The sports betting industry is a beautiful beast, but for every one part beauty, there are two parts ugly. In this piece, I will share hidden truths that swim below the surface of perception for even the most advanced bettors. If you place bets, know someone who places bets, or are just curious about the workings of the industry, I urge you to read this piece and share it with those for whom it may be relevant.
*While this has little relevance to any topic I have previously written about, anyone who has even the mildest interest or involvement in this mystical, multi-trillion-dollar industry will surely learn something new. And by the way, that’s trillion… with a T.
While I won’t get into the moral arguments that has plagued the business (or the striking parallels with the stock market and other forms of basically universally legalized gambling), I will simplify and bring to light some of the mathematical pillars that make the industry work, which every beginner, intermediate, and expert bettor must be aware of to stand a chance in the betting jungle.
Truth #1: What do the betting lines say?
To start, let’s discuss the language of betting.
When you see sports betting lines, they are expressed in such a genius way that you don’t even understand what they mean. The two most common ways to express odds are American odds and decimal odds (you can look up the specifics if you’re interested), which essentially tell you how much money you are going to win if you bet $X or how much money you need to bet to win $Y.
What very few bettors understand is that these lines actually express the probability that a team/player has of winning a match. There’s a reason they are not presented in this way, and it’s not because it is an inconvenience.
For example, tonight’s game between the Cleveland Cavaliers and the Sacramento Kings has the line of -272 for Cleveland and +241 for Sacramento. Any schmuck looking at that will say “hmm, little payout if I bet on Cleveland and big payout if I bet on Sacramento.” What you should see is Cleveland has a (hypothetical) 73.1% chance of winning and Sacramento has a (hypothetical) 29.2% chance of winning.
*Note – does something seem fishy about those percentages? I’ll address that in a bit.
So how important are these percentages? Even more important than who you think will win the match! I’ll use a beautiful casino digression to explain this point.
Do you know how you can be sure you WILL LOSE money in the long run when you enter a casino? Because you can calculate the EXACT probabilities of winning/losing in each game, and the casino has the advantage in every one of them. Roulette is the simplest game to explain the math behind (and perhaps you already know this, in which case feel free to skip this explanation), so allow me to give that a go.
A European roulette wheel will have 37 pockets in it, so in a FAIR game, if you were to correctly predict the number the ball lands on (i.e. a straight-up bet), then you should be paid back your initial bet (we’ll say $1) in addition to a 36x multiple of your initial bet. In the long run, both you and the casino would net $0 because you lose 36 x $1 for ever one win giving $36. Capiche?
Since it isn’t a fair game, you’re only paid a 35x multiple. This translates to about a 2.7 cent loss for every dollar you bet (in the long run). It seems minuscule, but that little green space is worth billions of dollars.
Now, if you convert these numbers to percentages, you’ll see that the true probability of picking the correct number is 1/37=~2.7%, whereas the casino pays you as if the true probability is 1/36=~2.8%. This discrepancy is why the casino will always win.
The beauty of sports betting (and what attracted me) is that NO ONE KNOWS THE TRUE PROBABILITY OF THE OUTCOME OF A MATCH BECAUSE THERE ARE A MILLION VARIABLES INVOLVED. That gives you an opening.
Let that sink in.
This implies that there are two sets of odds. The true odds, i.e. the ‘incalculable’ probability each team has of winning that only God knows, and there are the market odds, i.e. the proposed probabilities that are concealed beneath the betting lines.
And here’s the kicker – these are not necessarily the same.
Truth #2: The market odds are just that… market odds.
The truth about the market odds is that, theoretically, they have nothing to do with the true odds. When a sportsbook puts out a line for a game, they take advantage of powerful algorithms that predict how people will place their money so that there is roughly even play on both sides, because if there is roughly even money on both sides, they can guarantee a profit regardless of the outcome of the match.
To ensure that there is even money on both sides, the lines continuously adjust based on how people are placing their money, and since your average Joe is far from a perfect probability determiner, these lines will never sit at the true odds. It doesn’t matter if it makes sense or not; if for some reason everybody put money on an amateur to beat Roger Federer in a tennis match, the betting odds would shift to show the amateur as the favourite. While that makes absolutely no sense in reality, the books don’t care. They just collect their commission and get out of there.
In a more realistic example, if the New York Yankees were set at -100 (=50% chance of winning) and a lot of money is placed on the Yankees, the line will creep up to something like -110 (52.4% chance of winning) which is of course a smaller payout for the Yankees if you come in after the line has moved.
