05 Apr 2013
Posted by admin 
BBasketball gambling is a big deal. The Final Four of the NCAA Men’s Basketball tournament is this weekend. While many like to celebrate the student athlete and the purity of the game, it has risen in popularity due to one simple fact – people like to gamble on it. People who don’t know anything about basketball love to participate in their office bracket pool. During the month of March it is common to hear people casually ask others “how is your bracket?” in all sorts of settings. Not surprisingly, people are wagering significant amounts of capital both legally in Nevada and illegally through whatever means possible. The NBA is headed towards its playoffs later this month. While NBA betting is much lower profile than the mass wagering on March Madness, it is also big business.
In 2012, Pregame.com estimated $12 billion of basketball (NBA and NCAA) wagers in the month of March alone. This includes legal and illegal wagers. To put that in perspective, the grand daddy of all gambling events – the Super Bowl – generated an estimated $10 billion of wagers in 2012. While the age old system of picking winners based on uniform color or mascot names can have some success (doesn’t it always seem like the person who wins the office pool knows zero about basketball?), such a large amount of capital drives real analytics.
In the old days, gambling lines were set by a few men in a smokey room in Las Vegas. As technology has taken over, the system for setting lines has become more and more analytic. Of course, most small time gamblers still make decisions based on feel or instinct (e.g., “this team is due” or “that team just looks faster”). However, as computing power has grown and become more affordable, serious investments have been to create a system that can “beat” the lines. Whiz kids from M.I.T. are being hired to create models that can create an edge. Just like the hedge funds that create computer models to beat the stock market, professional outfits have popped up to professionally attack the sports gambling opportunity. Creating an edge does not mean getting 100% of the wagers correct. It means generating a return on capital just like any other investment. If a gambler can win more than 52.5% of the time, they will make a return. Without going through the math, being correct 55% of the time generates a 5% return on capital. If one can get to 60% win rate, the return goes up to 14.5%. In a world where 30 year treasury rates are sub 3%, that is a damn good outcome.
ESPN published an amazing article this year about professional sports gambler Bob Voulgaris. Just like all gamblers he has had his ups and downs but his career path is fascinating. His ability to predict the outcome of games became so well known that a NBA franchise once hired him to consult on trades and roster decisions.
Click here to read the basketball gambling article from ESPN
