How to beat the bookie: Value Betting

There are many ways to beat a bookie. One of the well known methods is arbitrage betting, where you try to find price differences between different bookies. Some years ago this was a really good method, but today, as every single information about sports is available throw the internet, it is hard to find difference between bookies.

I will mainly focus on the so-called Value Betting. But what is Value Betting and how does it work?

The first thing you must know about odds in sports betting is: The odds of a bookie do not represent the probability of a certain event!! The odds of a bookie are the price for a specific bet. And the price is defined by the market. (To simplify everything, we will ignore the margin of the bookie)

Here a small example:

Bayern Munich – Schalke 04

Home odds: 1.25 (80%)

Fair odds: 1.34 (74.6%)

In this example Bayern Munich had a fair chance of 74.6 % to win against Schalke 04. But as many people like to bet on the favoured team, the odds are shortened by the bookie to a probability of 80%. If a bettor would now choose such odds, he definitely will not make profit at the end of the day. But of course, if these odds were shortened, there must also be odds, which were lengthened.

This can be shown, if we take a look at the so called market inflection points. Market inflection points are the points, where the odds of a specific betting market switch from shortened odds to lengthened odds.

In the picture you can see the cumulative expected profit, if you had backed all home teams in the Bundesliga from 2010 to 2016. As you can see, you will have gained a big loose, while backing all home teams to odds smaller 2.4. But after that, the profit-loose line rises. This is a market inflection point. Every odd smaller than 2.4 was shortened and you automatically will lose money. But if you had backed all odds between 2.4 and 9.5, you gained profit as the odds were lengthened.

And exactly this is, what I want to  exploit. Find the odds, where I get value, where exists a positive difference between the real probability of an event and the probability behind the corresponding betting odd. To achive this objective, I must be able to calculate the probability of an specific event as accurately as possible.

With this blog I will describe how to implement some predictive models, which are capable of identifing lengthened odds.