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Many individuals enjoy sports, and sports fans often enjoy placing wagers on the outcomes of sports events. Most casual sports bettors lose money over time, creating a bad name for the sports betting industry. But what if we could “even the playing field?”
If we transform sports betting into a more business-like and professional endeavor, there’s a higher likelihood that we could make the case for sports betting as being an investment.
The Sports Marketplace as being an Asset Class
How can we make the jump from gambling to investing? Dealing with a team of analysts, economists, and Wall Street professionals – we often toss the phrase “sports investing” around. But what makes something an “asset class?”
An asset class is often described as being an investment with a marketplace – that has an inherent return. The sports betting world clearly has a marketplace – but what about a source of returns?
As an example, investors earn interest on bonds in exchange for lending money. Stockholders earn long-term returns by owning a portion of a company. Some economists claim that “sports investors” have a built-in inherent return in the type of “risk transfer.” That is, sports investors can earn returns by helping provide liquidity and transferring risk amongst other sports marketplace participants (such as the betting public and sportsbooks).
Sports Investing Indicators
We will take this investing analogy a step further by studying the sports betting “marketplace.” Much like more traditional assets such as stocks and bonds are according to price, dividend yield, and interest – the sports marketplace “price” is based on point spreads or money line odds. These lines and odds change over-time, just like stock prices rise and fall.
To further our goal of making sports gambling a more business-like endeavor, and to study the sports marketplace further, we collect several additional indicators. Specifically, we collect public “betting percentages” to study “money flows” and sports marketplace activity. Additionally, just as the financial headlines shout, “Stocks rally on heavy volume,” we also track the amount of betting activity within the sports gambling market.
Sports Marketplace Participants
Earlier, we discussed “risk transfer” and the sports marketplace participants. In the sports betting world, the sportsbooks serve a similar purpose as the investing world’s brokers and market-makers. They additionally sometimes act in manner just like institutional investors.
Within the investing world, the public is known as the “small investor.” Similarly, the public often makes small bets in the sports marketplace. The small bettor often bets with their heart, roots for their favorite teams, and it has certain tendencies that may be exploited by other market participants.
“Sports investors” are participants who take on a similar role as a market-maker or institutional investor. Sports investors make use of a business-like approach to profit from sports betting. In effect, they take on a risk transfer role and are able to capture the inherent returns of the sports betting industry.
Contrarian Methods
How can we capture the inherent returns of the sports market? One method is to utilize a contrarian approach and bet against the public to capture value. This really is one rationale why we collect and study “betting percentages” from several major online sports books. Studying this data allows us to feel the pulse of the market action – and carve out the performance of the “general public.”
This, combined with point spread movement, as well as the “volume” of betting activity can give us an perception of what various participants are doing. Our studies have shown that the public, or “small bettors” – typically underperform within the sports betting industry. This, consequently, permits us to systematically capture value by using sports investing methods. Our goal is to apply a systematic and academic approach to the sports betting industry.
