Value Betting – it’s all about taking calculated risks
The term Value Betting seems to be gaining a lot of popularity these days. There are new services popping out as there are old ones adding Value Betting to their portfolio. Some of them offer decent quality, some of them perhaps less so. All of a sudden everyone appears to be talking about Value Betting. So what is it all about?
Value Betting is certainly not a new term – I have a section in my blog dedicated to it since I started writing about betting. What Value Betting exactly means depends on your definition of value. Sure, having an edge is essential for a bet to offer value. However, whether some odds are ‘valuable’ to a punter depends on the punter’s bank and access to a given market, so you could argue that Value Betting might mean different things to different people. The Ghost Betting blog has done a good job in explaining the term and illustrating it with examples, if you’d like to get a better idea.
At this point it is just important to remember that Value Betting comes in different forms and flavours. Today I will look at the differences between Fundamental and Technical Value Betting. Understanding the details in which Value Betting strategies differ is essential in order to benefit from any of them.
The old world
Before the new Value Betting wave had arrived, Value Betting used to refer to betting on selections that were mispriced by the market. In other words, it meant having an edge over the sharp side of the market. Value Betting was what sharp punters with large resource pools were pursuing with the help of complex statistical models. This is the kind of Value Betting that looks for the probabilities that have been fundamentally misjudged by the market. Therefore I am going to call it Fundamental Value Betting.
It is worth noting that the concept of Fundamental Value Betting lies on the assumption that the market can misjudge certain probabilities, meaning it is not strictly efficient. There are strong and weak forms of market efficiency and markets tend to differ in that regard. There is some evidence that the betting markets are of the very efficient kind. Yet, the likes of Bill Benter, Tony Bloom, Zeljko Ranogajec and various other prominent punters show there are some imbalances, however hard they are to identify and exploit.
With the boom of online betting and the emergence of new technology, a new type of Value Betting has taken hold. One not based on fundamental event analysis, but rather on a technical one, finding the sweet spots where soft books are being too slow to adjust their odds. Imagine something very similar to arbing without covering at a sharp. Such Value Betting takes place mostly in soft books (though sometimes in sharps too, which I will cover later in the article), resulting in many easily accessible profitable betting opportunities on the one hand, and quick limits on the other. Today everyone can do Value Betting, at least before getting limited by all the soft books. The later seems to be the major difficulty when attempting this new kind of Value Betting, which I am going to refer to as Technical Value Betting.
Personally, I feel there is a strong need to differentiate between the two kinds of Value Betting. They represent two very different sets of difficulties, which one must overcome in order to turn a profit. I will dissect the two kinds of Value Betting and show you where I draw the line.
Fundamental Value Betting
Gaining an edge over the market is a hard and expensive endeavor. Here we are in the land of quality tipsters, statistical models and sophisticated trading bots.
Developing a statistical model
If you have read my report on Bill Benter you would know that developing a successful handicapping algorithm requires a large investment of time, money and effort. Certainly, developing a statistical model which beats the market is not a realistic possibility for most of us. So what are the alternatives?
One option would be to outsource this activity to a skillful service provider – a tipster. Following a tipster’s advice is a dangerous proposition. The large majority of tipsters on the internet simply do not provide value. But let us assume you stumbled upon the rare case of a tipster who does, actually, identify pricing imbalances in a certain niche market.
A decent tipster would probably charge you, when you break down the annual subscription on the number of tips, at least around €10/tip. You would need to bet large stakes in order for the expected return of your bet to at least cover the price for the tip and the effort of placing it. Considering the volatility of a strategy with a small number of large bets, even if you have an edge, there is a serious chance things end up ugly. I am in the process of testing such a strategy with real money and will report on the results when I have collected a reasonable number of bets, but I can already tell you it is not for the faint-hearted.
