Many people love sports, and sports fans often like to place bets on the outcome of sporting events. Most casual sports bettors lose money over time, creating a bad reputation for the sports betting industry. But what if we could “level the playing field?”
If we turn sports betting into a more commercial and professional business, it is more likely that we can defend sports betting as an investment.
The sports market as an asset class
How can we move from gambling to investing? Working with a team of analysts, economists and Wall Street professionals, we often coin the term “sports investing”. But what makes something an “asset class”?
An asset class is often described as an investment with a market – which has an inherent return. The world of sports betting clearly has a market – but what about a revenue stream?
For example, investors earn interest on bonds in exchange for lending money. Shareholders get long-term returns by owning part of a company. Some economists say that ‘sports investors’ have an inherent return built in in the form of ‘risk transfer’. In other words, sports investors can earn returns by helping to provide liquidity and by transferring risk between other participants in the sports market (such as the betting public and sportsbooks).
Sports investment indicators
We can take this investment analogy a step further by studying the sports betting “market”. Just as more traditional assets such as stocks and bonds are based on price, dividend yield and interest rates, the “price” of the sports market is based on point spreads or odds of the silver line. These lines and odds change over time, just as stock prices go up and down.
To further our goal of making sports betting a more commercial enterprise and to study the sports market in more detail, we are collecting several additional indicators. In particular, we collect public “betting percentages” to study “money flows” and sports market activity. Additionally, just as the financial headlines scream, “Stocks rally on heavy volume,” we are also tracking the volume of betting activity in the sports betting market.
Sports market participants
Earlier, we discussed “risk transfer” and sports market participants. In the world of sports betting, sportsbooks serve a similar purpose as brokers and market makers in the investment world. They also sometimes act in the same way as institutional investors.
In the investment world, the general public is known as the “small investor”. Likewise, the general public often makes small bets in the sports market. The small bettor often bets with his heart, his roots for his favorite teams and has certain tendencies that can be exploited by other players in the market.
“Sports investors” are participants who perform a similar role as a market maker or institutional investor. Sports investors use a trading approach to profit from sports betting. In effect, they take on a risk transfer role and are able to capture the returns inherent in the sports betting industry.
How to capture the returns inherent in the sports market? One method is to use a contrarian approach and bet against the public to capture value. This is one of the reasons we collect and study “betting percentages” from several major online sportsbooks. Studying this data allows us to take the pulse of the market action – and determine the performance of the “mainstream”.
This, combined with point spread movement, and the “volume” of betting activity can give us an idea of what different participants are doing. Our research shows that the public, or “small bettors”, are generally underperforming in the sports betting industry. This, in turn, allows us to systematically capture value using sports investing methods. Our goal is to apply a systematic and academic approach to the sports betting industry.