Return on investment is a performance measure used to evaluate the efficiency of an investment. To calculate ROI, the return of an investment (or in this case, the profit earned from your sports betting system) is divided by the cost of the investment with the result typically being expressed on this website as a percentage.

ROI is perhaps the best way to analyze the success of a betting system and, for this example, we will assume a risk of $100 on each bet. We will start by taking your net profit and dividing it by the total risk. For example, if you created a system that had 500 games played and you won 25 units off of it, your ROI would be calculated thusly: (25 units X $100) / (500 games X $100) = .05. This number is typically viewed as a percentage, so this system would have a return on investment of 5%. Essentially we have taken the gains from our bets and then divided that by the total cost of investment — or the amount of money we have put at risk.

One of the reasons this number is so important is that is helps us determine if a system is truly profitable. In baseball, there are often systems with losing records because we take to many underdogs with plus money. This means that we can not use winning percentage as a metric of success, but we can determine our return on investment by dividing our units earned by the number of games we have wagered on.

If you have any questions about return on investment or any other betting lingo, please leave your comments in the section below or contact us on twitter @sportsinsights.

I think you vastly understate your ROI. In your example, the amount you really risk is the amount of capital you started with. For example, if you started the season with $10,000 and risked $100 per game, you would have a return of 25%. If you went broke, you would have lost $10,000, the amount you actually risked. You didn’t really risk $50,000, because you didn’t start with that. I do not believe your cumulative bet amount should be the actual amount you risked on your system. Your example is telling me that I earned 5% on my investment but that’s just not true. It could be true, or it could be much higher. It all depends on the amount you started with. I think a better example of ROI is saying you bet 1% of your bankroll on each pick, as opposed to $100, which would have given you a 25% return. That percentage per pick could be adjusted to suit the individual and give an actual return on their investment.

Hey Evan,

Using your example of a $10,000 bankroll, if you only make four wagers of $100, your $10,000 was never invested and at-risk, only $400 was actually invested.

Whether your bankroll is $10,000 or $1,000,000, your ROI is still the same if you only make four bets of $100.

You’re thinking interest rate, not return on investment.

If a client gives me $10,000 to invest in the market and I make 100 trades, I don’t take the cumulative amount of every trade and say that I risked $1,000,000. I might even keep $1,000 in cash and never risk that amount, but I don’t say that I only risked $9,000. You start and end with the initial investment, regardless of what amount is at risk at any given time. You cannot risk something you do not have. In your example, your denominator is “the total amount you risked,” so if I make 5,000 bets at $100, you would be saying that I risked $500,000, when I only started with $10,000. If I start with $10,000, only make four bets for $100, and go 3-1 at -110 odds, I would have a 1.73% return. Your definition would tell the client that their return was 43%, because they only “really” risked $400. I just don’t think your ROI calculation is a good way to look at how a system performs. Let’s say you have two systems, system #1 earns a positive 50 units over 2,000 bets and system #2 earns a positive 20 units over 200 bets. Your calculation, at $100 per bet, gives system #1 a 2.5% return and system #2 a 10% return. So it appears that system #2 is 4 times better, even though system #1 made you 3,000 dollars more. My calculation says that system #1 had a 50% return and system #2 had a 20% return and accurately represents your true return on investment. Your calculation automatically devalues the return with the more bets that you make.

This should help, here is the formula for calculating return on investment used in the financial world. It has nothing to do with starting bankroll or capital.

Or that matters is what you actually invested (or wagered) and how much you earned.

http://www.investopedia.com/terms/r/returnoninvestment.asp

Also, here is a good forum thread that explains this further:

http://www.beyondthebets.com/forum/thread-calculate-roi

And for the record, if you read our other betting against the public articles, we don’t use ROI as the only factor in judging a system. For the most part, we always recommend following units won as the best way to determine success. However, units won is not the end all, be all. Especially when you can improve ROI by reducing the number of wagers needed to produce of profit of similar units.