Last night, I was discussing sports betting with a friend of mine. We were talking about the process management of sports betting such as how to move the money, execution risk management, evaluation methods, etc. The conversation naturally turned to “why do most sports gamblers lose”? My friend pointed out that the same information available to sportsbooks is also available to gamblers. Gamblers can easily come up with an accurate theoretical likelihood that an event will occur simply by a survey of the market odds. Do gamblers simply make the wrong choice more often?
When answering the question of “why most sports gamblers lose” it might be best to start with the term “gambler”. Most gamblers lose at sports betting over the long run because they are simply gambling. Don’t get me wrong, gambling is fun. Gambling adds an additional level of excitement and thrill to many activities, including sports. Playing games is usually a lot more fun when there are stakes involved. Watching the Saturday night hockey game is even more exciting when you have something riding on the outcome, even if the stakes are small. I suspect most sports gamblers are just placing wagers on their favourite sports and teams because they want to add a little more excitement to the outcome. These gamblers are just playing for fun, to them, a wager on a sports event is a form of entertainment just like a movie date or a restaurant experience.
But what about the plungers who try hard to beat the sports books? These gamblers spend a lot of time analysing the potential outcome. They are handicapping the contestants and then placing wagers with the goal of winning in the long run. These gamblers plan to WIN, and I think there are two main reasons causing most sports gamblers to lose in the long run. The first reason is they fail at bet sizing and the second reason is they don’t get the best price.
Bet sizing is a critical component of any gambling. In a certain sense, bet sizing may be obvious. You probably wouldn’t risk your life savings on the flip of a coin, but when your net worth is $10,000, would you risk $5 on a positive expectation game with a standard deviation of 40%? Just like your financial advisor won’t suggest putting all your eggs in one basket. If you want to prevent yourself from going bust, you need to diversify your exposure and have some sort of risk management strategy. This strategy can be complex and sophisticated, or it can be simple and easy to implement. If you have $10,000 to invest, it may be prudent to hold two different investments rather than just one. If you’re betting on sports, and your bankroll is $10,000, it may be prudent to bet on more than one game, maybe for less than $100 each time.
After you have decided to diversify your action, you’ll then need to decide “how”. There are lots of strategies that can be used to manage a sports betting bankroll. One of the most widely used is the Kelly Criterion. Simply put, the Kelly Criterion is a formula used to determine the optimal size of a series of bets. You can create a Kelly calculator in excel, or you can find a calculator online or download a Kelly calculator app. Last night I bet on the Dallas Stars to beat the New York Islanders and could get odds of +125 (2.25). The easy part with sports betting is I could calculate the implied probability of the Dallas Stars winning as 45%. Meaning, 55% of the time, I will lose this bet. Using a Kelly formula and a $10,000 bankroll, I can calculate my bet size should be $99. The Kelly Criterion works well because its easy to use and takes into consideration the volatility of the underlying probability.
The second main reason sports gamblers lose in the long run is they fail to get the best price. If you are placing your bets with your local bookmaker or using the same website each time you place a bet without shopping around for the best price, you are very likely paying too much for your sports bets. Today with online information, its easy to shop around for the best price on any sports bet. Just go online and find a few good websites that will help you quickly survey the market for odds so you can find the best price. A few examples are Vegas Insider and Odds Portal, but there are many others and new ones popping up all the time. Another practical way to survey the market would be to have accounts a few different sports books, choose these books by their size and stability. The biggest and most stable books will more often have the best odds. Then before placing your bets, compare the odds on the sports books where you have accounts and determine which book is best. Maybe even come up with a composite odds based on your survey. You may also want to add a betting exchange to your price shopping. A betting exchange will present the best theoretical odds at all times and even if you don’t use the betting exchange to place your bets, you can use the information to make your choice.