Lessons learned from two years betting on sports
As sports betting is becoming legal in more states, I thought it would be useful to share my experiences, why I can’t see it becoming anything other than a hobby for most, why I liked it, why I was forced to stop and why I didn’t miss it for a while. I won’t focus on the ethics or whether it should be legal as I’m not sure about either. Though these things matter, in practical terms they don’t. Due to consumer demand & the ability for state governments to raise significant revenues by taxing legalized gambling, if sports betting isn’t legal in your state now, it’s coming soon.
Sports betting has historically been associated with illegal activities. Long a domain of organized crime, betting on sports lived in public consciousness as a way for men with little brains and big ego’s to lose money, careers (Pete Rose, Black Sox scandal, etc.) or get threatened for having bones broken. But in certain circles beyond the small cadre of sketchy characters inside and outside of Nevada where it was the sole state where legal in the US, betting lines were always of interest (they were often published in Newspapers) and as sports media flourished over the past 20 years, paying attention to the lines was critically important pre-game analysis. In discussing an upcoming game between two teams of differing levels, a commentator may note an unusually narrow betting line for the game suggesting “Vegas knows something.” This was always interesting to me as typically people will say they believe anything, but the best way to know what they truly think derives from what they are willing to bet their money on. To take another example, a big betting line may provide motivation for an underdog to come up with an unlikely upset. Is there anything that piques your interest more than a headline that starts with “25 point underdog shocked everyone by….” ?
The paradigm is rapidly changing however, particularly over the past three years as a result of a landmark Supreme Court decision overturning a Federal Law enacted in 1992 that outlawed sports betting outside of Nevada. But in considering this development, it’s important to consider that the Supreme Court is often by societal trends, three of which have as much to do with recent legalization as the Court’s decision:
Mobile devices — you can bet anytime and ideally anywhere, not just a casino. How cool is it to be able to sit at a game rooting for your team and have some money on the line? The mere convenience of not having to go to a casino to place at bet is a game changer
Sports media — Due to time shifting & cord cutting, live sports television contracts are one of the few remaining bankable commodities. As a result, there have been an explosion of sports TV distribution opportunities and many hours to fill in between games. Sports highlight shows can only take a network so far; shows featuring top picks for fantasy & sports betting fill a lot of hours
Fantasy sports - Until 20 years ago, fantasy sports was for a small number of nerds and pretty labor intensive to manage but technology (from Yahoo! and others) fixed that problem
In retrospect, you could see legalized sports betting coming as soon as daily fantasy sites like Draft Kings & Fan Duel made it. These sites started by operating fantasy games on a daily basis where players could use fantasy rules to bid on the most successful outcomes, effectively via a sweepstakes model with large jackpots going to the players with the most successful strategies. Initially there was a lot of pushback against these sites as gambling however the businesses successfully argued that they were operating games of skill and that by choosing specific performances of players, there was a reasonable moat between what they were doing and gambling (which should be games of chance if games are played ‘on the level’). Because of this grey area and the additional interest they brought to pro sports, Daily Fantasy Sites were able to get the sports leagues and their owners, most of whom were vehemently opposed to sports gambling, to support and in some cases invest in their ventures, supported by generous ad spending on sporting events. In time, the successful launch of daily fantasy leagues showed fans, advertisers, legislators but most importantly team owners how much money could be gained by legalizing betting, generally without serious adverse consequences.
As the lines blurred it’s no surprise that fans wanted to start leveraging the same technologies to bet on games and should it be any big shock that the daily fantasy game providers have emerged as among the leading sports betting operators?
