Unusual Investments

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Does Sports Betting Ever Make Sense?

The nation has gone bananas over legalized sports betting.  In the past, you had to go to Nevada, Atlantic City, or an Indian reservation to legally bet on sports.  As of 2022, 30 states allow legalized sports betting, and 18 of those allow you to conveniently bet from a smart phone app.  Over $500M in legal sports betting on the the 2022 Super Bowl has been reported, and the total amount of all sports betting on the Super Bowl (including things like fantasy leagues, Super Bowl squares, neighborhood pools, etc.) was projected at almost $8 billion.

But the question is, does sports betting make sense?  Does investing $1 into legalized sports betting yield you an expected value back of greater than $1?  Is there some other smart reason to invest your money?  Let’s examine this.

Most People Suck at Picking Winners

Watch any NFL pre-game programming, or listen to sports talk radio where the experts give their picks.  These people study football all day, some have played it and they all have a lot of connections with people inside the league.

Yet track their picks over the course of the season and they typically aren’t any more accurate than a coin flip.

CBS Sports lists season long results for its 8 insiders, senior writers, and senior fantasy writers against the spread.  Here are there winning percentages when you take out ties: 53.5%, 51.7%, 51.7%, 47.6%, 54.6%, 51.3%, 49.8%, 51.7%.  They are basically all clustered around 50%.

The Vig Makes the Break Even 52.4%

At the typical sports book betting odds of -110, you have to win 52.4% of your bets to break even.  This is because if you win a bet, the house keeps a portion of the winnings as their service fee (if you lose, you lose your money but there is no extra fee).

So in the example above, only 2 of the 8 experts broke even.  Six out of 8 lost money.  And they analyze football and make predictions for a living!

Be realistic and pick dozens of games on paper without risking any money yet.  Are you so good that you are consistently winning at least 53-54% of your games over an extended period of time?  Was it just luck or were their specific things happening that you expected but the general market did not.

For most people, they don’t have any real advantage when it comes to picking games.

Supporting the Kids

If a neighborhood kid is fundraising for his baseball team, and offers you the chance to participate in a Super Bowl squares game, then I get it that you want to be charitable.  So feel free to participate and get that warm feeling from supporting the kids.  But keep in mind it is charity and not an investment with a positive expected return.  If they raise $2000, they aren’t going to pay out the entire jackpot to the winner.

The baseball team will keep a large cut.  Which is fine if you like supporting the baseball team and don’t care about losing money.  Occasionally you will see someone be even more generous by letting them charity keep the jackpot.

I also realize with Super Bowl squares, it sometimes is just a friendly neighborhood game where all the money that goes in is paid out.  In this situation, the expected return would be $1 for a $1 bet (albeit a lot of the participants will walk away with zero).  So while it doesn’t necessarily make sense to take on risk for a break even expected return, sometimes you might accept it rather than push back and make a fuss about a friendly neighborhood game.

The Rare Situations Where Sports Betting Makes Sense

Unless you are a savant when it comes to picking winners, there are basically two situations where sports betting makes sense.  The first is when the casino is giving away a large teaser first bet as a way to get you hooked.

In the past Super Bowl, you could bet $5 on either team to win, and would get $280 if they did win.  Obviously those are stupid odds from the house perspective.  You should not be giving someone such a huge payback just for betting on the favorite to win.

But like drug dealers, sometimes it makes sense for the house take a loss on the first delivery in order to get the customer addicted and/or wanting more.

As long as you just take the deal and then cash out and close your account, that bet makes sense.

Risk Management and Hedging a Promise

Another overlooked area where sports betting makes sense is hedging.  One father promised his son that if the Bengals made the Super Bowl, he would buy him a ticket and they would go to the game.

Preseason, the Bengals looked like they would be one of the 5 or 6 worst teams in the league.  So while it was highly unlikely that the Bengals would make the Super Bowl, there was still a chance.  Knowing this and knowing that 2 tickets to a Super Bowl in Los Angeles, plus travel, could easily cost $10,000 or more, he smartly hedged.

He placed a longshot bet on the Bengals to win the Super Bowl at the beginning of the season.  Low and behold, the Bengals shocked the world and won the AFC Championship.

He then settled his active bet with the online sports book after they won the AFC championship, but before the Super Bowl was played.  It wasn’t the full amount he would have earned if they had won, but he couldn’t risk the possibility of them losing and him making nothing.  By cashing out, he was able to use the funds to pay for Super Bowl tickets.

The Bengals ultimately lost the game, but it was an enjoyable once-in-a-lifetime experience nonetheless.

 

 

 

 

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