Sports investing combines a mixture of betting skills and some luck.
Long-term success can only be achieved by finding consistent value betting opportunities.
But how much of this comes actually comes down to betting skills?
Moreover, does luck play a bigger role than betting skill?
Read on to learn more.
What Do Betting Odds Mean?
Odds set by the sportsbooks are a reflection of the public’s opinion as to which competitor is likely to win.
The market is similar to a prediction contest.
It includes the opinion of both professional sports bettors and the general public.
The key to success is to be better at predicting the results than everyone else’s opinion.
Now, there are certain elements like randomness that play a role, but if you can consistently predict results better than market’s reflection, you’re more likely to make +EV plays and profit in the long run.
This sounds pretty simple.
So why is it so hard?
Let’s look at baseball to help answer this question.
What We Can Learn From Baseball
Ted Williams of the Boston Red Sox had a 0.406 batting average back in 1941.
This was seen as an incredible achievement at the time because batting averages remained between 0.25 and 0.28 ever since the professional game began in the 1870s.
It remains to be beaten to this day.
But if you put Williams into today’s game, there’s no way he would be able to repeat this feat.
The game has advanced across the board, such as the training intensity, tactic know-how, diet and overall, how to be a professional.
So, what’s going on here?
Well, batting average has always been a relative measure of skill.
The MLB has evolved into a multi billion dollar brand.
The standard of play is so high now, meaning that batters are considerably better at hitting the ball.
Pitchers have gotten better too; technique and IQ are vital.
In his book “The Success Equation“, Michael Maubossin describes the battle between pitchers and batters like an arms race, where absolute skills show much improvement in all areas, but the relative skill of all players remains largely the same.
Also, even though the skill level is much higher, the gap between the best and the worst players is smaller than it ever has been.
Imagine there was a line drawn in the sand and at the end was the peak of human ability.
When pro baseball first entered the scene, only a handful of players could have gotten near to this point, but most players were no where near.
Over time, better players have replaced the weaker ones in the league.
So, going back to the line in the sand, the gap between those closest to the line and the rest of the field has narrowed.
Hard Work = Luckier?
We’ve covered in plenty of posts about the importance of hard work in sports betting.
You will never make long-term profits without it.
But does it have any merit in this scenario?
Consider the following equation:
Variance in Skill + Variance in Luck = Variance in Outcome
So, when applying this to baseball, and according to the standard deviation (SD), when the Variance in Skill decreases, it should be apparent in the variation in batting averages.
In the 1870s, SD in batting averages was around the 0.05 mark.
This meant that around 66% of batting averages lied between 0.2 and 0.3, while 95% of batting averages lied between 0.15 and 0.35.
In today’s game, SD has halved compared to when the professional game first started.
As such, extreme outliers are harder to come by.
Back in the day, a 0.40 batting average may have occurred, say, once out of every 1,000 batters.
Now, a 0.40 batting average may only occur once in a million.
It should also be noted that when Variance in Skill reduces Variance in Luck, luck becomes more important in determining who will win the game.
Are Some Sports More Predictable Than Others?
Successfully predicting the outcome of a game depends on the sport.
For example, there are way more chances to score in basketball than there are in baseball, or even ice hockey for that matter.
As such, within the sport itself, variance plays a larger role in ice hockey than basketball.
“If you were to define a lucky break early in a hockey game, that could decide the game, but there’s no such thing in the second quarter of an NBA game.”
There are plenty of other factors to consider than just the number of scoring opportunities.
For example, soccer matches can end as a tie, so there’s an extra potential outcome to think about.
In tennis, everything comes down the individual player.
So, to some extent, sports are more predictable than others.
But that doesn’t mean that they’re easier to bet on.
Far from it.
The NBA and NFL betting markets, for example, are very efficient.
You cannot just go in blindly and expect to win.
Sure, you may win here and there, but it’s just because of luck.
It could have just easily have gone the other way.
Impact On Sports Traders
Sports betting is a contest between those willing to back a trade and those who will lay it.
It’s the same in stock markets; the contest is between the buyers and the sellers.
When one side of this content is better at predicting the outcome (the game’s outcome in sports betting; an asset’s intrinsic value in stocks), then there is potential to make long-term +EV selections, and the subsequent profits, once the good and back luck have cancelled each other out.
However, as more people create more sophisticated strategies, the role of luck may play a larger role in betting outcomes.
As noted by Mauboussin, “the more everyone’s level of skill looks the same, the more you’d expect the range of excess returns for money managers to shrink.”
And that’s what happened.
Between 1960 and 1996, Morningstar’s SD on mutual funds returns dropped from around 13% to around 8%.
This wasn’t because the business wasn’t as good at forecasting returns anymore.
The rest of the field caught up, so they were competing against higher-skilled people.
Many sports bettors have faced the same fate over the years.
As the markets become more efficient, it’s getting tougher to make a good return.
But we are not among that group.
Instead, we consistently generate a 120% ROI from sports investing.