Truth #3: Moving odds are exploited.
This is perhaps the most important truth of them all for a beginner.
Picture this: you have a radio show with one million followers that go to you for advice on which teams to pick for your Sunday NFL games. If you were the radio show host, what would you do?
If you can influence your following, 100% of the time you will suggest that your followers pick the team that you are betting against. This is the stock market equivalent of your stockbroker recommending you buy shares in Apple, then that very same broker short-selling Apple shares without your knowledge (which *surprise* is a well-documented occurrence)!
This works because if the radio host believes the Yankees are going to lose and the Blue Jays are going to win, telling his listeners that he thinks the Yankees are the better pick (hence big money placed on the Yankees) will consequently lead the line to go from -100 to -110 on the Yankees (and by extension from +100 to +110 for the Blue Jays). Then after this happens, he goes and puts money on the Jays and voila – he now gets paid 10% more than he otherwise would’ve if he hadn’t given his BS advice.
Truth #4: Historic win percentages don’t make an advice-giver more credible.
If you’re ever so dumb to take betting advice (picks, that is) from a professional (or even worse, pay for it), you’ll often hear them advertise something along the lines of “last season I won 65% of my games.” While this may be perfectly true, this should mean absolutely nothing to you. For all you know, he could have exclusively bet on favourites with lines greater than -233 (i.e. 70% probability of winning). In which case, he would have lost money over the course of his “miraculous” season!
You can lose money despite picking winners >50% of the time and you can win money despite picking losers >50% of the time. It’s all about how you perform relative to the market odds.
Truth #5: Your opponent isn’t the casino OR the other team.
Unless you’re picking lines right at the open (which you most likely won’t unless you have an online account with the sportsbook that always releases the first lines), you will play on games where the market has already worked its forces on the line. That means that you’re no longer picking based on how good the sportsbook was at determining the line, your picking based on how good the market has been at aligning the market odds to the true (incalculable) odds.
The good news here, is that people are far from perfect. In addition, there are people who bet only in the short term and there are people who only bet in the long term, thereby leaving an opening for you to make money. For example, let’s say you’re debating whether to bet on the Detroit Red Wings or the New York Rangers. Say the true odds (the ones that only God knows) are that Detroit has a 65% chance of winning and New York has a 35% chance of winning. If the market has moved to the point that payouts are given out as if Detroit has a 70% chance of winning (-233) and New York has a 30% (+233) chance of winning, then a short-term and long-term bettor would do different things.
The short-term bettor (your buddy Sean who only bets once a year on his birthday), will have a 65% chance of walking away a richer man if he bets on Detroit, and so of course that is what he will do despite not being paid accordingly to the risk he took. A long-term bettor would bet on New York, because the payout is GREATER than the true probability suggests it should be. So even though New York will lose 65% of the time, if the market thinks they should lose 70% of the time, that 5% discrepancy makes the long-term bettor profitable. In roulette, it would be the same as if the house paid you a 40x return for picking the right number. Take that bet every time!
Are you following?
This section can be summed up to one line: you’re competing against the other sports bettors, no one else.
In fact, you’re not even betting on who you think should win in any given game – you’re betting on which team is undervalued by the market relative to the true odds. Of course, you don’t know the true odds, but while teams and players change every day, the variables that people rely on for betting decisions are the same. History will tell you if your betting system is on to something…
Truth #6: The house:
Remember the Cleveland vs. Sacramento example? The thing you should have noticed was that the probabilities add up to greater than 100%. To make it short and sweet, these extra percentage points are the commission that the books will take (and the safety zone in case there is big last minute money on one side). They need this to survive (and thrive), and this commission ranges anywhere from 5% to absurd levels above 10%. If you manage to derive a betting system that the market has not caught on to, you must be sure that it can cover this 5% spread that the books take.
When picking a book, you will be enticed with offers like a free $200 with an equivalent deposit. They cover this with a ridiculous commission on every bet, so those bonus are ALWAYS a worse choice in the long run than the book without a bonus and lower commission (I can work out the exact math for how many bets it takes to reach the long run at a later time, if you wish).
A last note – there is a way to win! If you’re committed, smart, and perhaps a little tech-savvy, then you can look to historical data to find tendencies in human psychology that cause disproportionate betting on one (or more) variable, to the point that it sways the market odds enough to leave a discrepancy between the market odds and the true odds.
I hope I could offer some insight, and if you have any questions, I’m an open (sports)book! 🙂