Sports Betting as an Investment

Section 1: Sports Betting as an Investment

Making Money by Betting on Sports

Most people think that sports betting is about finding ‘sure things,’ but in reality such ‘locks’ are nothing more than gamblers’ fancy. Just as in real estate, currency, stocks, or any other speculative market, ‘sure things’ simply do not exist. As a professional sports bettor, my goal is to find and exploit many small edges over a long period of time to earn a compounding return. Winning 55% of games is very significant, and with very conservative bet sizing, you can grow your return very quickly. Investing $10,000 into the stock market for a year and earning a 10% return is considered a great investment – but your return winning a modest 54% of your sports bets would trounce that return.

My picks have yielded a much higher risk adjusted return than the stock market. Obviously, the variance from season to season is formidable, but as anyone who had a significant amount invested in stocks or real estate in 2008 can tell you, such swings aren’t limited to sports. In the long run, my edge in what I do is far greater than the edge that you could hope to gain in any other speculative market.

Juice, and the power of 55%

Even though most sports bettors are losers in their own right (as a whole, bettors actually win an average of only 48% of their bets – less than they would expect to win if they just flipped a coin for every game), their losses are compounded by the fact that the house takes a cut of winnings, also known as the ‘juice’ or ‘vig.’ Most sports books charge a 10% commission on wins, which means that a bettor must actually win 52.4% of his games just to break even. (Wagering $100 per game, a bettor loses $100 with a loss and wins $90.91 with a win, so he must go 11-10 (11/21 = 52.38%) to break even).

In order to beat the juice and win in sports betting, a bettor must employ a disciplined approach in their analysis of each game using methods that have proven to be successful in the long run. I discuss my math models and analytical metrics in my Handicapping Methods essay, but you must realize that only the best and most knowledgeable handicappers can win more than 52.4% of their games. In their 2007 two page article about my handicapping success, the Wall Street Journal wrote, “…fewer than 100 people can sustain (win rates of 55%) over time. Most of them belong to professional betting syndicates that hire teams of statisticians, wager millions every week and keep their operations secret.”

Touts often claim to be able to hit 60% or higher, but as I explain in my essay on Bayesian Probability, anyone who tells you that their long term expected winning percentage is higher than 60% is deluding themselves. For a bettor to claim a greater than 60% long term expected win percentage, that would be mean that Vegas would have to consistently release lines with egregious errors, and that simply just does not happen often enough for claims of greater than 60% long term expected win percentages to be caused anything other than blind, short-term luck.

I often hear amateur gamblers erroneously claim that winning 55% of games isn’t even enough to beat juice. As demonstrated above, a bettor only needs to win 52.4% to break even, and a 55% bettor will be very profitable in the long run if they pursue an optimal money management strategy.

Of course, as in any game of chance, there is variability in the actual results and just because you have won 55% in the past and expect to win 55% in the future doesn’t mean that you’re going to win 55% this upcoming season. There is variance in sports betting, as there is in most investments, and I calculate the standard deviation to figure out how much of my bankroll I can safely wager on each game during the season to accommodate potential negative swings while having very little chance of exhausting my bankroll. I have extensively quantified the variance that exists in sports betting, and use mathematical formulas to dictate the exact optimal amount to invest so as to maximize the ratio of profits to variance.

A football season with 54% winners (my long term percentage on College Football Best Bets is 55%) on 300 units or ‘stars’ would on average yield +16.5 stars ( (300*.55) – (300*.45)*1.1 ). Using my recommended 1.6% of bankroll per star, that’s an expected return of 26.4%.

A basketball season with 53.5% winners (my long term percentage) on 1,000 units or ‘stars’ (about the average Stars risked in a typical season) would on average yield +23.5 stars ( (1000*.535) – (1000*.465)*1.1 ). Using a conservative 1.2% per star, that’s an expected return of 28.2%. So, despite a lower overall winning percentage and smaller average wager size, I expect a season’s worth of basketball wagers to be just as profitable as a season of football because there are so many more Best Bets.

The NBA Guru Basketball service has achieved even higher returns in the 4 seasons that the Guru has been with Dr Bob Sports. The NBA Guru is coming off consecutive incredibly profitable seasons (60.0% combined the last 2 seasons) and he has an incredible 56.2% win percentage (554-432-16) on his Best Bets over 4 seasons. You can risk more of your bankroll per play with the NBA Guru because he has a higher win percentage and fewer plays (NBA only while I also handicap College Basketball). In 4 seasons the NBA Guru has totaled +170.4 Stars of profit, an average of +42.6 Stars per season. I recommend playing 1.6% of your bankroll per Star on NBA Guru Best Bets, which has resulted in an average profit of 68.2% of bankroll the last 4 seasons (and an average return of 91.8% the last 2 years)

Money Management

Money Management is as critical to a sports investor as picking winners. I have devoted many hours of careful analysis and math to optimal money management systems, which I have painstakingly outlined in my Money Management articles. Sports betting is more high risk (higher volatility and standard deviation of return) than stocks, but also results in a higher return if you follow a proven long term winning handicapper (of which there are very few).

