Mr. My Way
The Confidence Equation
Friends,
First I want to bring an enlightening podcast episode to your attention.
🎙️How a Professional Sports Bettor Really Makes Money (Bloomberg Odd Lots)
Joe and Tracy interview pro gambler
. In under an hour you can learn a ton about the sports gambling industry. With sports leagues shoving it down our throats, young and old alike, I feel it’s important to understand what’s going on. And it’s not pretty.I’ve talked about how this industry is rigged in “Free” Markets Wet Dream. This podcast echoes the problems but it encompasses so much more — opportunities, cultural impact, and basic mechanics. There are lots of misconceptions about sports gambling as well.
This is a list of some of the less-obvious ideas found in the interview:
Professional Sports Betting Strategies and Challenges
Identifying Market Inefficiencies: Spotting mispriced odds and exploiting gaps in bookmakers' knowledge, especially in niche markets.
This exchange is the betting parallel of fundamental vs arbitrage investing:
Tracy (07:49):So just so we can better understand this dynamic, walk us through your sort of day-to-day as a professional sports gambler. What kind of opportunities are you trying to identify and then how do you decide how much money, for instance, to apply to each individual bet?
Isaac (08:05):Yeah, so it's a great question. So it really depends on what sports are in season. So right now, you know, end of the NBA, but there's a lot of MLB things like tennis are year round. And so it does depend on the sports.
There are in general two ways of identifying profitable sports bets. The first is you can take sort of a market-based approach. And by a market-based approach, what we mean is there are tons of sports books all out there and as Joe mentioned, they're all offering all of these different kinds of bets. And if you constantly scroll through all of the odds, you're going to find slight mispricings. So let's say everybody has the Yankees as two-to-one underdogs and one sportsbook has them as a three-to-one underdog. You can identify that as off market and you can place that.Tracy (08:45):
Oh, I see. So you're not saying that the platforms have the odds wrong, you're trying to identify outliers among the platforms.
Isaac (08:51):
That's exactly right. yeah. So that's probably the main that the majority of professional or winning sports betters make money is by identifying markets which are simply mispriced. And for that you don't need any special sports knowledge, you just need to have a screen with all the odds and constantly be scrolling through them and looking for price changes and looking for books that are slow to update.
The other way to do it, which is a lot harder and a lot [more] rare, is to basically create your own numbers. So you say, okay, I know exactly how much each player is worth. I know what the weather is going to be today, I know these matchups and so I'm going to generate kind of from scratch from my own, model the odds and then apply that to the market. And when it comes to major liquid markets like the NFL or the NBA or the MLB, that's really, really hard to do. And there are very, very few people who can do that, but those are the people who make the most money.
“Flipping Whales”: Partnering with high-rolling bettors who are often losing money but have high betting limits, allowing professionals to place larger bets indirectly.
Account Limitations and Closures: Sportsbooks limit or close accounts of consistently winning players. In fact, the first few bets you make on a platform are given a heavy weight in determining your betting limits. If you open an account to arb a line, the platform knows it because they know what the sharp side is. To get a healthy bet size limit you want to open an account with trades that casual amateurs make. Bet on the home team. Go for some parlays. Be a sucker.
Maintaining Multiple Accounts: To circumvent limitations, professional bettors often manage accounts across various platforms and use accounts of friends or family members.
Regulatory Concerns and Societal Impacts
Match-Fixing Concerns:
Lower-Profile Sports Vulnerability: More prevalent in sports where athletes earn less, making them susceptible to match-fixing offers.
Risky Prop Bets: Bets on specific player performances increase the risk of manipulation.
Monitoring and Enforcement: Challenges in maintaining integrity across global sports markets.
Addiction Risks:
Young Men: Disproportionately affected due to emotional attachments to sports teams and delusional beliefs about their betting acumen.
Mobile Access: Easy access through apps exacerbates addiction potential, making gambling omnipresent and more enticing.
Lack of Transparency:
Tracking Wins/Losses: Many platforms make it difficult for users to track their overall performance.
Deceptive Advertising: Emphasis on potential wins while downplaying the risks involved.
Targeting Minors: Use of "social" sportsbooks and fantasy sports apps to attract younger audiences.
US vs. European Models:
European Practices: European sportsbooks are known for being less accommodating to winning players, often quickly limiting or banning them.
