Sports Betting: An Investment You Can Watch
Despite the recent overturn of PASPA and the emergence of a regulated marketplace in the United States, sports betting remains both taboo and misunderstood by many who continue to view the activity as a compulsive hobby.
Make no mistake about it, sports betting is big business, and investing in sports betting stocks is also proving to be an extremely profitable venture for those getting in at the right time. With estimates claiming that Americans wagered $150 billion in 2019, and when that much money is on the table those who once focused on Wall Street are now looking at America’s gambling boom as the next frontier in investment opportunities.
Unlike many casino games where the odds are fixed, sports betting works in a fluid market that has more in common with real estate and stock market investing than it does a roulette wheel. Sportsbooks offer odds, or lines, to set a perceived value on a particular outcome and then adjusts the line to reflect overall interest on one result over another.
This adjustment creates a unique marketplace where sharp bettors can actually wager on the outcomes of events with little to no knowledge on the sport itself, rather a deep understanding of betting trends and the ability to buy when the lines are ripe for the picking.
Let’s make one thing clear. Smart investors always have some sort of insight on the products they are backing, and having a pulse on the latest NFL news will be to your advantage. This news, however, is already being factored into the line you are asked to wager against almost immediately, so one’s ability to predict the market reaction as opposed to the news itself is critical for those looking to play the sports betting market as opposed to those who simply care to participate.
Before diving further into the idea that sports betting can become an investment opportunity, it’s important to understand how and why odds move and how markets develop.
Traditional point spread and totals are offered by sportsbooks at a -110 line, where bettors are asked to wager $110 for a $100 payout. Hypothetically, if an equal amount of money comes in on both sides, the oddsmakers are guaranteed to walk away with a profit. Commonly referred to as ‘juice’ or ‘vig’, bookmakers factor in these margins and adjust lines to maintain this margin.
If $110 is bet on Team A, and the same is bet on Team B covering any line, you would have a total of $220 in wagers with only $210 promised in payouts (original $110 wager plus the $100 in winnings).
If three bets were to be placed on Team A and only one for Team B, one outcome could become extremely profitable, but the other leaves them extremely exposed to losses. For that reason, an increase in action on one side will often see the oddsmaker adjust the spread to encourage more wagers on the opposite result to re-establish a balance and maintain profit security.
Slow & Steady Wins The Race
An estimated $150 billion was wagered in the United States alone in 2019, and the majority of this handle is made up of recreational bettors chasing a rush. Short term bettors look to enhance the excitement value of an event by putting money on the outcome. This causes them to view each win and loss as an individual action and often leads to what gamblers call a “chase”.
Bettors coming off of a bad loss might feel the urge to place another quick wager in hopes of breaking even. This urge usually comes after the previous event has ended and limited wagering options are left on the board, resulting in an uncalculated wager on a game the bettor likely has any true opinion on, and likely deeper in the hole.
Short term thinking also causes bettors to chase options that offer steep odds in hopes of a large payout. Multileg parlays, correct score, and other exotic options are easy ways to enhance the viewing experience of a game, but these options rarely, if ever, are seen on the betting tickets of those approaching the practice from an investment standpoint.
It is important to view things from a long-term perspective, where bankroll management is put into practice, and records are maintained to help identify strong points and weaknesses in your approach.
Playing Against The Public
Now that we understand how and why odds move, it’s important to understand the factors that commonly see them move.
“Public perception is one of the biggest factors taken into consideration when adjusting odds,” shared one bookmaker. “Big injuries or favorable trends are often overvalued by public bettors, and a big line move can create the illusion that their calculations are justified.”
Need proof? Look no further than the recent 2019-20 NBA season, where load management made it extremely difficult for oddsmakers and bettors to predict which players would take to the floor on a nightly basis.
Lakers’ star Anthony Davis saw limited action early in the season, and while instincts would tell you that one of the most sought-after big men in today’s game would give your team an advantage, the Lakers actually averaged 8.1 points more per game than they did with him on the court. Despite having access to this information, sportsbooks were deducting just over 3 points per game when Davis was out, creating an 11 point advantage to those backing the Lakers.
Similarly, odds tend to suggest that the 76ers are at a 4.1 point disadvantage without All-Star Center Joel Embiid on the court, when in reality the number is closer to 2.2 points.
When talking NFL, oddsmakers have publically stated that few players are worth more than 3 points either way and even have gone as far as to say that a running back injury largely has no true impact on the spread itself.
New stock traders are often caught up in the hype of trending topics or press releases that give them the sense of holding an advantage over the Average Joe. Little do they know, they are often the Joe sharp investors enjoy having around as they inflate and shift the market in ways that create opportunities that would not exist without them.
Next time your news ticker announces the release of a new iPhone and you feel the time is right to buy into Apple, do understand that you are already behind the curve, and while you still might turn a small profit, plenty have invested long before and are counting on you buying into the hype to further drive up their earnings.
Sports betting offers advantages unavailable in few markets elsewhere, largely in part to the speed in which results are delivered. With numerous events taking place any given day, one can exponentially grow their investment in a few hours, whereas a $1,000 investment in a seasoned stock might take months or even years to turn a 10% profit. This high turnover rate of investment opportunities allows sports bettors to reach a compound growth much faster than ever possible in the stock market.
Much like stock investing, sharp bettors are able to watch the market develop over the course of the week, as opening lines sometimes remain unchanged while others are quickly adjusted to reflect one-sided action. Bettors are given numerous chances throughout the season to see which teams and situations drive certain moves, and their task becomes beating the market rather than beating the bookmaker themselves. Knowing when to buy early or late based on incoming action driving up the price on one side can hand you a multi-point advantage over the actual line, and what might have been set up as a coin flip now sees you with a 57% of winning. This slight advantage might not sound like much, but it further drives home the importance of a longterm, disciplined approach to betting.
It’s no coincidence that bookmakers see an increased amount of wagers on nationally televised events, as the average bettor wants to watch his bet play out. As an investor, you are betting against a fluid market being driven by many casual participants who view the act as a form of entertainment. Rarely will you compete with casual homebuyers when looking to invest in property, and most involved with the stock market are all after some sort of long term profit.
For this reason, sports betting could be one of the few places where you are being asked to compete with others who have little to no understanding of long-term objectives. Their emotional and predictable reactions to headlines can leave the door open to those smart enough to pounce.