Daily fantasy never did it for me. It’s a basic optimization challenge with the ‘excitement’’ of sports thrown in. If you have access to large data sets and are willing to put the time in, you can bet on the most statistically likely outcomes and do well over time. This is part of the reason why there was controversy when employees in the companies won big jackpots. The prospect of legal sports gambling however did more grab my interest. The appeal came somewhat from my interest in sports, but more principally my interest in finance & investing. I took a course in Business School about innovation and there I learned that the most powerful innovations often come from merging two unrelated things. In this sense for me it came down to combining two separate ideas:
Passive investing generally outperforms active management
There are significant biases in sports based upon allegiances and other factors that lead to pervasive inefficiencies in sports
My hypothesis was this: If I could find pervasive biases in sports betting and could create my own passive indexes of games to bet on over time, I could arbitrage the inefficiencies in the market, making money on the “dumb fans” who bet by their team allegiances or lazy biases. In thinking through the new business idea, there’s a lot of appeal:
Everyone in Finance wants to make money
Trading is legalized gambling: many traders are ex athletes and many more are are sports fans
The idea of an investment vehicle that is uncorrelated with other investments is highly appealing. This is why Gold (and I suppose now crypto) has historically held a lot of benefit to investors. Even stocks & bonds generally move together over time with high correlation; it’s just a matter of how much risk you want to take. Investing in something with positive return with zero correlation to financial markets and the economy hold tremendous appeal in building a diversified portfolio of financial securities, particularly for hedge funds
Like many things I found that this was a problem solved with either effort (chasing down data sets and building my own data analyses) or money. I got lucky that at the time: I found a product called BetLabs, by Action Network that offered the opportunity to get access to the necessary data and build your own systems, using calculations & data sets they compiled for $50 a month. It was a decent chunk of change for a small-time better like me but a bargain as a small innovation hack to develop winning strategies and build a scalable sports betting business.
Immediately I learned the hard lessons of sports betting, but it would take me two years to understand what I would call the 3 Laws of Sports Gambling that make it so difficult to win over time:
Biases are real. Home teams are favored by too much, people bet too much on the over in over/unders (in US sports, there’s a bias actually to the under in soccer abroad), good teams get too many points against bad teams and the public doesn’t pay enough attention to the weather, especially in baseball where environmental factors have a big impact on the outcome of the games, especially if home runs are hit and in turn if runs are scored. Odds makers are smart, know this and make a nice profit setting lines with just enough action on their side to make money on a lot of suckers.
The betting spreads are so wide that it is extremely difficult to overcome the biases and require that you put together multiple factors together at once, often with thin data, in order for them to work. The basic math is this. For most online bets, the betting houses offer odds at roughly 45% chance of victory to each side of the same bet by taking a cut of the payout. Generally the most basic bet is ‘-110’, that in order to win $100, you have to bet $110. As a result the effective odds on each side of the bet based on the payouts are 220 (the combined amount that two betters on each side of a bet pay) divided by 200 (the total potential payout). The $10 guaranteed on each side of the bet is the oddsmaker’s take and is the reason why, at least for the time being, it is almost impossible for a gambler to win and also impossible for anyone to put large amounts of money to work in sports betting. Sure, we’ve all heard the stories of individual bettors making a $1MM Super Bowl Bet. But financial firms move TRILLIONS through the financial markets daily. So if a fund were to look to bet $50MM on a regular season football game, forget it. This is all because odds makers seek to balance the bets on each side so it gives them a fair margin to be able to remain solvent and pay out over time. But it is disastrous for betters because on balance, you have to be right more than 55% of the time to even START making money. For a gambler unless you get adjusted odds (more on that later) you may as well just take your money to the Roulette, Blackjack or Craps table because on balance, the odds are better. The difference of course with sports is that these are not random games of chance so it’s not just a matter of knowing if you have an information advantage but also knowing how big it is and if others are aware such that the arbitrage opportunity closes. And in sports, part of the allure is a lot of people think they have an information advantage. In a sense, the real problem comes down to this: what if there were no New York Stock Exchange, many small exchanges with no independent market makers. Imagine a scenario where stock whose notional value was $200 could only be sold for $195 and purchased for $205. As a result, each odds maker in sports betting functions nominally as both a market maker but also a proprietary trader. They don’t want lines to move and they don’t want to be too lopsided in any individual games or bets so as a result, the end probabilities are bad for bettors, both in limiting how much they can bet and the pricing they receive for the risk they take.
