English bookies made a thumping loss), but the placed horses – King John's Castle, Snowy Morning and Slim Pickings – were all well backed each way. So was the fifth: Bewley's Berry.

The only consolation for Mr Golden is that he backed the horse each way with Irish rival Boylesports, which also offered five places. "That'll teach them to copy us," he says, with a half smile, half grimace on his face.

Paddy Power's payout amounts to £2m – a bad result. But while Mr Massey sighs, he also says: "I'm not going to be rushing to put out a Stock Exchange announcement." The profit forecasts are safe then.

Outsiders win the next two races, helping recoup some of the losses.

"We'll need 20 like that, though, to make it back," Mr Golden growls. He turns to me: "You're not coming back next year. You're bad luck."

I have backed the winner, and had the second each way.