Getting an Edge in Sports Betting: Contrarian Sports Investing

Many people enjoy sports, and sports fans often enjoy placing wagers on the outcomes of sporting events. Most casual sports bettors lose money over time, creating a bad name for the sports betting industry. But what if we could “even the playing field?”

If we transform sports betting into a more business-like and professional endeavor, there is a higher likelihood that we can make the case for sports betting as an investment.

The Sports Marketplace as an Asset Class

How can we make the jump from gambling to investing? Working with a team of analysts, economists, and Wall Street professionals – we often toss the phrase “sports investing” around. But what makes something an “asset class?”

An asset class is often described as an investment with a marketplace – that has an inherent return. The sports betting world clearly has a marketplace – but what about a source of returns?

For instance, investors earn interest on bonds in exchange for lending money. Stockholders earn long-term returns by owning a portion of a company. Some economists say that “sports investors” have a built-in inherent return in the form of “risk transfer.” That is, sports investors can earn returns by helping provide liquidity and transferring risk amongst other sports marketplace participants (such as the betting public and sportsbooks).

Sports Investing Indicators

We can take this investing analogy a step further by studying the sports betting “marketplace.” Just like more traditional assets such as stocks and bonds are based on price, dividend yield, and interest rates – the sports marketplace “price” is based on point spreads or money line odds. These lines and odds change over time, just like stock prices rise and fall.

To further our goal of making sports gambling a more business-like endeavor, and to study the sports marketplace further, we collect several additional indicators. In particular, we collect public “betting percentages” to study “money flows” and sports marketplace activity. In addition, just as the financial headlines shout, “Stocks rally on heavy volume,” we also track the volume of betting activity in the sports gambling market.

Sports Marketplace Participants

Earlier, we discussed “risk transfer” and the sports marketplace participants. In the sports betting world, the sportsbooks serve a similar purpose as the investing world’s brokers and market-makers. They also sometimes act in manner similar to institutional investors.

In the investing world, the general public is known as the “small investor.” Similarly, the general public often makes small bets in the sports marketplace. The small bettor often bets with their heart, roots for their favorite teams, and has certain tendencies that can be exploited by other market participants.

“Sports investors” are participants who take on a similar role as a market-maker or institutional investor. Sports investors use a business-like approach to profit from sports betting. In effect, they take on a risk transfer role and are able to capture the inherent returns of the sports betting industry.

Contrarian Methods

How can we capture the inherent returns of the sports market? One method is to use a contrarian approach and bet against the public to capture value. This is one reason why we collect and study “betting percentages” from several major online sports books. Studying this data allows us to feel the pulse of the market action – and carve out the performance of the “general public.”

This, combined with point spread movement, and the “volume” of betting activity can give us an idea of what various participants are doing. Our research shows that the public, or “small bettors” – typically underperform in the sports betting industry. This, in turn, allows us to systematically capture value by using sports investing methods. Our goal is to apply a systematic and academic approach to the sports betting industry.

The Myth of the Hot Sports Betting Handicapper

The most prevalent means of sports service marketing is some variant on the theme that so and so is “red hot” and you should therefore pay him your money and follow his plays. The crooked services do this by coming up with all sorts of confusing and contradictory rating systems and hyperbolic descriptions for their games. How many times have you heard a handicapper brag about being “16-2 on his 500 star MWC underdog plays of the month” or saying that his “Southern Conference total of the month is 60% lifetime”?

Basically, the bottom feeders of this industry can slice and dice their statistics all sorts of ways to make themselves seem “hot”. Or they can do what a lot of them do, and simply lie about their performance. When I was first starting out as a sports handicapper there was no such thing as the Internet (at least as it exists today) and I had to rely on a scorephone for line and score updates. This scorephone was sponsored by a group of touts not noted for their veracity, and you had to sit through a few pitches for their 900 numbers before you got to the scores. A bit of a Faustian bargain, to say the least, but it was an effective way of keeping up with scores in the pre-Internet dark ages.

So one night we’re at a party thrown by some kid that we didn’t like too much. My crew and I were racking our brains to think of some mean pranks to pull on the guy. Someone got the idea to rack up some 900# charges on our mark’s phone bill. Since there’s no such thing as 900# directory assistance, I resulted to the only 900# I could remember – one of the touts from the scorephone that had drilled his digits into my memory through the sheer force of repetition.

For the sake of argument, I decided to write down the tout’s NBA plays. I had less faith in his handicapping ability than I would in a prognostication based on a divining rod or Ouija Board, but since I wasn’t paying for the call I figured I’d just see how the guy did. I wrote down his plays and checked his performance the next morning.

To his credit, the tout went 5-3 on his 8 plays. By any criteria a 5-3 night is a solid performance. Later that day I called the scorephone and waited for the tout to start crowing about his 5-3 night. Much to my surprise, the tout didn’t say a word about his 5-3 night. That’s because he was too buy bragging about his mythical 7-1 performance the preceding day.

Now, I understand that the revelation that boiler room touts like about their performance is on par with “pro wrestling is fake” or “the games at the fair aren’t on the up-and-up” as self evident truths. The point I’m trying to make, however, is that the desire to be the “hot handicapper: is so great that the tout felt he had to embellish a solid performance the night before.

