Tag: Hockey Prediction

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Market Inefficiencies in Sports Betting

I can’t emphasize this enough: If you want to make money in any type of competitive market, including sports betting, then you MUST account for factors that others aren’t.

To simply rely on well-known, publicly available information when handicapping sports games is to fool yourself into thinking that you have an edge when you really don’t. Take another example in the stock market: Even if Tesla announces that they made record profits last quarter does not mean that right now is an especially good time to buy Tesla stocks. That’s because the current price of Tesla stocks has already taken into account how well the company did last quarter. So, to account for that factor when it’s already been accounted for in the current stock price is a case of “double-dipping,” and you’re fooling yourself into thinking that you have an edge when you really don’t.

Likewise, to gain an edge when betting on sports, you have to look for meaningful factors that the sportsbooks are not accounting for when they set the lines for the games so that you can zero in on undervalued teams before the market makes a correction – The equivalent of buying into real estate in a city BEFORE the news comes out that a new major company will be moving into town and creating thousands of new job opportunities. What you’d be effectively doing in this case is exploiting a market inefficiency. If you wait until the news becomes public, then you’re late because by that time, the price of the property will have increased proportionally to match everyone’s expectations.

It’s not as easy as you might think to find an incredible bargain in real estate because there are so many participants involved – not only in buyers but also in sellers. And as is true in the “wisdom of the crowd,” the more people involved in making guesses on the true value of a property, the more accurate the average of the guesses becomes. If many buyers and sellers are pricing their properties and bidding on them, then the final closing prices of these properties are usually the accurate prices. Therefore, the idea that you could stumble upon an exceptionally good bargain of a house that is priced ignorantly by the seller for much less than what it is worth, which only you could identify as a great value yourself but not the thousands of other real estate investors who are also trying to do exactly the same, is a notion that plays out much less commonly than you might think.

To find a great deal in any competitive market, you need to find an inefficiency and capitalize on it before others do. The problem is that inefficiencies are usually corrected very quickly. It takes as little as just ONE person to be aware of an inefficiency before it is corrected. Take the field of art for example. Let’s say that for a magical reason, you have indisputable information that an unknown and undiscovered artist will become wildly famous within the next 3 months. You can buy this artist’s painting now for $25. And in 3 months, the value of that artwork will rise to $10,000. What will you do in this case? Of course, the right strategy here would be for you to buy the artwork immediately for $25. That way, you can cash out in three months once its value rises to $10,000.

So, if you’re the only single person in the world who is aware that this undiscovered artist will become famous soon, and that his $25 painting will definitely rise to $10,000 in a few months (in other words: you’re the only person who is aware of the current price inefficiency), then you stand to gain an enormous amount of profits by buying into his artwork now. But if there’s just one other person who is also aware of the price inefficiency as well, then guess what? Your edge is lost. That other person is likely to come and offer much more money to buy the same piece of artwork. Instead of paying $25, he might tell the artist that he’s willing to pay $100. Upon hearing that, you might tell the artist you’ll be happy to offer $200 for the artwork. The other guy, knowing that the price is still highly inefficient, will now offer $500. In fact, you and the other person who is also aware of the price inefficiency will go into a bidding war until the final selling price approaches near $10,000. At that point, buying the artwork is no longer going to provide you with an enticing return. This example shows that if there’s even just one other person who is currently aware of a price inefficiency, then that one person alone is enough to correct it if he acts on it, leaving you with a very limited opportunity to profit on the inefficiency yourself.

Simply put: If you are the only person in the world who is aware of an inefficiency, then you stand to gain an edge. But as long as there is someone else who’s also aware of the inefficiency and can act on it, then your edge is threatened. The more people who are aware of the inefficiency, the faster that hole gets patched up!

To be a successful sports handicapper, you need to tap into the mindset of a successful investor. Take this to heart: You can’t consistently beat the market in the long run by relying on publicly available information that everyone else already considers. The more people who are aware of the information, the less useful that information becomes.

Here’s an example: A recent article stated: “Amazon reports $59.7 billion in Q1 revenue: AWS up 41%, subscriptions up 40%, and ‘other’ up 34%”

Pretty impressive numbers, right? So, does it mean that right now would be an exceptionally good time to buy some Amazon stocks based on that information? The answer is no, at least not based on that information alone. The current stock price of Amazon has already taken into account the fact that they did very well in the last quarter. Therefore, if you buy into Amazon stock right now based solely on the fact that they performed well last quarter, then you’re simply factoring in something that has already been reflected in the current stock price. As a result, you’re fooling yourself into thinking that you have an advantage when you really don’t.

Remember: The more people who are aware of the publicly available information, the less useful that information becomes in predicting the value of the associated security. The reason is simple: The more people who are aware of that information, the more likely it is that the current price of the security has already taken that into account, and therefore the current price is reflecting its fair market value.

We can take what we’ve learned here and compare it to a similar example in sports. Let’s say that earlier today, the Boston Red Sox destroyed the LA Dodgers 8-1 in a brutal blowout. Seems like the Red Sox team has the Dodgers’ number. Does that mean that based on this information alone, you should bet on the Red Sox tomorrow to make some easy money?

The answer here is no, at least not based on that information alone. The money line odds of tomorrow’s game have already taken into account the fact that the Red Sox completely outmatched the Dodgers in today’s game. The Red Sox destroying the Dodgers today is public information already available to everyone. And if others feel the same way as you do, then the odds for tomorrow’s game will reflect this. What happens next in this scenario is that the odds for tomorrow’s game will be set at a number where you’ll need to risk more money to win less money when betting on the Red Sox. Remember: The more people who are aware of the publicly available information, the less useful that information becomes when using it to make a prediction in a competitive market.

In other words: The greater the number of people who know that the Red Sox completely outclassed their opponent today, the more likely it is that the lines for tomorrow’s game would already factor into account that information. Therefore, relying on that piece of information alone when handicapping tomorrow’s game might be a case of fooling yourself into thinking that you have an edge when you really don’t. To beat the market when it comes to betting on sports, you must tap into valuable information that the sportsbooks and other sports bettors are not privy to.

The Red Sox may even be a good value bet tomorrow, who knows. But if they are a good value bet, that value better be coming from something else that the sportsbooks are not already factoring into account when they set the lines. If you rely on publicly available information that everyone already knows and has already taken into consideration, you are fooling yourself into thinking that you have an advantage when you really don’t have one.

I’ve seen it happen time and time again. An NFL team gets blown out 0-34 on one Sunday, and then all of a sudden everyone is deathly afraid to bet on them the next week. Remember that the result of a recent game is something that everyone already knows, and the more that information is known, the less useful it becomes because it is more likely that the lines for the upcoming game have already taken that information into account.

The sportsbook sets the line for an upcoming game by taking into account all the relevant factors surrounding the game. So, if you think that by factoring in something to give you an edge which the sportsbook has already factored into account when they set the lines, then you’re just simply fooling yourself into thinking that you have an advantage when you really don’t.

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