Now that sports gambling has been legalized in several states in the US, people are flocking to apps like Draft Kings and Fan Duel sportsbooks. Sports betting is exploding in the US more than ever before, as it is now accessible to anyone with a smartphone. Stocks like DKNG, PENN and the sports betting catch-all ETF called “BETZ” might be great investments to look at going forward.
But as regular Joes dive in to sports betting, most of them quickly burn through their initial deposits and have to reload their accounts in short order. (This is why I think DKNG and the others are great investments, btw). What most new bettors fail to realize is that the sportsbooks remain in business because the whole game is rigged in their favor. This is due to a little thing called “the vig.” You know when you’re looking at a bet like Chiefs -3 and you see the odds are “-110”? That means you have to risk $11 to win $10. So if you win, the book pays you out $10. But if you lose, the book keeps your $11. This is how the books stay ahead of you.
So if you bet 100 times, winning 50 and losing 50, assuming all the bets were $11 to win $10, after 100 bets, you’d be down $50. Your 50 wins would only get you $500, while your 50 losses would cost you $550. You’d be down $50 overall after those 100 bets even though you went .500.
So where is the break-even point for sports bettors? What percentage of your bets do you have to win in order to turn a profit? It’s 53% minimum:
We can see that even if we win 52 and lose 48 bets, we’re still coming away down $8 after 100 bets. Only at a 53% win rate are you turning a profit, and it’s only a $13 profit despite the fact that you’ve risked $1100 in total over the course of your 100 bets. That’s a gain of just 1.18%. You’re better off buying long-term government bonds at that point.
You’re not even getting a 10% return on your money until you’re winning about 58% of your bets.
So why do people even bet on sports, then? It’s a rigged game! Well, because it’s fun and most people aren’t trying to be professionals. But for the people that do take it seriously and want to make money doing it, they’ve got to take all these odds into account.
Now, of course all these numbers I just went over are assuming you’re perfectly consistent with your bet size. Most people aren’t; they’re wildly inconsistent with how much they bet. Guys will put $100 into their DraftKings Sportsbook account and then place two $50 bets right off the bat. You could very well win both bets, but the risk there is that you lose both and get wiped out after just two bets.
Professional gamblers usually break up their bets into “units” which equate to 1/100th of their total bankroll, meaning they generally risk 1% of their bankroll per bet (a “one-unit play”). That way, if they go on a cold streak, it’s not going to bankrupt them. They know when to make the 2, 3, 4 and 5 unit bets. They pick their spots wisely. But most regular Joes don’t do this. Most regular Joes will bet 25-30% or more of their bankroll on a single game. And that’s why most of them get wiped out after a single cold streak.
The pros make lots of smaller 1% bets, confident that they’re going to hit on 54-55% of them and come out making a profit. And then when they finally find the perfect opportunity, they put down a huge bet. But they’re patient about it. They don’t try to force the issue. They wait for the prime, “white whale” opportunity to present itself, and then they bet the farm on it.
Bet size is just as important as knowing which team to bet on, honestly. Knowing when to bet big and when to be conservative is what allows pro bettors to both recoup losses and get way ahead. It’s almost like a football coach that has been calling a lot of 3-4 yard runs, and then, when he sees his golden opportunity, calls a deep bomb play action that goes for 65 yards and a TD. Pro bettors know when to swing for the fences and when to play it safe.
But anyways, that’s getting into a whole different conversation.
The point is, people today have very unrealistic expectations about how gambling picks are supposed to work.
Pro bettors do not get every game right. They don’t even come close to nailing all their picks. The best of the best will hit 57-58% of their bets consistently.