So despite the fact that some handicappers like about their performance, what’s wrong with trying to ride the hot handicapper? Plenty-it’s not only an ineffective way to evaluate a handicapper’s abilities, it also has a number of statistical and theoretical shortcomings.

The simplest way to explain what I’m talking about is to borrow a disclaimer that you’ll hear on every commercial for a mutual fund: “Past performance is no guarantee of future results”. The sports gambling milieu, like those of stocks, commodities and other financial instruments, is a marketplace and subject to a number of the same tendencies of other financial institutions (what economists call “market dynamics”).

The fact that a sports wager’s success or failure is dependent to a degree on the “whims” of a marketplace (of odds and pointspreads) and to a greater degree on other external events outside of the bettor’s control exacerbates what is already a matter of simple logic: what a handicapper does over a period of time (be it a day, week, month or season) has no intrinsic correlation between a handicapper’s performance one year and the next. In other words, the sports gambling marketplace and the random patterns of events that act upon them don’t care if I hit 60% last year. If I don’t do my work, crunch the numbers, get good prices to bet into, and catch a few breaks along the way I may end up beaten regardless of how well I performed in a subsequent period of time.

The History of Online Sports Betting

Man, by virtue of his instinct to survive, is naturally a gambler. Given the risks of living day-to-day life, it was considered an act of skill to stay alive until the sun sets, especially during the Stone Age. As the human race began to develop systems that would facilitate the physiological need of survival, the gambling instinct that was inherent in man did not dissipate. Rather, it became stronger with the passage of time.

The gambling instinct, simply put, is displayed early into the history of human civilization. The Romans were notorious for their fierce and unforgiving gladiator matches, which were mainly violent at least and visceral at best. By 80AD, the emperor Titus then conducted the first official ceremonies at the Colosseum, and thus the festivities had begun. Slaves were pitted against each other in mostly battles to the death, and sometimes against wild beasts as well. Spectators relished the thought of betting on their favorite gladiator, hoping that he would live to see the end of the glorious battle.

But as time progressed, the violence of the human sport had proved to be too much for some, and gambling has been reduced to animal fights. Of course, this has been around even before the human blood sport of gladiators, but they had become highly popularized in certain parts of Europe -particularly Spain, Portugal, the United Kingdom, France, and even some parts of Asia such as the Philippines and Indonesia. Among these fights were bullfighting, cockfighting, and fox hunting.

As European influence spread more and more all throughout the continents of the world, the thrill of betting soon became a worldwide phenomenon. Gradually, the hunger for the sight of blood was soon surpassed by the promise of amassment of wealth. The stakes were high, but made more appealing by the rise of establishments such as casinos. Betting was never more enjoyable.

But alas, the collected momentum of sports betting was halted abruptly by the coming of the two World Wars since activities such as race meeting and lotteries became severely restricted. Its return only came in the mid-1950s and soon flourished again.

Not to be outdone, sporting events still remained strong in gambling circles, as events such as horse races, basketball matches, and baseball games just seemed to beg for more incoming bets. The rise of communications technology also facilitated the development of sports betting, with phone betting becoming an attractive option to those who live far and away from the games. Companies such as Intertops in Antigua started this as far back as 1993.

When the Internet finally came out for public access and personal use, the betting world evolved into a more closely-knit community. Globalization served its purpose in connecting the world in ways previously thought inconceivable -after all, who would have thought that you can bet on a game halfway across the world with such ease? In 1996, a company in Gibraltar called Microgaming took advantage of this trend and began developing software for use in other gaming companies all over the world. Others soon followed suit, and thus online sports betting as we knew it was born.

Zero Risk Sports Betting For Profits! Arbitrage Sports Betting

Risk free betting, or arbitrage betting, is the act of placing bets on all possible outcomes of a sporting event so that you lock in a definite profit at the end of that event. This is great for sports fans to make some extra cash on the side with 0% risk.

Risk Free Betting: Real Life Example:

SAT FEB 13TH 2010 NBA ALL STAR DUNK COMPETITON: WINNER

– Shannon Brown » -250 1.40 (BWin) » £781.25 returns £1,093.75

– Any Other » +400 (5.00) (BET365) » £218.75 returns £1,093.75

– Total profit: 9.375% (£93.75)

A correctly staked investment of £1,000 guarantees a return of £1,093.75 no matter which Player wins the competition. That’s £93.75 profit due to discrepancies in the bookmakers’ odds guaranteeing a 9.375% profit on your investment!

The above information tells us that a betting market exists for which player will win the 2010 NBA slam dunk competition. It also tells us that BWin have odds of -250 (1.40) for Shannon brown to win and that Bet365 have odds of +400 5.00 for any other player to win.

By applying a simple mathematical formula to those odds, we are able to calculate that we can cover both possible outcomes of the bet and make a guaranteed 9.375% return on our investment.

We would invest our money in proportion to the odds on each possibility. The amount to invest on each outcome is calculated using another simple formula. £781.25 invested on Shannon Brown returns £1,093.75 and £218.75 invested on “any other player” returns £1,093.75.

£781.25 x 1.40 = £1,093.75

£218.75 x 5.00 = £1,093.75

Risk free profit = £93.75

It is very hard to find games with more then a 2-3% ROI. This was just a great arbitrage that I was lucky to catch in time.