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Sports Gambling Post

The world of sports gambling is correctly assumed to be seedy and arcane, but I’ve been trying to figure out how it is that bookies make money, and it’s pretty cool. The wikipedia explanation is great, but it leaves out some tricks that Chad Millman explains well. Millman is a reporter, and can be best described as ESPN’s gambling correspondent.

Imagine a horse race with 5 identical horses and 5 gamblers each supporting 1 of the horses. You’re the bookie, and you set the lines at 5 to 1. Each gambler gives you $1, you have $5 in total, and the gambler who wins gets the $5. At some stage in the illustrious history of betting some dude figured out ‘overbounding.’ With overbounding, the bookie reduces the odds each contestant winning so the total paid out is less than the bookie takes in. In the horse race example, the bookie could set the line for each horse at 4 to 1. Thus the same 5 gamblers each put in $1, but the winner only gets $4, and the bookie keeps the left over dollar as profit. If you convert the lines (which are odds) to probabilities, then the bookies makes money when the sum of the probabilities of all offered bets exceeds 1, and the expected proportion of the total that will become profit is equal to the 1 minus the sum of probabilities.

What Millman reports on and is equally cool is that bookies figured out they could make even more money by setting the lines based, not on realistic probabilities, but on what the public believes are good probabilities. Say horse 1 is really popular, or just looks fast, but really is just like the other horses. Then the bookie can set the line for horse 1 to 3:1, and the gambler will still take the bet because of horse 1′s perceived speed. If that horse happens to win, the gambler only gets $3 and the bookie gets $2 rather than just $1.

According to Millman, the bookies in Las Vegas will change lines based on the day of the week. On weekends, they reduce the lines for the popular teams because that’s when all the rich idiots are there betting on the popular New York and New England pro teams, and the California and Florida college teams.

The horse racing example is probably a bad one because in real horse racing the adjust the lines based on the previous bets, but they still overbound.

For the point of view of the gambler, the task is to find the underdog horses that have been missed by the bookies. If the true odds of, say, horse 5 are 4:1 but the bookie gives you 5:1 then you’re smart to bet on horse 5. But that assumes you know more than the bookie. When you think of it this way it’s more clear that your betting against the guy who sets the lines as much as your betting on any actual contestant. And the bookie is a professional who does this day in day out. I’m a professional epidemiologist and if some random dude off tried to out epidemiology me, I’d imagine that I’d have some pretty clear advantages. Yet everyday people think they know more than bookies, and take bets with them.

All of that said, it’s still so tempting. The Vegas odds on the Celtics winning the NBA championship as of writing this are 9 to 2. I could throw in $40 and win $180. Everyone picked the Cavs last year and they didn’t even make it to the finals. What’s to lose?