When you’re as much into sports and statistics as I am, it’s a bit of a foregone conclusion that I’m going to be a sports betting enthusiast.1 To be honest, I’m a bit surprised this is my first article on sports betting.
With sports bettors like me, conversations around sports sound less like, “You think the Lakers are gonna win tonight?” and more like, “What do you think of the Lakers at -200 tonight?2”
Sports betting also provides you with intriguing predicaments that test the mettle of your fandom. Are you going to bet against your favorite team to get those sweet odds on that sportsbook that has no idea what they’re doing?
One annoying thing about sports betting though is that sportsbooks aren’t very transparent about probabilities. Sure, when you’ve got the Lakers at -110 against the Warriors at -1103, it’s pretty clear that the sportsbook sees each of the two teams as having a 50% chance of winning.
But how does the probability of winning change as those odds vary? What if the Lakers move to +100 underdogs and the Warriors move to -120? And what if the line shifts further to +105 for the Lakers and -125 for the Warriors?
This is probably a good time to introduce the concept of breakeven probabilities.
A breakeven probability is the probability at which the expected value of a bet is 0. In other words, if you believe a team has a greater chance of winning than the bet’s breakeven probability, you should place that bet. If that’s still confusing, let’s look at an example.
If the Lakers are at -110 against the Celtics, the breakeven probability would be 52.381% according to this calculator. This means that you should only place that bet on the Lakers if you think the Lakers have a greater than 52.381% chance of winning. Breakeven probabilities are really useful because they force you to be very explicit about your beliefs for a given betting situation.
I made a chart below that shows how breakeven probabilities vary with the moneyline4.
You can see in the chart that the moneyline has a non-linear relationship with breakeven probabilities. More specifically, variations near the -110 range will have a much larger impact on breakeven probabilities than variations around more uneven moneylines like -500.
This is actually a bit unintuitive. We normally don’t think of the line moving from -110 to +100 as a big shift, but it actually represents a shift in breakeven probabilities by 2.381%. An equivalent shift in breakeven probabilities would be the line moving from +790 to +1000, which intuitively seems like a much bigger shift.
If gambling becomes more regulated in the future, regulators should target increased transparency in betting. In the mortgage industry, companies have to disclose interest rates in terms of APR. Similarly, sportsbooks should be adding more information about breakeven probabilities to bets. Imagine something like this:
Lakers (-150, 60%) vs Warriors (+130, 43.5%)
The above information is really straightforward to internalize for the average sports bettor. Only bet on the Lakers if you think they have over a 60% chance of winning. Only bet on the Warriors if you think they have over a 43.5% chance of winning.
Technically, you can compute those breakeven probabilities yourself with basic arithmetic or with some online calculator. But when you’re two beers in at a sports bar in Vegas and it’s a Conor McGregor pay-per-view card, are you really going to be the guy doing math?
Anyways, the next time you see the lines move from -105 to -115 for a given bet, don’t let the small shift in absolute numbers deceive you. It’s the same as the line moving from +600 to +730.
Trigger warning: This post contains quite a bit of gambling jargon and statistical concepts. I do my best to explain the terminology, but I probably fall short. As for those of you who bet on sports, I hope you enjoy.
Alright, quick tutorial on how to read betting odds in America. Betting on a team at -200 means that if you bet $200 on the team and the team wins, you’ll win $100, along with getting your original wager back. If you bet on a team at +110, that means if the team wins, you’ll win $110 along with getting your original wager back.
Another sports betting aside, but evenly matched teams both getting -110 odds are a great example of how sportsbooks make money. Let’s say the Lakers (-110) are playing the Celtics (-110), and you have one person betting $110 on the Lakers and another person betting $110 on the Celtics. The sportsbook effectively takes $220 in bets and only has to pay out $200 to the winner of the bet, regardless of which team wins. The sportsbook is guaranteed $20.
A moneyline refers to the amount of money you make if you place a bet on a winning team.