Instead of developing a model for a fundamental analysis of a sport, you could adopt a more technical approach and identify minor and temporary market inefficiencies, which you could exploit with a trading bot. One could actually argue this falls within the “Technical Value Betting” category. Without wanting to argue semantics, trading strategies are still often based on a fundamental factor. They might try to benefit from certain psychological biases of the majority of traders (favourite-longshot bias, loss aversion, or others: 1,2,3,4). Or, perhaps, from an intervention from the provider creating pricing inefficiencies (like Betfair capping prices at 1000 or not allowing for lower price than 1.01).
If you go for betting with a trading bot you must be ready to do some serious coding work. A successful trading bot will probably never land in your hands unless you develop it yourself. No one will sell such a bot to you for less than he can earn with it. You wouldn’t buy it for more than you can earn with it. And arguably, both buyer and seller would earn the same with it since the bot is placing the bets, so it is irrelevant who is hitting the ‘start’ button.
If you want to develop a trading bot, BetfairProTrader is a good start. Still, keep in mind that is no easy task either.
In other words, in order to find true value in the market, hard work and big investments are required. Apparently, it is way easier to make money with arbing or alternative strategies. The question asks itself – what is Fundamental Value Betting actually good for?
The turnover factor
In comparison to Fundamental Value Betting, an arb service will spit out hundreds of arbs a day for just a few bucks. These arbs are easily repackaged and resold as value bets as they do contain value. Their expected return is positive, exactly as the fundamental value bets above. However, they are easily accessible to the masses, cheap and mostly available at soft books. Therefore, such value bets will deliver profit just like fundamental value bets (and your marge will perhaps be even higher) – only the profit will be harder to sustain.
Not the case with fundamental value bets. If you are fast enough, you manage to place such value bet at a sharp bookmaker or an exchange. That increases the potential turnover you might achieve by an order of magnitude. Therefore, the total profit you might generate with such a strategy is in different category than anything soft books might offer.
Things to keep in mind
That certainly does not mean the higher fix price per bet is the only hurdle to overcome here.
As mentioned above, the highrollers among the subscribers of a tipster service will destroy the value odds in seconds. This is a problem that could eventually be mediated by automating your tip placement (the possibilities of which I will explore in another article).
The potential profits from trading are also getting heavily tax above a certain threshold – you have probably heard of the notorious ‘Premium Charge’ at Betfair.
And finally, Asian books have been steadily reducing limits and odds for smaller leagues for quite some time now, perhaps indicating that they are starting to lose too much to smart punters.
All this, next to the already stated fact, that fundamental Value Betting is simply much more expensive.
And yet, Fundamental Value Betting at a sharp book or an exchange, with all its limitations, can still, within certain limits, represent a long term capital investment strategy. How does it look like with Technical Value Betting?
Technical Value Betting
To get this out of the way, not all Value Betting at soft books is being sourced from an odds comparing software. Sometimes a tipster would analyse a game and see that his preferred outcome is priced better at a soft book than at the sharp ones. This is an activity that would fall somewhere between the two categories of Value Betting I have defined. I have read reports, saying that soft books are actually more tolerant to such practices as compared to placing arbitrage bets. But I doubt that would last too long either. The truth remains, that if you make profit at a soft book, eventually you are being chased away.
To compare, Steve from Daily25 reports his results from following a Fundamental Value Betting Strategy for many years now. Steve bets according to the tips of the dailyprofit service and last year made a turnover of AUD 1,5 mln. and a profit of 90k. In his lifetime, his self-reported turnover lies at AUD 32 mln.
Being allowed to place 32 mln. at soft books placing value bets is sadly never going happen. If you are good enough, and you arb in the right country, you could be looking at a total turnover at the low six-figure area for the lifetime of all your accounts – but that’s about it. If you ‘value bet’ you would boost your return with a few percentage points not paying the profit margin of the sharp book, which is something. But that won’t extend the longevity of your account, since the soft book is completely oblivious to what you do at your Pinnacle account and whether you cover your bet or not. All they know is that you are beating the closing line, so sooner rather than later you are getting shown the door.