A win or a loss is a binary event; more like an option than a stock or bond. So while the value fluctuates during a game, it either pays off or goes to zero at the end. In a sense sporting events are opposite of financial markets. All of the action occurs in the pre-market. As a result you have to have a huge stomach for losses with a big cushion when you go on a poor streak. Conversely you may get hot and then start over betting. Like with a lot of sports betting, most of the time you’re playing, you break even but then there are huge runs of luck one way or the other. One way to mitigate this problem is to hedge your bets, which can be done ‘in-game.” This issue however exacerbates the problem for #2 where the betting spreads further widen to +-115 or about a 7% because in game action is thinner — and the element of speed in reaction to shifts in events of the games presents all sorts of latency & volatility issues. But since most competitive games have big point swings, ideally if you’re betting in the right direction to start and you can catch an asymmetry in the lines, you can hedge yourself out in a position where you’re guaranteed to make a some money in just about every game. There’s a lot of movement while the game is in action but I try (although don’t succeed) to wait for a stoppage of play when the lines settle to make a bet. In theory it works, but in practice it requires paying close attention to all of the games you’re betting on and a pattern where you win a little on most games, occasionally have a big win (if you manage to catch such a variance that in point spread games you win on both bets) and often lose big. It’s in the trenches, paying close attention to minimizing big losses and getting enough out of your wins that generally makes the difference between losing a little money, breaking even and winning a little money. This also requires fast, stable internet and a reliable betting platform that will give you good odds & take your bets. Before off-shore gambling was legal and I was doing this with Bovada, their reliability was good to OK, but they didn’t have a mobile app. There were a lot of system timeouts or blackout periods where even during stoppages in games you couldn’t get bets in. This led to a lot of frustration. And having the trading acumen to know when to hedge yourself out and when to wait on things for a bigger spread brings a cool rush but is hard to professionalize.
The resumption of sports after the pandemic in many ways brought the end to my own personal experiment in two ways:
Sports had changed so much that systems which had worked for many years no longer worked when games were played in glorified TV studios without fans. I made the mistake of continuing to bet though these times, mostly out of boredom, and generally lost money
The Action Sports Network, which owns BetLabs, raised the prices significantly, to $250 a month or $125 a month with an annual subscription. In effect to make this investment worthwhile, you have to be committed both with your time, but also have to be willing to put a lot of money on a lot of games. The basic math here is if you have systems averaging 10% profit and you bet on 10 games a week, you need to average betting about $20 a game just to break even investment (and rarely that happened). They let me keep my systems for $20 a month but I couldn’t tweak or create anything new so I effectively priced myself out of the market. I suppose if I’d been willing to throw more money at the problem and up my bets it may have been interesting but offshore betting sites are unreliable so there was a limit to the amount of money I was willing to commit to prove the venture.
What funny about this is that the NY legalization actually was the impetus for forcing me to stop. Just prior to legalization, Bovada announced that due to New York’s impending legalization, they were terminating the offering of their service in New York and refunding open balances to bettors (in Bitcoin of course). It’s funny how government can work sometimes. For years this illegal activity was allowed to go on at a low level but as soon as a government-sponsored legal business was started, things became more dangerous for low-level illegal off-shore enterprises. Initially, I was frustrated by this and started looking for another offshore site, but then I realized any other site that took my money would either be shady or face the same problem as Bovada, so I was content to get my money back and wait. But in the time when I was forced to quit, it was looking doubtful that I’d restart. There were three key reasons for this:
It’s unclear spreads and arbitrage opportunities will be wide enough to make money on it. Though there are 9 operators in New York, they came from two bids suggesting that there are really only two books on the back-end and the spreads aren’t any narrower. What I’ve learned since is that unless there’s a huge game, there are enough variances in the lines where you can benefit form shopping around.
I didn’t miss the stress & commitment. To bet well on sports you have to truly love it and be willing to bet on every game in your screener and pay attention during them to hedge out your bets when the opportunity arises (or have the stomach to take the losses from “bad beats”). If it’s “your thing” and you want to take advantage of the big incentives to draw betters, put a few thousand dollars to work, either harvest your own data or use BetLabs and commit, I think you can break even or make a little money but it’s not making anyone rich. This is a hobby, accept it as such and try to have fun with it
I don’t see a path forward for turning sports betting strategies into passive investing strategies unless or until we see big Financial Firms getting involved and acting as either market makers or intermediaries to enable odds makers to lay off their risk and narrow spreads
I wrote most of this before sports betting was made legal and though it took a lot to change my perspective, the generous deals offered got me to resume some sports betting. The sign-up bonuses were just too good to resist. But you have to pay attention:
Jump on Deposit matches if the fine print is good. Caesar’s pretty much gave away a ton of money doing this. They offered $300 just for signing up and depositing any money, plus a $3,000 deposit match with a 1 times play through. This meant that by depositing $3,000, you’d get $6,300 in your account and once you bet the first $3,300, whatever was left was yours. So to take the hedging strategy if you had a bet at -110 and during the game, the odds shifted to +110 and the odds weren’t obnoxious of that, you’d bet in a game, be guaranteed not to lose money and bet your money through. The key is to know when to stop. So long as you withdraw funds and stop, it’s free money, but this is just a give away. But be wary of the Play Through requirements. For example MGM is offering up to $1,000 bonus but to get it, you have to deposit $5,000 and bet it through 5 times. The chances that you can bet through $30,000 and have much of that $1,000 remaining take a strong stomach and a lot of energy. I passed.