My Money Management articles outline how to adjust your bet sizing based on your goals (expected return vs. probability of positive returns), your investment length (one season or many), your growth preference (flat or compounding), your risk tolerance (high or low) and the proportion of your overall bankroll which is made up by sports betting.

 

It is always better to set conservative expectations to avoid over betting.

Factoring in the Cost of my Service

The cost of my College football service is $895, the cost of the NFL service is $895 ($1,495 for both services), my Basketball service is $1,495 ($2,795 for all Football and Dr. Bob’s Basketball service), and the NBA Guru subscription is well worth the $1895 given how profitable he’s been ($3,995 for all Football and all Basketball, including the NBA Guru). You must factor in that cost when calculating your expected return on investment (ROI). As explained above, winning 54% on the Football Best Bets (55% is my average over many years) and 53.5% on my Basketball Best Bets (my long term average) would yield an expected profit of +40.0 Stars and let’s assume the NBA Guru profits +40 Stars as well (he’s averaged +42.6 Stars per season). Let’s say you decide to play 1.6% of your initial bankroll per star on the Football Best Bets and NBA Guru Best Bets and 1.2% per star on the Basketball Best Bets. Doing so would have an expected to return 118.6% per year and using an optimal betting strategy, as explained in the advanced money management section, would yield even higher long term returns while protecting the downside risk in the inevitable negative variance seasons that plague even the best long term handicappers.

If you had $20,000 that you could comfortably afford to risk as your sports wagering bankroll and $3,995 went to pay for the all Football and all Basketball service, then you would have $16,005 left for wagering. As explained above the expected return on the combined Dr Bob Football and Basketball and NBA Guru Basketball services is +118.6% per year, which would result in a return wagering profit of +$18,982 on the $16,005 initial bankroll. The overall profit, after factoring in the cost of the services, would be $14,987 ($16,005 x 1.186 – $3,995 = +$14,987), which is a very good 74.9% expected return on your $20,000. That percentage return is higher for higher bankrolls and lower for lower bankrolls since the cost of service becomes a smaller percentage of higher bankrolls and a lower percentage of lower bankrolls. If you want to subscribe to the all Football and all Basketball package you would need a total of at least $7,364 to invest to expect a positive return after factoring in the cost of the service. The calculations above are based on long term results and some years are better and some years are worse.

What is a Point spread?

Before I delve into rigorous explanations of how a bettor can gain an advantage against the point spread, it is important to understand what the spread actually represents. Point spreads were invented to keep bettors interested in games between teams of different talent levels – if a perennial powerhouse like Alabama plays a mid level team such as Southern Miss, you’ll find very few people willing to bet on which team will win the game since Bama would be such a prohibitive favorite. However, most are willing to bet on whether Alabama will ‘cover the point spread’ and win by a certain number of points. If the point spread is 21.5, then the Crimson Tide must win by 22 or more points for their side of the bet to cover, while USM must either win outright or lose by 21 or less to cover their side. Point spreads are designed so that the probability of each outcome is roughly equal, and are generally set so as to approximate the median score differential between the two teams.

However, skewed public perception, results-oriented analysis, and unsound metrics result in point spreads that are often slightly biased one way or another. While the casual bettor does not possess the capacity to exploit these advantages, I have used mathematical models, situational analysis, significant trends and quantitative player analysis that are far more complex and accurate than anything else on the market to gain an advantage, which is why I have won 53% to 56% of my Best Bets (depending on the sport) over the last 28 years.

How are the lines set?

While the odds makers do to try approximate the median margin of victory between two teams, they also try to reduce their exposure to risk by setting lines such that the public money will fall evenly on both sides of a game, so that they can offset the bets against each other and earn a profit on the juice (cut of winnings taken by the house, explained below) without exposing themselves to large potential losses. Thus, odds makers are often in the business of gauging public perception rather than team performance, and therefore the betting public actually sets the line. If Georgia is 4 points better than Georgia Tech according to my advanced metrics and analysis, but the aggregate public perception is that Georgia is 7 points better than Georgia Tech, then the posted point spread is likely to be closer to 6.5 or 7 points (public perception) than it will be to 4 points (the realistic difference between the teams). This makes my job as a professional handicapper much less daunting; not only can I exploit lines where the odds makers leave an edge, but I can also exploit the uniformed opinions of the general betting public.

Isn’t gambling risky?

I don’t believe that the term ‘gambling’ applies to what I do. I sell information to subscribers, with which they can take positive expectation positions in uncertain markets. With correct financial optimization and bankroll management, long term risks are nominal compared to the risks of investing in other, more conventional markets. Just as a single stock may go up or down in a day, any one team may win or lose a given game. But as long as the investor maintains a long-term perspective, understands variance, and doesn’t over-extend themselves or bet more than they can easily handle, risk can be highly mitigated, and they can earn a very attractive risk adjusted return.

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