This is quite similar to the situation one finds himself in when arbing. As I have written above the new kind of Value Betting could basically be seen as a branch of Arbing and is therefore, in itself, nothing new. However, it removes the sharps from the equation, in that way increasing both the expected return and the volatility of the returns for the punter. Therefore, it is more appealing for punters with higher risk appetite, willing to accept some large swings in order to improve their average yield with a couple of percentage points.
I would illustrate the similarity between Technical Value Betting and Arbing with an example. Imagine Pinnacle pricing a two-outcome bet, say the +0.5 Asian Handicap on a Barcelona – Real Madrid game equally at 1.94:
Barcelona -0.5 @ 1,94 / Real Madrid +0.5 @ 1,94
At the same time, bet365 is offering you Barcelona -0.5 @ 2,1. Placing EUR 100 for Barcelona -0.5 @ 2,1 at bet 365 and EUR 108,25 for Real Madrid +0.5 @ 1,94 at Pinnacle you have an arbing pair with a sure profit of EUR 210 and 0.84% ROI (219/(100+108,25)-1).
Now consider what would happen if you only place the bet at bet365. Assuming that Pinnacle is pricing both outcomes correctly (and there is strong evidence for that being the case), there is exactly 50% chance for both outcomes to come true since they are both priced the same. In other words, a bet of 100 EUR on Barcelona -0.5 @ 2,1 at bet365 would win in 50% of the cases, delivering you an expected return of 0,5*210 = 105 for a stake of 100 or an ROI of 5%.
You already see this is quite an improvement in the ROI as compared to the Arbing pair. There are of course some things to consider. First, such Technical Value Betting strategy would lead to huge volatility, both shown by a theoretic calculation based on some simple assumptions, as by mine and many others’ practical experience.
And second, as Cassini from grean-all-over is used to say, it’s ROI for show, Rate of Bank Growth for dough. In practice, due to limitations at soft books, you cannot add to your stake at the soft book what you do not bet at the sharp, so in our example you end up placing a two times smaller stake. Your ROI is irrelevant outside of the context of how much money you are allowed by the bookmaker to place on a bet.
And even though your bet in the sharp bookmaker is negative value, it still provides you the much needed insurance in order to be able to sleep well at night. Furthermore, some brokers offer generous cashback offers, which would significantly decrease the price of that insurance for you.
Finally, there are some rare cases where the sharp book is actually in the wrong. The arbers among us would have seen the case where after you place a bet at the soft book the odds in the sharp one drift against you – which clearly means there was less value in the soft book at the first place. Again, it is a rather rare case, but it does happen, which reduces your expected return yet further.
With all those things to consider when calculating the expected return from your Technical Value Betting strategy, it still represents a profitable strategy and one with a higher expected ROI (and way higher volatility) than a similar arbing strategy. I can show you exemplary results of a set of accounts pursuing a Technical Value Betting strategy below:
The returns above are in base currency (in this case GBP) for one value bettor using a total of around 20 soft books.
As you see, with all the limitations of Technical Value Betting, it is a strategy that is still able to deliver a nice profit. There are a couple of products on the market, which are able to spot and notify you about Technical Value Bets. A few names that come to mind are TrademateSports, RebelBetting, BetBurger, BetOnValue and WinnerOdds (a review of some of those products will be coming soon).
Now, I am not entirely fair in putting Technical Value Betting in the same boat with Arbing, since there is a certain area of Technical Value Betting, which falls outside the definition of Arbing.
Between an Arb and a Fair Bet
Let us come back to the example above. Let us assume the odds at Pinnacle did not change, but the ones in bet365 attracted some arbing money, forcing bet365 to lower the odds from 2,1 to 2,05.
A quick calculation will show you that under those new conditions you do not have an arb anymore. Your return from an arb would be:
1 – (1/1,94 + 1/2,05) = -0.32% or a sure loss of 0.32% if you bet on both sides for an equal winning amount.
And yet, if you only place the bet in bet365 @ 2.05, considering the 50% probability of the event happening, you still have an expected ROI of 0,5*2,05 – 1 = 2,5%!
