Sports betting has become a major investment theme thanks to new state regulations and the success of upstart stocks like DraftKings (NSDQ: DKNG) and Penn National Gaming (NSDQ: PENN). Casinos have always had reserve spots in the sin stock portfolio, but with more states opening their doors to legal sports betting, a shift in the industry could be imminent.
Which companies are best poised to profit off this expansion of legalized betting? That remains to be seen, but before investing hard-earned cash into sports betting stocks, you’ll need to understand how the underlying industry works. Unfortunately, there’s a lot more math involved than your traditional Super Bowl office block pool. Let’s take a look.
What is Sports Betting?
Americans have been betting on sports since the dawn of professional sports leagues. In fact, the 1919 White Sox actually bet against themselves and threw the World Series that year, resulting in one of the biggest scandals in pro sports history.
Sports betting is similar to stock picking in many ways. You research the teams, make a prediction and wager money on your predicted outcome coming true. But sports bets are win/loss propositions — there’s no profit taking or loss harvesting. If you win, you’re entitled to all the winnings of the bet. If you lose, the money you wagered is gone. (You can also tie, which is known as a push and the money wagered is returned to you.) The team expected to win is known as the favorite and the team expected to lose is known as the underdog. Obviously, a bet on the underdog produces a better return than a bet on the favorite.
The most popular sport in the U.S. to bet on is football, specifically the NFL. The Super Bowl is the most heavily-bet sporting event in the world with billions of dollars changing hands in a single evening. In this year’s game, the Kansas City Chiefs were favored by 6 points over Tom Brady and the Tampa Bay Buccaneers. If you had bet the Chiefs on the point spread, you’d need them to win by 7 or more points to collect on the bet. But not only did the Chiefs fail to cover the spread, they also lost the game outright. A bet on the Chiefs went right into the casino’s pocket, while a bet on the Buccaneers produced some nice returns.
Plus and Minus in Betting
If you download one of the popular American sports betting apps like FanDuel or DraftKings, you might notice numbers like +300 or -150 listed next to a particular team. In most countries (and at horse racing tracks), betting odds are listed as fractions, such as 3/1 or 5/2. But the U.S. doesn’t care much for fractions and decimals, so odds are listed as +300 instead of 3/1. However, these mean the same thing — a $100 bet wins $300 in profit (plus the original $100 is returned for a $400 total payout).
These are known as American odds or moneyline odds because they’re used primarily at American sportsbooks. The team with the plus (+) next to its number is the underdog; a $100 bet wins $300 if the number is +300. The team with a minus (-) next to its number is the favorite. If you see a favorite listed at -150, that means you’d need to bet $150 to win $100.
How Sportsbooks Make Money
Sportsbooks make money by collecting the losing bets. Moneylines and spreads are produced by oddsmakers who use certain criteria (team talent levels, injuries, game location, team schedules, and weather forecast for outdoor events) to create their figures. The goal of the oddsmaker is simple — post a moneyline or spread that will entice equal betting on both sides of the outcome. If 1 million people bet on 1 game, the book would prefer 500,000 on one side and 500,000 on the other.
How do 50/50 wagers benefit the house? Enter the vig (or “juice” in current lingo). The vig is the portion of the wager the house collects, usually a few dollars on every $100 bet. You may notice each point spread has its own moneyline attached to it, like Chiefs -6 (-110). This means you must bet $110 to collect $100 on a Chiefs win by 7 or more. The book has the advantage here: They pay out $100 to the winners and collect $110 from the losers. For a sports bettor to break even, they must win more than 50% of the time. (On average, a 52.5% winning percentage will produce profits. Any lower and you’re just helping build the next casino.)
How do Odds Work in Sports Betting?
There are three different ways to bet a sporting event: the moneyline, the spread and the total. Alternative bets like futures and live lines are also popular, but most people bet on one of these three things.
- Moneyline: Odds based on the percentage that the favorite will beat the underdog. For example, a -150 moneyline favorite implies a 60% chance of winning.
