Sports Betting ... The Evolution of Return On Investment

[TalkingFootball]

The Evolution of Return On Investment

It was interesting in more ways than one, but we will stick to a few handicapping observations for our purposes here. The thing that impressed upon us most during the conference was just how sophisticated sportsbooks have become. These operators are sharp. They are fleet of foot and do not leave soft lines lying around often. Most importantly, their in-house oddsmakers or odds-making consultants are some of the best handicappers in the world.

A second and equally important force in the industry is the advance in betting knowledge being passed along to the gaming public at large. Media outlets such as Covers.com with its endless array of data sets and handicapping tools along with experienced handicappers distributing their long-held strategies by way of articles has created a smarter betting public in general. There are, and always will be squares out there, but just less of them. The internet is the quintessential medium for previously uninformed sports bettors to arm themselves with the stats and concepts necessary to play in a more informed manner. This last sentence truly puts a smile on our collective faces here at Superior Sports. It is that very mission to educate and inform sports bettors that has driven our company from day one.

This twofold dynamic of the sportsbooks being sharper and the gaming public playing more informed is one we've witnessed first hand and taken note of over the years. It is evolution at work and we,re quite sure Darwin would be proud. We have used the phrase; the gaming markets have been tightening quite a bit over the past year or so and this is exactly what we are referring to. That is, the entire sports betting world has become a tougher place to prosper in and survival of the fittest is alive and well. Oddsmakers are not only better equipped to set strong lines for the gambler, but the gambler is better equipped to beat the oddsmakers.

So what does this all have to do with handicapping or beating the number one might ask? In our assessment, the evolution of ROI (return on investment) has become a more important concept than ever for the sports gambler to be aware of. Several years back, when softer lines were more readily available, our primary concern as a sports service was net units won. Over a three month period for instance, we would rather shoot for a 54% win rate betting 1000 games than a 60% win rate betting 100 games. This is a volume based approach.

Let us present a very simple illustration. Handicapper A bets 100 games at $100 per bet. He wins 60 and loses 40, which means he is picking 60% winners. Sixty wins multiplied by $100 equals $6000 in gross winnings. Forty losses multiplied by $110 would equal $4400 in gross losses. This calculates to a net profit of $1600.

(60 Wins x $100) - (40 Losses x -$110) = $1600.

Handicapper B bets 1000 games at $100 per bet. He wins 540 and loses 460, which means he is picking 54% winners. Five-hundred-forty wins multiplied by $100 equals $54,000 in gross winnings. Four-hundred-sixty losses multiplied by $110 would equal $50,600 in gross losses. This calculates to a net profit of $3400.

(540 Wins x $100) - (460 Losses x -$110) = $3400

Handicapper B more than doubled the profit of handicapper A. For years upon years this had been our primary philosophy. Since the break even point on a straight side bet is 52.3%, passing on any game you handicap as a 53% long-term winning proposition in the name of selectivity is leaving money on the table. This line of thinking makes perfect sense if, and only if, there are 540 Wins available during the short time span from the hypothetical example above.

However, we are not at all sure these tight gambling markets allow for such a high volume of winners during such a short span. In addition, there is an inherent downside in such a philosophy we call margin of error. In laymen's terms, the proverbial losing streak can wipe a gambler out using this high volume approach. If one is betting everything they deem a 53% or higher proposition, yet is off in his or her judgement by just a couple of percent than there is a disastrous downside.

Given these tightening gambling markets and potential margin for error, we have become much more focused on an ROI (return on investment) based approach than a volume based approach. This is a concept a good buddy of mine a fellow professional handicapper by the name of Jeff Hale and I have discussed and studied endlessly. We both agree that a high volume of games at a 55% winning rate will produce more gross profit than a low volume of games at a 60% winning rate.

Gambler A - Bets $100 on 1000 games and wins at 55% will make a net profit of $5500.

Gambler B - Bets $100 on 100 games and wins at 60% will make a net profit of $1600.

However, this does not account for money at risk. In essence, Gambler A from above is not taking into consideration dollars at risk, which is a game of roulette in these markets. Do you know any successful investors in the Stock Market, Real Estate Market or Commodities Market that do not take money at risk into consideration? Of course not.

In this latest example, Gambler A put at risk $110,000 to produce $5500, while Gambler B put $11,000 at risk to produce $1600. Therefore, Gambler A produced an ROI of 5% whereas Gambler B produced an ROI of 14.5%.

Gambler A - ($5500 Net Profit / $110,000 at risk) = .05 or 5% ROI

Gambler B - ($1600 Net Profit / $11,000 at risk) = .145 or 14.5% ROI

Pay attention now, as we are sharing the keys to the kingdom here. If Gambler B still bets 100 games as described above, but ups his bet size to $1000 per game and wins at the same rate as before, his net profit would be $16,000. That is nearly 3 times as much as Gambler B with the same amount of dollars at risk.

Those that have been with us for the past several years have seen firsthand our methodology evolve from that of being volume focused to one of being ROI focused. We simply play fewer games now, which lends us a much larger margin for error and also limits downside risk. Instead of betting anything we deem a 54% or better long term proposition (on a straight side bet), our threshold has been moved up to around a 58% estimated win rate for it to be considered a pick. The natural byproduct is a more selective approach.

A changing environment calls for adaptation. Those that do not adapt will go extinct; a la the Darwin reference above. A more tangible analogy could pertain to the real estate or equities market. When housing inventories rise, prices tend to drop and savvy real estate investors will look to buy while prices are low. When the housing market tightens (a sellers market), a real estate investor may choose not to buy new property or will even unload his real estate assets to cash in on inflated selling prices.

Same can be said for any fluctuations in the equity markets. At times various areas of the market are overpriced (tight), which mandates a buyer to be patient and more selective with his or her investment choices. The reverse corollary of course holds true as well. That is, lower equity prices (softer betting lines) will put the investor in a position to be more aggressive. Investors need to adapt to the marketplace in order to be successful. And make no mistake about it, sports betting and the sports betting market is no exception.

The point of the matter here is that selectivity, limiting risk and focusing on ROI is your best path to success in this day and age. Of course this is a subjective statement an opinion if you will. But the handicappers we see achieving great success in recent years are ones using a patient and selective approach. As cited above, this is the same approach we have been evolving to over the past three to four years. It is a methodology better suited for the current marketplace.

[Editors Notes ; Due to the large amount of emails on this topic we know it should be a popular article. However, if you have any feedback please feel free to post in our forum. Article Courtesy of www.superiordaily.com]