If you are familiar with the sports betting market, you’re probably aware that most bettors like to wager their money on popular teams. The biggest games see most of the action, and the money tends to go to the teams with the famous players or big market teams.
With legalized sports betting now in operation in 14 US states, new regional bookmakers have had to find a balance in their odds, with home-teams of their respective states getting much more action compared to the rest of the nation.
An ESPN article tells the story of how a casino in Oregon had their line for their first Oregon Ducks game move from opening them as a 3.5-point underdog all the way to favoring them by four points while most sportsbooks in other states still favored their opponent.
This sort of regional bias might provide interesting avenues to explore for smart sports traders in their respective states. But to be able to spot the right opportunities, one must first understand how home-team and sentiment bias work in the market.
The ScoreMetrics Labs is here to help you with that!
How real is sentiment bias?
Most experienced sports bettors know that the larger public likes to wager money on popular teams, especially when those teams play at home. But how do bookmakers take this into account and how does it affect the lines that they make available to the market?
Various interesting pieces of academic research have been dedicated to this subject, one of which is a 2016 paper on sentiment bias in NBA betting by Arne Feddersen, Brad Humphreys, and Brian Soebbing. They analyzed a sample of 32,000 NBA games and concluded that sportsbooks essentially increase the price on games that involve popular home teams and shade point spreads to increase their profits. They measured team popularity by team, All-Star votes received, and arena capacity utilization and found out that bookmakers made teams bigger favorites in correlation with those measurements of popularity.
In an interview related to their research, Brian Sobbing explained that “if the more popular team is the favourite, bookmakers make them a little bit bigger favourite, or shade the odds,” and “If they weren’t the favourite, they’ll make them a little less of an underdog.”
The subtitle for the interview article is really telling – “Oddsmakers capitalize on fans’ emotions to turn a profit no matter which way the game goes.”
In another research paper from 2010 on behavioral biases and point spread shading in the NBA, Brad Humphreys concluded that instead of just simply setting lines to balance the betting volume and living off of commissions, bookmakers are actually actively participating in the point spread betting markets and appear to be trying to systematically exploit uninformed bettors.
So, clearly the bookmakers are being smart about capitalizing on where the money flows to for maximizing their profits. The fact is that most people act and bet emotionally in the market. They bet on their favorite teams or players to win, pound the over in hopes of high-scoring games, or “emotionally hedge” and bet on the opposing team against their favorite, without giving any thought to the long-term ROI of the moves they’re making. It’s a recreational activity for these people. This creates an inefficient market, which in turn leads to interesting investment opportunities for sports traders.
In that sense, the situation is very similar to the stock market where people overreact to news, buy stock in companies that are in vogue, and make panic sales when a stock price plummets. Having a strategy in place and resisting the temptation of acting emotionally leads to profit over the long term in both markets.
Going against the public
Similar sentiment bias has been observed in NFL games as well. A famous and extreme example of this happened in the lead up to the 2014 Super Bowl between the Denver Broncos and the Seattle Seahawks. Broncos quarterback Peyton Manning was a hugely popular figure that year and neutral fans were rooting for him and his Denver team to win it all. However, the experts considered Seattle to be the better team, which was also evident in the opening lines that bookmakers in Vegas put out, favoring the Seahawks.
The public did not care, and the money flowed in for Manning and the Broncos, leading to wild changes in the odds as bookmakers reacted. The Broncos were favored by 3 points by the day of the game, which was obviously a great spot for the smart money to come in for Seattle, who ended up destroying Denver in that game (the final score was 43-8 for the Seahawks).
These types of situations are classic examples of when a contrarian approach makes sense in the market. Going against the crowd in huge games with popular players can be profitable when you follow the movements of public money and the lines. Research shows that the lower the amount of action a team gets compared to their opponent, the higher the chance of them winning the bet is. This has historically been true for football, basketball and baseball alike.
Following where the public money is going is really easy – there are plenty of websites that will provide you with daily betting consensus and line movement data for free.
Sports trading systems to beat the market
The bookmakers are no dummies. They are extremely capable in adjusting and shading lines to exploit the betting patterns of the public and maximizing their profits. A successful sports trader needs more than just a simple hypothesis to beat the sportsbooks and generate good profits over a long period of time.
Multiple ScoreMetrics systems in our portfolio use public money movement as one of the rules or criteria for an investment opportunity. But going against the public alone is not enough to secure a good ROI.
To understand how solid sports trading systems are built, have a look at our head trader John Todora’s new book – “Zero Correlation Investing – The Score Metrics Secret”. It’s currently on sale for a limited time, so go get yours now!
The ScoreMetrics Lab is the engine that runs the Sports Trading System operation, consisting of a team of researchers and writers who are constantly testing and retesting algorithms. They work hand in hand with our Head Trader and Creator of ScoreMetrics, John Todora to help find new breakthroughs and develop new systems.