- Spread: If you don’t want to wager large amounts of capital on a favorite, you bet on the point spread, which is a near-even money bet based on how many points you think the favored team will win by. A spread of -7 means that the favorite is expected to win by 7 or more points.
- Total: Also known as the over/under. If you don’t want to pick a side, you can wager based on the total number of combined points by both teams. It doesn’t matter which team scores the points, as long as the total is under or over the number you’ve bet on.
Explaining Spreads
Spreads vary based on the sport being played. Low-scoring sports like baseball, hockey, and soccer often don’t have spreads listed since so many games are decided by a margin of 1. In baseball, you may see a line posted like this:
Braves -1.5 (+130) / -174 / o8 (-105)
Mets +1.5 (-150) / +146 / u8 (-115)
No, this isn’t an option pricing formula, it’s how American sportsbooks list baseball odds. The first number is called the ‘run line’ and it’s the payout you’ll get if the favorite wins by more than 1 or the underdog only loses by 1 (or wins outright). The run line (or puck line in hockey) will ALWAYS be 1.5. The middle numbers are the moneyline, which is the payout for a win of any kind. And the final number is the total and vig that must be paid to bet on the over or under.
In football or basketball, you’ll notice the point spread much more prominently:
Warriors +5 (-114) / +168 / o219.5 (-110)
Lakers -5 (-106) / -200 / u219.5 (-110)
This is a real-life example for the NBA play-in tournament game between the Lakers and Warriors. The Lakers are a 5-point favorite ($106 wins $100) with a -200 moneyline ($200 wins $100). If the Lakers win by exactly 5 points, the bet is called a ‘push’ and your initial wager is returned to you with no profit or loss.
How to Place a Bet
To begin sports betting, you’ll first need to check the legality in your state. Generally, northeastern states have been much quicker to loosen sports betting restrictions than western or southern states, but the zeitgeist is certainly changing.
In addition, you’ll need to make sure that the sportsbook you want to use is also available in your state. For example, betting is legal in more than 20 states now, but the Barstool Sportsbook app is only available in Pennsylvania and Michigan.
Once you’ve chosen a book, you’ll need to fund your account (be on the lookout for promos) and find the sports you want to wager on. A common sports betting practice is “line shopping,” where a bettor opens two or more accounts at different sportsbooks and uses discrepancies in spreads or lines as arbitrage opportunities.
How Much to Bet
Betting is a lot like investing on an emotional level. Money is involved, so you know you won’t always be thinking clearly. Much like buying a stock, keep your bet size the same for each wager and stick with the sports you understand best. If you’re a diehard NFL fan, you’ll likely be better at picking NFL games than UFC fights.
Remember, you either win or lose in sports betting and there’s no cashing out early because a chart pattern looks bad. Never bet more than you can afford to lose and don’t wager more trying to get even after a bad streak.
Benzinga’s Recommended Sports Betting Platforms
Looking to find a sports betting platform? Here are a few of our favorite books. Just be sure betting is legal and your chosen book is available in your state before signing up.
Sports Betting is a Complicated Industry
Sports betting is expected to be one of the hottest industries over the next few years, but just because more people are gaining access doesn’t mean that betting is getting easier. Sports betting is harder than picking stocks! Information is always incomplete when accounting for injuries and strategy, plus athletes are human beings who can both underperform or overperform.
Betting on individual games is risky — a better bet might be investing in the long-term success of the industry.
People Also Ask
What does +400 mean in betting?
A +400 means that the team in question is the underdog and a $100 bet will win $400 in profit. Odds of +400 imply only a 20% chance of victory though.
What percentage of sports bettors win?
Most retail sports bettors win about 50% of the time, meaning an equal number of wins and losses. Since sportsbooks collect vig, a bettor who wins 50% of the time is losing money on the whole. To break even, a 52.4% winning percentage is required. Most professional sports bettors win between 53% and 55% of the time. Anyone who claims to win at a higher rate than that is likely trying to sell a subscription service.
Continue reading: BEST SPORTS BETTING STOCKS
About Dan Schmidt
Dan has written about a wide range of topics including stocks and investing, cryptocurrencies, banking, student loans, and credit cards.