Wednesday, October 22, 2008

World Series Betting

The World Series begins tonight, and whoever wins we'll get a fantastic scenario-- the World Series trophy residing in Tampa Bay (!) or Philadelphia fans who are likely to boo the championship parade. Personally, I like Tampa Bay in the matchup-- I think they're just a little better on all margins in the pitching/defense/offense comparison-- but a short series can be won by an inferior team. (St. Louis was far worse than Detroit in 2006 and won the Series in a remarkably easy 5 games.) Anyhow, I'm especially excited to see how Hamels pitches the Tampa Bay lineup this evening.

Nonetheless, I believe there may be something of interest on the betting end of things; at this point, it may be too late to do anything about it, but it struck me this morning as I was driving. Tampa Bay, as you may or may not know, is a young franchise that has been remarkably bad up until this season. Not surprisingly, the general consensus was that Tampa Bay was in for another awful season, so the getting was good on a title bet on Tampa Bay prior to the season, through Spring Training and into the first few weeks of the season. And you don't need to put much money down in order to have a 100-to-1 (or greater) bet become pretty valuable if things shake out your way.

As TPS gambling consultant Rob Holub has let me know (numerous times over the year), the sportsbooks were a bit slow on adjusting their Tampa Bay win-the-World-Series line for the entire season. On May 14, Tampa Bay to win the World Series could have been had at 100-to-1. Tampa's record on May 14 was 23-17, which was slightly pace in terms of the rest of the season-- certainly, the inertia from their franchise history kept the odds very high. And a number of people jumped on board, if for no other reason than to root for Tampa Bay for the rest of the summer.

The problem for the sportsbooks was that Tampa Bay kept on winning. Now there is a large potential payout should the Rays pull it out. This article here talks about the situation, but I think it misses the larger issue. Should you be sitting on a large potential Tampa payout, the risk-minimizing thing to do is to turn your position into a risk-free payout by hedging your bet by betting Philadelphia to win the Series. This is the situation that sportsbooks have to dread-- not that they could be in trouble if Tampa wins (which could well be the case), but that they could have to pay out a large amount of money no matter who ends up winning. Whether Tampa wins or not, I'd be surprised if lines lingered at 100-to-1 or more for any length of time in the future, due to the exact scenario described above.

The interesting part to ponder is exactly what effect this will have on the posted lines for the World Series itself. In years past, the hedging of bets shouldn't have affected (in a large manner) the overall odds on the Series; so long as the hedging is about equal on both sides of the matchup (no reason to believe it would be largely skewed one way or the other in the recent past-- perhaps someone can correct my memory), the line should be a pretty good indicator of the subjective mindset on the outcome of the Series. And, in the long run, this subjective probability should mimic the objective probability pretty closely. (Systematic bias issues aside, of course, though I'm not aware of any within the scope of this situation.) But this year, you could have a large push on one side from people who aren't utilizing any special information to their advantage, just simply improving their position in a risk/reward sense. And this could lead to odds that don't reflect the true public belief of the outcome-- and given an unrestricted gambling market, this is pretty remarkable.

I guess an arbitrage model would have all of those hedges pushed back to the subjective-matching-objective level, but with so much uncertainty in baseball outcomes...should we expect that to happen? On top of that, is volume robust enough to generate the pure market outcome? The latter wouldn't worry me as much as the former; I think if you're a confident handicapper (and nothing outlandish happens over the next few weeks), I think there's a market discrepancy to be taken advantage of. Which, again, spells not good things for the sportsbooks.

Rob, what's your take on this? You follow the lines much closer than I do-- what has the movement on the series line been since it opened late Sunday?


rolub said...

Depending on where you shop for your lines, I believe that Philadelphia opened as high as +140. Before the ALCS even completed, the Phillies were +133 at Matchbook (source: If *cough* I had bet on the Rays at 100:1 odds on May 14th, and had I wanted to hedge my bet Monday afternoon, I could have *cough* bet them at +130 on Currently, they sit at +120 on the same site.

This movement is hardly the result of the Phillies being undervalued... it's undoubtedly the result of Rays backers hedging.

I'm curious as to why the books would have invited Phillies action as a hedge for Rays backers. The Rays are the favorite in the Series for reasons other than the books trying to limit their losses. If the Phillies, as underdogs from a non-betting perspective, are only +130 to win the WS, I wonder if that's high enough for a Rays backer to want to lock in a reasonably large profit. Assume $100 was risked to win $10,000. To guarantee a $50 profit, one could wager $4,250 to win $5,100 at the current +120 odds. Should the Rays win, they win $10,000 on the Rays, but lose the $4,250 for a total profit of $5,750. Should the Phillies win, they lose the original $100, but win $5,100 for a profit of $5,000. So this person locks in a profit between $5,000 and $5,750. Not bad.

But since the Rays are the presumed, non-betting favorite, why hedge so much? If I had bet the Rays at 100:1 *coughchokinghere*, I'd much rather place a smaller bet that would produce a profit, but leave my large profit possibility with the Rays. Such a scenario would have one betting $915 on the Phillies at +120. A Phillies win would guarantee you $1,098, less the original $100 on the Rays for a profit of a shade under $1,000. But should the Rays conquer all, the original wager would leave you with a $9,085 profit after the Phillies hedge. A much more attractive payout on the team believed to be superior.

Obviously, there are many different ways to do this... including waiting for the Phillies to be down 0-2, and then hedging/hedging more at even better odds. Overall, I'd be interested in the big payout, but getting this close on a 100:1 wager after an additional 122 regular season games and two playoff series, I don't know why anyone would simply "let it ride".

I'm sure that Vegas would want some Phillies action... what I don't believe is that they skewed the line at all to receive it.

rolub said...

And if you don't mind me pimping somebody else's website (even though I already have in my previous post), here is the WS preview from VegasWatch:

Pretty sure I can't hotlink it, so sorry for the ugly format.

Matt E. Ryan said...

Risk preference is a preference; no normative judgement made on what you would do if you, I don't know, happened to have one of those 100-to-1 Rays lines on your side. The point I was trying to get at was that for any given line on the World Series and the fact someone could, purely hypothetically of course, hold a 100-to-1 payoff, there exists a risk-free profit to be had; where you want to fall on the spectrum is completely up to you. From your back of the envelope calculations, given the 100-to-1 and the Series being roughly 50/50 on the board, it makes sense that that risk-free value is turning the original Tampa Bay 100-to-1 into about 50-to-1. Like you said, not a bad piece of speculation in May...if you were in that situation, of course.

rolub said...

that's why you write the blog... you made my point in about 1/6 the space.