For most, Friday May 14th, 2018 was an uneventful close to another work week. For a select few individuals, May 14th, 2018 was the day we could finally emerge from the shadows of the internet; validated. The United States Supreme Court ruled the Professional and Amateur Sports Provision Act of 1992 (PASPA) was unconstitutional!
My favorite past-time and budding profession was officially and unequivocally: “no longer illegal.”
Wait, what?
First, let me start by answering the question, what was PASPA?
PASPA made it unlawful for a state to license gambling, betting, or lotteries on amateur or professional sporting events, except in Nevada, Delaware, Montana, and Oregon. The latter 3 with lottery or “pool” style gaming. True-blue, traditional, sports betting was strictly confined to Nevada.
Repealing PASPA meant all 50 states and territories now have the right to make their own laws on sports betting. Taking the power of choice away from the Federal Government and giving each individual state the right to decide what level of legality is right for their citizens.
Back to the question at hand. Take a moment and ponder, what do you think a sports bettor does? What does a typical day look like? How does a pro bettor prepare to make a wager? What skills do they need to succeed?
The uninitiated would say, “they’re a bookie.” An average sports fan might suggest a pro bettor would “predict who wins a game.” A stock broker could propose, “use data to follow trends and make bets.” While many of these ideas have some validity to them, they fail to capture the essence of what is happening.
Professional sports bettors gather, clean, and engineer data to model the likelihood a given team/athlete has to win a game and compares that likelihood to the market price set by the sports book and refined by other bettors. Wagers are placed where inefficiency is found.
You might find yourself asking, how is predicting the likelihood a team will win a game different from picking the winner of a game? The answer can be summed up in one word, but I promise to elaborate further. Bias.
In honor of the current NCAA Basketball Tournaments nearing their conclusions, let’s take a look at an example to illustrate how a professional sports bettor thinks and how they prepare to stake a position in the college basketball markets.
On March 19, 2020 the BYU Cougars faced off against the Villanova Wildcats. BYU was favored by -500 on the moneyline. Or in plain english, to place a wager on the women of BYU to win their game against Villanova, one would need to risk $500 to win $100. Their odds to win were 1:5 or ~ 83.3%. Anybody worth their weight in salt would predict BYU to win this game. Your grandma, mail carrier, your favorite celebrity statistician, machine learning engineer, or average sports fan would likely all come to the same conclusion. 83.3% is in fact greater than 16.7%.
A professional bettor often capitalizes on the bias present in the market price. Our grandma, mail carrier, and statistician friend all know BYU is a better team than Villanova. The Associated Press lists team rankings next to the team names. BYU #6 – Villanova #11. Naturally, more money will be funneled into the favorite to win.
Learn more about cognitive biases/heuristics on simple psychology.
A sports bettor has to look at the problem in a different light, predicting the likelihood Villanova, the underdog, will win the game. A savvy sports bettor might give Villanova a 20% chance to win. The bettor’s number is 4:1. The market’s number is 5:1*. Assuming the bettor has an “edge” on the market, the expected value of the wager can be calculated as follows:
Exp Val = (Amount Won × Prob. Villanova Wins) - (Amount Lost × Prob BYU wins)
Expected Value = ($500 × .20) - ($100 × .80)
Expected Value = $100 - $80
Expected Value = $20
The professional bettor sees that staking a position on Villanova has a $20 expected value at the price of +500 or 5:1. But if you ask the bettor, they will still say BYU should win the game.
*Example is an estimation and does not include the house vigorish for clarity of message. House vig is typically around 4.5% per wager.
Glossary
Wager — synonym for a bet.
Edge — estimated advantage the bettor has on the market. Occurs when their projected number is more accurate than the widely available number/price for a given sporting event.