This is a pair which would get ignored by an arb-searching software, although the selection at the soft book still contains value (albeit certainly a lower one than the one of the soft leg in an arb pair). Technically, the tools needed to detect such value bet are the same as the one needed for detecting an arb. For this reason, arbing softwares have started adding Value Betting to their portfolios, as mentioned above. For example, Rebel Betting has recently launched their Value Betting product, which I did a hands-on review on. Similarly, BetBurger has included a Value Betting product to their offering.
If you would like to play such a value bet with a bit lower (but still positive) expected return is up to you, but it is certainly an advantage that the software can deliver those to you too.
Needless to say, adding those bets to the usual arb bets greatly increases the number of bets at your disposal. It should be expected, due to simple market principles, that bets with less value would come more frequently and survive longer than those with more value.
Would your accounts would last longer pursuing low value bets as compared to arb bets? I remain sceptical, since the arb and non-arb value bets alike would beat the closing line at the end of the day, and this is (or should be) the main limiting criterion at the average soft book. And even if going for the low value would buy you some time, you will pay for it with the reduced ROI, so I don’t see that as a winning proposition.
Technical Value Bets at Sharp Books
I have written before, and the fact remains, that arbs between sharp books, save for the occasional e-sports event with ridiculously low max bet limits, come very rarely and in general do not survive long enough for the average punter to make use of them.
However, following the example above, pairs of odds between sharps, which deviate just enough from each other in order to constitute a potential value bet, come to existence more often.
In fact, TrademateSports is the product I know, which detects such pairs and offers them to the client as a potential value bet.
The potential of such value bets is huge. If you can consistently place positive expected return bets at a sharp book, your only limitation would be the frequency with which such opportunities appear and the maximum allowed bet at the sharp book.
Of course, it is not that simple as it seems. From my experience (see Trademate review), such discrepant odds in different sharp books converge pretty quickly as compared to the softs – which is to be expected, after all that is why the sharp books are sharp. That comes to say, the availability is indeed much lower as compared to the soft books, in terms of number of bets and expected return of the bets alike.
What I find more worrying is the fact, that in the case of divergence between two sharp books I would be less sure about where the value lies as compared to a pair between a sharp and a soft, where the picture is clear. Trademate takes Pinnacle as the base book, which is absolutely fine when comparing them to a soft book. However, when you compare the odds at SBOBet and at Pinnacle, even if Pinnacle’s odds are slightly off and the SBOBet’s more so, this would still eat away your expected return, potentially up to a point where the bet is no value bet at all.
Still, if you manage to place your bets efficiently and quickly enough (perhaps with the help of some sort of automation) and you select the sports where you would assume the sharp books are not so sharp (for example, SBOBet are known for being sharper in football as compared to other sports), than you might have the possibility of turning a profit with Technical Value Betting at the sharps as well. In any event, you should expect much lower ROI in this case compared to value betting in the softs and you should be armed with much larger initial capital and be prepared for larger downside volatility in order to benefit from this strategy. That being said, I still consider such value betting strategy to be a very interesting option, which is worth digging deeper into.
To summarize, Fundamental and Technical Value Betting are two very different betting strategies in terms of required skill, capital and risk tolerance. Generally speaking, Fundamental Value Betting takes place mostly at sharps and exchanges and is suitable for players with a large bank and a lot of experience. On the other hand, Technical Value Betting takes place mainly at softs and is more suitable for punters with less capital. You will eventually get limited, but such value bets are relatively easy to source. That is why they represent a relatively sure and steady source of profit.
Therefore, before investing into Value Betting, I would advise everyone to carefully consider what kind of Value Betting fits your current size of bank, risk profile and experience better. There is a potential for profit making in both strategies and some great tools which can help you along the way, but preparing yourself well for this journey is definitely warranted. If in doubt just drop me an e-mail at firstname.lastname@example.org or a comment under this article and I do my best to help you.