US Adoption: Many US sportsbooks, owned or influenced by European companies, adopt similar practices, focusing on market share and profitability by restricting successful bettors.
Technological Aspects of Sports Betting
Mobile Apps and Online Platforms:
24/7 Betting Access: Allows for instant betting from anywhere at any time.
Variety of Bet Types: Including live in-game betting and exotic prop bets.
Engagement Tactics: Use of push notifications and personalized offers to keep users betting.
Data Analysis and Algorithmic Pricing:
Initial Odds Setting: Advanced statistical models and real-time adjustments based on betting patterns.
Third-Party Providers: Specialize in generating odds for niche markets, contributing to the breadth of available bets.
Geolocation and Identity Verification:
Regulatory Compliance: Ensures users are betting within legal jurisdictions.
Preventing VPN Bypass: Ensures bettors cannot circumvent geographical restrictions.
KYC Processes: Verifying age and identity to comply with legal requirements and prevent underage gambling.
Future Outlook and Potential Reforms
Advertising Regulation:
Restrictions on Ads: Calls for limits on the frequency and content of gambling advertisements.
Honest Marketing: Need for ads that accurately depict the risks of gambling, including mandatory disclosures of odds and average losses.
In-App Transparency Improvements:
Display of Wins/Losses: Clearer, real-time tracking of a user’s total betting performance.
Responsible Gambling Tools: More prominent tools and resources to help users manage their gambling.
Research and Data Collection:
Independent Studies: Need for unbiased, non-industry-funded research on gambling impacts.
Tracking Problem Gambling: Better data on the prevalence and demographics of problem gambling.
Regulatory Effectiveness: Evaluating the impact of different regulatory measures.
Enhanced Responsible Gambling Tools:
Opt-Out Limits: Consideration of default deposit and time limits that users must opt out of, rather than opt in to.
AI Integration: Use of artificial intelligence to identify and address problematic betting patterns.
Improved Self-Exclusion Programs: Streamlined processes for self-exclusion across multiple platforms to help problem gamblers limit their activity.
Economic Reality of Gambling Companies
Misconception of Profitability:
Despite the significant growth and visibility of the sports betting industry, many companies are not as profitable as assumed.
Customer Acquisition Costs: Sportsbooks spend heavily on marketing, promotions, and sponsorships to attract new users. These costs often outweigh the revenue generated from bets.
High Operational Expenses: Maintaining compliance with regulations, technology infrastructure, and customer support adds to the costs.
Competitive Market: The need to offer competitive odds and bonuses to attract and retain customers further squeezes profit margins.
Focus on Market Share: Many companies prioritize expanding their user base and market share over short-term profitability, leading to significant investments in customer acquisition and retention.
iGaming as the Future:
Strategic Shift: Many gambling companies see online casino games (iGaming) as their future primary revenue source. These games are more addictive and provide higher margins due to their rapid play nature and the continuous betting opportunities they offer.
Regulatory Landscape: iGaming is currently legal in fewer states compared to sports betting, but where it is legal, it dominates revenue figures, indicating its profitability.
Predatory Practices:
Increasing Losers' Bet Limits: Sportsbooks often increase betting limits for users who consistently lose money, encouraging them to bet more and lose more. This contrasts sharply with the practice of limiting or banning successful bettors.
VIP Programs: Offering special incentives and higher limits to big losers, which can exacerbate their gambling problems and financial losses.
The house edge on typical bets in sports is in the ballpark of 5% if you have have to risk $110 to win $100 on a coin flip. The house edge is ensures a healthy long term profit for the sportsbooks if they can avoid smart bettors. But the edge is small enough to keep bad bettors coming back. They win enough to think they have a chance.
On my flight back from NJ, I read applied mathematician David Sumpter’s The 10 Equations That Rule The World (he was the author of the sports analytics book Soccermatics as well).
It’s a good book for introduction to the below topics especially since it provides lots of real-world applications about problems we encounter on a regular basis. For example, he uses Bayes’ Theorem to show why forgiveness is not just a gracious thing to do but a statistically sound choice. He also bodies Jordan Peterson if you’re into that.
The book is sequential — the equations build on preceding ones to build rich models that underpin profitable business and life decisions.
Taking the baton from Odd Lots, we can use chapter 3’s Confidence Equation and chapter 6’s Market Equation to establish a basis for determining if we actually have an edge.
Let’s get into the details.