Avoid ‘first free bet’ or ‘risk free bet’ bonuses. They are neither free nor free of risk. If they were, if you lost your first bet, you’d get the money back. But you don’t. If your first bet wins, great, but if it loses the odds maker will give you free bets (see below). But as the house takes their cut, even if you do OK with the free bets you’re credited you are almost certain to lose money. I’ve used these but only if paired with other sign-up bonuses.
If you get a good sign-up bonus and you do start betting (or make some money and want to keep some of your winnings in), some additional advice:
Never make a bet you wouldn’t make if the promotion wasn’t offered. Just like when shopping and you see something on sale, just because it costs less, doesn’t mean you should buy. This is the odds maker’s way of getting you addicted. Be conscious of it and avoid temptation. Ask yourself for any promotion “If this wasn’t offered, would I still make this bet (at the original price)?”
Free bets are not free money but they can be if you recognize them for their cash value. Think about what you want to do with them in advance. They are valued at 45% of whatever the value given. So you can do an immediate hedge out and accept that 45% or take your chances. For me, if someone gives me free money, I take it, but a small free bet here and there on a bet I would otherwise make is a nice benefit.
Remember, Risk free bets are neither risk-free nor free money. These bets are great for something you’d bet on anyway, because it does protect your downside, but never do a risk free bet just to take it. Because if you spend your money on them, you’re only looking at 45% chance on your money and then even if you do lose and get a free bet, see above. The free bets you receive as compensation are only worth 45% of face value.
Odds boosts are nice benefits. If the boost is 50% or higher, bet the max and hedge out before the game and take your win. If less, use them to help cut the odds advantage. But like risk free bets, don’t take boosted odds unless it’s something you’d bet on anyway.
Avoid parlays. They are like betting the numbers at Craps. The more you combine odds as exciting as the payoffs can be, do the math. the odds get worse. The one exception is if you can figure out the math (Say money line of four teams) and the odds are boosted. Even then, you’re likely only playing with even odds. I don’t waste my time with them.
If deals are offered, think about the math. Odds makers want to get you to bet so they often throw you profit boosts in various ways to even the odds. Remember, the odds are still likely against you, at best they’re offering you even money on a bet but sometimes you can jump on the bets. You may still lose but at least you’re playing better odds. But you have to do the math because sometimes a deal isn’t what it’s offered to be. If you don’t know how to think about the math or can’t get access to underlying data to help you with it, don’t make the bet.
Use a premium service like Action Network that will help you spot asymmetries, figure out where to bet and keep track of your performance.
Use multiple apps. I’m up to six now and it can get confusing, but it’s worth it. Odds can vary pretty significantly just like the same item can cost different prices at stores. Shop around because in the long run you will cut into the spreads that the odds makers enjoy. I’ve long suspected that by moving odds relative to others, the oddsmakers are doing this purposely to balance the action on their books. This is one circumstance where doing what the oddsmakers want you to do isn’t a bad thing. And in-game if you want to hedge out, another book will likely give you better odds in the opposite direction than where you made the original bet
Never cash out in-game. While I am a huge fan of hedging your bets to avoid a “bad beat” if ahead and you’re getting good odds, cashing out has two drawbacks:
The odds are never as good as doing your own math and hedging out, even on the platform. And per my advice above, you can usually get a better deal with another odds maker
Generally cashing out means your bet didn’t count so you don’t get credit on promotions or loyalty programs. I’ve yet to see the loyalty programs really being generous to amount to more than a few bucks here and there but over time your action will be rewarded
My last piece of advice is to remember that because Sports Betting can only really be a hobby, it should be fun! I think it’s almost impossible to make a living doing this. The odds makers themselves refer to this as gaming and it’s for good reason. The spreads are very wide and the odds are so stacked against you that any table game in a casino is more “fair” than sports betting. If you ever find yourself stressed about a bet or feel like it’s taking away from your job, family or important obligations, you’re addicted and should stop.
But even if completely casually placing a small bet it can help you enjoy sports in a whole new way.