The “Value” of a bet

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The concept of Value on a bet

In the world of betting, there is a reality you can’t escape, if you don’t place “value” bets, you can’t profit long term. You can win during a few days, maybe even weeks, but if you don’t find an edge, you will eventually lose.

To better understand this concept, let’s imagine there are two friends, Mark and Lewis. They flip a coin several times (for exaggeration let’s imagine 1000 times). The chances of getting heads or tails is 50% (the coin is real and there are no tricks!).

Now imagine that Mark says to Lewis:

“I bet that it’s going to be heads, and if I lose I’ll pay you 55 cents, but if I win you pay me 45 cents”

This is an incredible deal for Lewis, let’s see why:
After 1000 times, we would expect to have gotten 500 head and 500 tails, which would mean that Lewis would receive 500*55 and pay 500*45, which would result in a final profit of 5000 cents (or 50 Euros).

That is, for each one of those 1000 bets, Lewis had won 5 cents. But keep in mind that Lewis would risk 45 to win 55, which means that in those 1000 bets, Lewis risked 45000 cents, in order to profit 5000.

Dividing 5000 by 45000 we get 0.1111, in other words, 11.11%.

For each unit wagered (be it 1 Euro, 10 Euros or 100 Euros), Lewis is expecting to win 11.11% of his stake. Since he is risking 45, he expects to win 5 cents each time the coin is flipped.

That means that Lewis is betting with “value” (in poker, we refer to this as +EV, or positive “expected value”). Mark on the other hand, is betting without “value”, because he is sentenced to lose in the long term.

Now let’s take a more complicated step of logic, that most people don’t understand.

Imagine that instead of flipping the coin 1000 times, you had only flipped it 10 times, and that Mark had won 7 times and Lewis had won only 3.

Mark’s final profit would be 7*45-3*55=315-165=150 cents in profit, which is what Lewis had lost.

Lewis couldn’t have been betting with “value” right? He lost money in the end!

Well, in reality, Lewis made the right decision, because this bet had a +EV. However, in this small sample, he lost. In the long term however, Lewis would eventually end up winning (and profiting).

From here we can draw some important conclusions:

  1. Profit or loss from a small sample is irrelevant and we should never make any decision based on such a small pool of results.
  2. We need to study a big number of occurrences in order to make decisions with “value” correctly
  3. Even when we are losing, if we know that the bets we are making have “value”, we need to keep calm and disciplined and keep on betting (we need to be completely sure that the bets really have “value”!!!).

For example, in a sample of 1000 flipped coins, it is very likely that we have a sequence of 10 heads or tails in a row. Imagine looking at that sequence alone, and basing your decisions on that “statistical anomaly”. If you think that is impossible to happen, beware, because it can happen to everyone!

To better understand the concept of “Value”, we can give a good example of a football match. Imagine that Manchester United, with their main stars fully available, and 1 point off the league leader, who drew yesterday, plays at home against the bottom team in the Premier League. Manchester’s chances of winning are huge, but how huge are them?

Let’s imagine that, according to our calculations, Manchester had 75% chance to win the fixture. Dividing 100 by 75, we obtain 1.33, which are the odds for the match.

These odds mean that if we bet 100 Euros on this match, and Manchester wins, we get 33 Euros in profit. If we lose the bet (if Manchester loses or ties), we lose 100 Euros.

Now let’s imagine that the odds available on Betfair were 1.65, that would be an excellent bet! That is because our expected profit from this bet would be 1.65-1.33=0.32 (whereupon we would have to remove the 5% commission, but we’ll keep things simple for now).

This bet would have excellent “Value”, because we were getting a bigger return than it was expected, considering the real chances for that outcome to happen.

Now imagine that the odds offered on Betfair were 1.20. That would be an awful “value” and it was expected that, in long term, by making bets like this, you’d lose money (and that is the main reason most bettors lose money, by betting on favourites, but we’ll talk about that later).

Even if Manchester won the match, your bet would have negative “Value” and shouldn’t be made. Making a bet on odds lower than the real chances of that outcome to occur is the most common mistake people make when betting.

Whether it is because you like betting on your team (Arsenal fans must have lost thousands betting on them in the past several years), whether it is because you want to place “just one more bet”, betting disregarding the “value” of the bet you are making means you’ll lose money. In sports betting, you don’t win by “luck”, you win by putting the odds on our favour.

On the 2005 Champions League’s Final, Milan was leading 3-0 at half-time. If you wanted to bet that Milan would win, at half-time, for every 100 Euros you bet, you would win 1 Euro (the odds were 1.01 for AC Milan).

In reality, these odds had terrible value, although it was almost impossible to foresee it. Anyone who looked at those 1.01 odds would think that it was absolutely impossible for AC Milan not to win that match. However, the match ended 3-3 and Liverpool won on penalties.

On the other hand, you know those horses that you can see live on Betfair with odds that of over 100? Those horses sometimes win too!

To summarize, there are no good or bad events, nor absolute certainties. What matters is the relation between odds and the real chance of the outcome, that is to say, the main aspect we should take into account when we are betting is if we are betting at good odds and getting good “value”.

Bettors usually mix this up with the fact of an outcome being more or less likely, namely, if it is very likely, I have more chances of winning money. Think about football, how many times in our League do the teams win away from home?

Make an estimate in your head. Now imagine that it would be possible to bet on every matchday with odds of 200 in favour of every team that is playing away. That would be great, right? If you understand this example, you are starting to understand the mechanic of what you should look for on sports betting.

The big challenge in all of this is in determining the real chances of an outcome, and being able to do it more precisely than the other thousands of bettors and analysts.

One thing is certain, it is pretty damn hard, but we’ll talk more about that later…

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