Freakonomics---7th in Carib contest just taking home dogs

[Terryray]

posted on Freakonomics blog Thurs eve


Home underdogs in the NFL

A few years back I wrote an academic paper (warning: PDF file) that set out to resolve a paradox in sports betting: how could it be the case that bookies systematically got the spread wrong in NFL football? In particular, home underdogs win far more games than they should against the spread. Despite the fact that bookies take a healthy cut of every dollar bet (the ?vig?), a bettor who bet on every home underdog for the last two decades would show positive profits. The answer, it turns out, is that bettors have a strong bias against home underdogs. Even though the bookies set spreads that work to the advantage of home underdogs, a disproportionate amount of the money is still bet on visiting favorites. By taking advantage of the bettors? misperception, bookies greatly increase their profits by setting the ?wrong? spread.

This year, I?ve had the chance to put theory into practice. I entered a handicapping contest at www.caribsports.com. Each competitor puts up $250 at the beginning of the year. Each week you need to pick the outcome of five NFL games against the spread. The people who pick the most winners get paid a prize. There were about 800 entrants.

My strategy was more or less to pick every home underdog, although, in most weeks there were not five home underdogs and in a few weeks there were more than five. This year home underdogs have been 47-30 against the spread. Not coincidentally, my record in the handicappers challenge is 49-31. That is good enough to put me in a tie for 7th place out of the 800 participants. Most of the other top scores are bettors who also bet a lot of home underdogs.

Unfortunately for me, the payoff structure is highly skewed, with first place paying $70,000 and seventh place paying ?only? $2,500. So I need a great last week to propel me up the standings.

Knowing the top bettors all pick lots of home underdogs, it means that this week I have no choice but to bet against home underdogs. I need to make sure my picks are as different as possible from the picks of the people in front of me. I gain a lot in dollars if I do much better than the people in front of me. If I do much worse, it doesn?t cost me much.

 

[damo suzuki]

Maybe its because i play more poker than i sportsbet but if i were him id continue the system. I have to think my opponents are considering the same reverse thinking. or is it reverse reverse reverse?

 

[Terryray]

on reverse thinking---My guess is most of the players atop the leaderboard aren't
playing a simple system like Levitt's, and will not want
to (or able to) modify their winning handicapping ways much. Also, I don't
think many are handicapping other players much, but I just guessing....


I looked thru the academic paper and his historic data was from
1980-2002. In only 3 of those years did the home dog not pay.

But evidently last season was one of the worst for the home dog.



"...visiting favourites
(who attract a greater share of the bets) do especially poorly, winning only
46.7%......Given this win percentage, a naive strategy of always betting against
visiting favourites would actually have yielded positive profits over these two
decades (1980-2001, as was also true in 2001?2)

[.....]the year-by-year patterns in the data confirm the overall
findings. In only 4 of the last 21 years have favourites covered the spread in as many of 50% of the
games. The likelihood of that occurring if the true win likelihood is 0.50 is less than 1 in 300. Only 3
times in 21 years have visiting favourites won against the spread in 50% of games."





9 Responses to ?Home underdogs in the NFL?

mhertz Says:
December 28th, 2006 at 8:16 pm

Just make sure the people behind you don?t bet all the home favorites and jump
ahead of you in the standings!

jkachner Says:
December 28th, 2006 at 9:01 pm

Steve, I noticed that the 2005-6 NFL season was a horrible one to play the home
underdog. Is it possible that a sizable portion of big gamblers read your paper,
played the home underdog, and forced the bookmakers to shift the line in the
opposite direction? After a year of the strategy not working out, sports bettors
went back to their usual tendencies, perhaps even overcompensating by avoiding
the home underdogs and propelling you to 7th place. I assume that a single
season of games in which the road team was favored is not a large enough sample
to draw any conclusions. I?m even curious if 20 years is enough. As of this
writing, I haven?t read your paper. I?ll give it a thorough perusal and get back
to you.

Also, how?s Pokernomics coming?

EmilyAnabel Says:
December 29th, 2006 at 12:06 am

I didn?t find a way of listing the leaderboard at caribsports
without having an account there, which seems to require credit card information.
Can someone figure out a way of listing the leaderboard without an account or
post the standings here? I?m curious how much of a spread there is from first to
seventh.

Steven D. Levitt Says:
December 29th, 2006 at 12:55 am

EmilyAnabel,

The standings are (wins-losses-ties):

1)52-27-1
2)51-29
3)50-29-1
4)50-30
5)49-30-1
6)48-29-3
7)49-31 (3 tied)

rolub Says:
December 29th, 2006 at 8:51 am

Fortunately (unfortunately?) I only see 2 home dogs this week, and both are
looking to be close to even picks anyways.

I?m not sure how big of an NFL fan/bettor you are, but the only game this week
that means a ton to both teams is the JAX/KC tilt. Both are still in the running
for the final AFC wildcard spot, and with a 1:00 EST start time, it will still
be undecided by kickoff. Despite losing at home vs. BAL two weeks ago, Kansas
City is 20-2 at home in the month of December dating back to 1995. Add in the
Jaguars? awful road record, including losses at WAS, HOU, and BUF, and you?ve
got a pretty decent (yet likely popular) pick on Kansas City (-1).

