Value Betting »

by William Hanson

The increased subjectivity of sports betting affords the smart bettor the opportunity to identify bets that would be long-run profitable. These types of bets are called value bets. While any individual value bet may lose, this same bet over the long-run would be expected to yield a profit.

Generally speaking, bookmakers calculate their odds at levels which are in accordance with what they perceive to be the likelihood of an event occurring. However, there is no definitive way to accurately quantify probabilities associated with sports, as opposed to staple casino games such as roulette and blackjack. For example, in roulette we know there is a 1 out of 37 or 2.70% chance of the ball landing on a specific number. This is governed by the simple laws of probability. In football however, there are an infinite amount of underlying variables that can ultimately affect the outcome of a match (see Assessing Form for an in-depth analysis of these factors).

The increased subjectivity of sports betting affords the smart bettor the opportunity to identify bets that would be long-run profitable. These types of bets are called value bets. While any individual value bet may lose, this same bet over the long-run would be expected to yield a profit. Value can be defined as when you, the bettor, believe the probability of an event occurring is higher than that perceived by the bookmaker. In terms of odds, you believe the bookmaker set the odds at a level where the reward outweighs the risk.

There are two mathematical procedures in which you can determine whether or not value is present. One is a simplified method. The other, the implied probability method, is a bit more complex because it takes into consideration the bookmakers’ commission, or ‘overround’. Both methods involve calculating your own percentages for each outcome winning. We will explain both methods using the example below:

Example:

1X2 Outcomes
Odds
Manchester United(1)
1.59
Draw(X)
3.65
Arsenal(2)
6.35


These are the match result odds from a recent fixture between Manchester United and Arsenal. Anyone who follows football on a consistent basis knows that Arsenal is considered to be in the top-tier of the English Premier League clubs and is in contention for the title year after year. However, at the time of this fixture, their recent form was uncharacteristically sub-par. But a club like Arsenal can never be counted out of any match, especially against a hated rival such as Manchester United (once again, see Assessing Form). Furthermore, at this particular point in the season, United needed only one more point to clinch the league title; this could certainly affect several relevant factors, such as lineups, attacking styles, etc., which could improve Arsenal’s chances. With that being said, anyone who operates under the same assumptions would probably think that, at first glance, the odds for Arsenal to win, or even to tie for that matter, are pretty good.

Regardless of which method you choose, the first step in this ‘value finding’ process is to determine your own probabilities for the potential outcomes. Let’s say, after reading our in-depth analysis on how to assess form and doing your own homework on the teams yourself, you have decided that Manchester United is the clear cut favorite. You have decided that they have a 50% chance of winning the match outright. From there, you decide Arsenal has a 20% chance of winning the match, which leaves you with a 30% probability that the match will end in a draw.

Now that we have our expected probabilities, we can begin to determine if there is value. The two differing methods are shown below:

1X2 Outcomes
Odds
Your Expected Probabilities
Manchester United(1)
1.59
50%
Draw(X)
3.65
30%
Arsenal(2)
6.35
30%


Simplified Method:

Using WSN’s odds comparison tool, determine which bookmaker offers the best prices. In this case, we will assume they are the ones provided in the table.

Multiply the odds for a given outcome by the assessed probability percentage that you have determined. If the product is greater than 1.00, then there is value! Note: 1.00 is considered ‘fair odds’ because the payout percentage is even.

Example:

So a bet on draw or Arsenal to win would be considered profitable in the long-run.

Implied Probability Method:

This model is a bit more complicated than the previous method. This method allows you to derive the implied probabilities as perceived by the bookmakers from their odds prices. We calculate these numbers based on the assumption that the events are mutually exclusive (only one can occur) and that there are a fixed amount of potential outcomes. As a result, the probabilities should total to 1.00 (or 100%). The first step is to calculate what is referred to as the bookmaker’s Profit Indicator. This number displays how much the bookmaker receives in stakes whenever a payout of 1.00 is made. This is equal to the sum of the inverse of the decimal odds, or in the case of our match result example:

So, this number tells you how much the bookmaker expects to pay out regardless of which outcome occurs. In this case, the bookmaker will pay out 1.00 for each 1.06 of stake recieved.

Based on the assumption that the odds are properly priced and that the bookmaker will field a balanced amount of wagers per outcome, we can calculate the Payout Share, or how much the bookmaker expects to pay out to bettors in terms of a percentage of the total stakes collected for the match. This is calculated by taking the inverse of the Profit Indicator, or:

This means that the bookmaker expects to pay out 94.3% of the fielded stakes to its customers. On the other hand, the Profit Share, or amount of profit the bookmaker expects to receive, is equal to 100% - Payout Share.

The final step is to calculate the Implied Probability for each outcome. We can do this by multiplying each of the inverse odds price (1/odds) by the Payout Share as follows:

These are the implied probabilities derived from the odds that the bookmakers are offering. By comparing your own estimated probabilities with the bookmakers’ implied probabilities, you can determine if there is value:

Team
Odds
Implied Probability
Greater/Less Than
Our Assessed Probability
Value Present?
Man. Utd.
1.59
59.31%
>
50%
No
Draw
3.65
25.84%
<
30%
Yes
Arsenal
6.35
14.85%
<
20%
Yes

As you can see, there is value present with bets on draw or Arsenal win. This method is more accurate than the simplified version because it gives bettors a figure in which they can actually compare their projections. By properly calculating the implied probability, you can also identify smaller margins of value in matches where your advantage may only be slight. Properly calculated implied probability is published for all mutually exclusive betting markets on WSN. Simply click on the Information & Help tab when viewing the odds for any individual bet.

While there are several methods and strategies that bettors can use to improve their results, value betting is the first and most important step they can take. Those who do not, will almost always yield negative results in the long run.


Republished with the permission of WSN.com (Original Post)


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