Selectivity & Sports Investing

Bettors often think of how much they will win if they achieve a 60% winning percentage.  It seems easy enough, right?  A monkey throwing darts should be able to hit 50%.  With just a little knowledge, it seems easy enough to hit 52.4%.  The gambler thinks, “Heck: I’m a smart sports fan, I should be able to hit 55%, maybe even 60%.”

However, as with other zero-sum games (and the sportsbook’s vig makes sports investing even tougher than zero-sum), only a small percentage of players are materially successful.  It’s nice thinking about the potential gains – but it’s better to be conservative and think of the potential risks.  Traders often preach, “Manage the risk, and the profits will take care of themselves.”

In this article, our goal is to show that if your picks do not have an edge, the spread below 52.4% will eat up your bankroll faster than high-priced commissions will churn a stock portfolio.  We’ll quantify the potential churning and losses – and show that you really need a “real edge” (with a sustainable margin) to overcome the seemingly small “take” of the sportsbooks.  We’ll show that the vig is deceptive – and can add up to significant amounts.   The information on this site is for entertainment and educational purposes only.  Use of this information in violation of any federal, state, or local laws is prohibited.

Selectivity

Some of the members on SportsInsights.com’s forums have the right idea:  on any given day, they limit themselves to the best 3-4 plays.  This way, even if you THINK you have six great plays in a day, the “3-4 play limit” will limit your risk – and reduce your exposure to the “take” of the sportsbook.  Let’s take a look at what happens to a sportsbook account if you have no edge (and hit 50% of your plays), and make an average of three or five plays a day.  Our hypothetical bettor has a $5,000 bankroll and bets $100 on each play.

Chart 1: Churning of a Sportsbook Account

($5,000 bankroll, $100 bet size, 50% win rate)

3 plays a day 5 plays a day
Weekly Loss - $95 - $159
Monthly Loss - $382 - $636
Quarterly Loss - $1,145 - $1,909

As you can see, betting without an edge can eat into your bankroll quite rapidly. An account can lose about -10% in a month, and –30% in a quarter!  Being SELECTIVE will help your bankroll avoid the constant erosion from the sportsbook’s vig.

What Can You Do?

The chart above is probably a wake-up call for some. The sportsbook’s “vig” is deceptive:  it seems small but can add up to substantial amounts. What can you, as a sports investor, do?  Here are some ideas that should help minimize the sportsbook’s “take” and help you “put the wind at your back”.

- Shop for the best lines
Low Vig Books (Reduced Juice):besides getting the best lines, watch the vig you pay.
– Bet Against the Public:  We have shown that Betting Against the Public can help give you an edge. Indeed, one of our articles shows how sportsbooks try to maximize their profit margin by shading lines.
– Be more Selective: Unless you have a material edge with your pick, sit the game out. In the investment world, we’e all heard stories of bad stockbrokers who churn their client’s accounts for commissions. Don’t do the same to your sportsbook accounts.

Other Uses for these Numbers

Now, for those of you who think this article is too much “Doom and Gloom” – you can use these numbers as estimates for the upside as well. That is, 52.4% is the cutoff for earning profits. The losses we computed are based on picks based on “no information” (50% winning percentage).

If you have a sustainable edge that is 55%, you can estimate your winnings with these same charts. If you believe you can achieve 57.5%, you can double the figures.  On the other hand, if you often “go with your gut” and tend to be with “Joe Public” – you might actually do worse than 50%.

Chart 2: Potential Sports Investing Profits

($5,000 bankroll, $100 bet size, 3 bets/day)

55% Winning Pct 57.5% Winning Pct
Weekly Gain $95 $190
Monthly Gain $382 $764
Quarterly Gain $1,145 $2,290

As usual, it comes down to hard work and a good system with an edge. SportsInsights.com emphasizes a systematic, disciplined, and business-like approach to sports investing. Good luck and visit SportsInsights.com often for ideas on sports investing.

Disclaimer

We do not guarantee that the trends and biases we’ve found will continue to exist. It is impossible to predict the future. Any serious academic research in the field of “market efficiencies” recognizes that inefficiencies may disappear over time. Once inefficiencies are discovered, it is only a matter of time before the market corrects itself.