Good luck this weekend.

rrob13 Says:
December 29th, 2006 at 10:11 am

49-31 ATS is plenty impressive, regardless of the method. Nice work. Good luck
this weekend.

studerby Says:
December 29th, 2006 at 12:07 pm

Your dilemma reminds me a bit of businesses that focus extensively on adopting ?best
practices?; the better the peer group executes on that strategy, the tighter the
companies cluster. Margins thin and products become commodities. A great
strategy for ?not losing?, or in the gambling case ?keeping yourself in the
running?, but not exactly the way to become a market-dominating business. As
your gambling situation shows, sometimes you have to break away and ignore ?best
practices? to get to the pinnacle of success.

snubgodtoh Says:
December 29th, 2006 at 12:33 pm

Arrowhead is brutal, especially this time of year. I would check the KC weather
before you bet on the jags. It?s nice in STL now, but the nasty crap in Denver
is surely headed for us. If they pulled it off it would be huge for your
standings assuming you are pursuing a polar strategy and others go with the
Chiefs. How many places are paying, and is the utility that you will gain from
idyllic Sunday spent rooting for underdogs and consuming beer and adrenaline (from
taking risky picks) worth $2500? I think so. Betting on games that you could
give a crap about makes them instantly interesting, it?s such a great tool,
especially when my beloved Rams are crapping out amid so much talent.

Jmac26 Says:
December 29th, 2006 at 5:03 pm

I was very intrigured when I discovered your paper a year ago. Since I am very
close to sports gambling I really like looking for inefficiencies. My only
problem is that if I can?t find an inefficiency I still bet. I truly believe
last year was an oddity for home underdogs not beating the spread. I know a few
bookies and they said a lot of the small online sites that didn?t have proper
reserves went broke last year. That never happens so I think last year needs to
be chalked up as an outlier. As for this year you can bet on home or away
underdogs and your record would be great. Bill Simmons has the underdogs at
136-97-6. This can very on what type of spread you are using. Any thoughts on
the crazy underdog year Steven?

 

[Bombs]

im tied for 4th, and have been in the top 5 for awhile now, in 2nd for a few weeks in a row. unfortunately, i went 6-9 over the last 15. keep thinking some ugly favs have to hit, but they havent. only 5 pts off the lead, and this includes putting a play in backwards in the first week - if i lose by 1 or 2 pts, it will be pretty tough to swallow.

basically, if you went heavy contrarian this year, you have made a fortune.

 

[Bombs]

fwiw, all the top 25 are contrarians. we essentially all have the same or similar picks every week. thats why i have only gone from 2nd to 4th going 6-9 over the last 15. no one has done anything.

i knew these last couple weeks would be ugly. the standout contrarian moves just werent there.

 

[Padre]

well TerryRay, i read ur paper and blog, me being a little math guy as well. this is what i would do.

Math aside, find the 5 most likely teams that have the "must win" to make playoffs scenario.

My guess is that most of the leaders will abandoned the home underdog thing as well.

Now that u have the 5 most likely to win or must win teams. Ur picks will be the opposite. Follow my logic here please. My guess is that most of ur leaders will have at least 3 to 4 of the other picks.

Now in order for u to "jump" up the leaderboard u will need to hit .500 or better to get a good chunk of the change. 3 of 5, which will propel most leaders downward. which in my best guess will put u around 4th position.

Now if those 5 picks (opposite of what u went with) then u will be shot downwards and out of money.

Soooooo, u hedge the following combinations of 5 team parlays to hedge out at least a decent profit.



EX. teams 1,2,3,4,5 are the need to win teams.(teams we expect the leaders to jump on)

teams a,b,c,d,e are the teams they are playing(ur picks)


now as i stated .500 or better on a,b,c,d,e winning - ur in 5th or 4th place.

but if 1,2,3,4,5 goes .500 or better then, ur out.

so u parlay these as a hedge.


abcde
abcd5
abc4e
abc45
ab3de
ab3d5
ab34e
a2cde
a2cd5
a2c4e
a23de
1bcde
1bcd5
1bc4e
1b3de
12cde

I hope u can make sense of this, but above are the 16 of 32 possible combinations of the 5 game outcomes, that will result in .500 or better.

now depending on where u lay these bets , u should get a 20 to 1 payout. online u can get better.

that in mind, taking x amount and dividing by 16 and placing such wagers(parlays), u will win only one at 20 to 1 , which if u do the math will yield a 38% ROI.

therefore i would estimate that on a $2,500 payout at #7. to insure that and the initial $250. as a payout, sunday night. then i would wager about $450 each parlay.

450 * 16 = $7200

Now in conclusion, dont do any of this, it is way too much risk. after all this work i realize i dont know the payout structure, and $7200 is too damn much money to be hedging with no guarantee.

ur risk- $250, with potential of 10 to 1 payout or better.

so go with my original advice , pick 5 teams on the need to win basis, and go with the opposite. i think u will do fine.


For whats its worth, i thought that u would enjoy my logic and math approach.:shrug:

Most of all have fun with it.