The only thing more pathetic than a horse player? A dog player.
If you don’t know anything about sports, read this instead. Or try and slog through today’s post. If you want the conclusion first, today’s moral is that gambling remains a moron’s pursuit.
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Not only can you not consistently win gambling, you can barely win if the house pays for your bets.
A Control Your Cash acquaintance (we’d use the generic pseudonym “Bob”, except that’s his real name, so let’s call him “Stu”) recently found himself in possession of the kind of thing most gamblers only dream about – a free, hot ticket. Here’s the story.
Bob Stu likes to gamble on sports occasionally. (Whatever, we don’t hold it against him.) You might not know this, but the IRS lets you deduct gambling losses up to a certain amount. We don’t mention that in the book, because you shouldn’t be gambling anyway. When most gamblers lose a bet in the race & sports books in Las Vegas, they discard their tickets, not realizing that they count as effective receipts and proof of loss. It’s fairly common for enterprising gamblers to scour the aisles looking for discarded tickets written for large enough amounts. Stu isn’t above this.
One weekday afternoon during the NFL preseason, Stu thought he’d hit the jackpot, so to speak. He found a perfectly preserved $100 ticket that would make a great addition to his tax return.
On closer inspection, it turned out to be three neatly folded $100 tickets, each for the same wager.
On still closer inspection, the wager turned out to be live. Each ticket was a 10-1 bet on the Baltimore Ravens to win the Super Bowl, written hours earlier. Some schlimazel up and lost his tickets.
Stu, being the honest guy he is, returned to the book the next day and spoke with the manager. He explained the situation, slightly tempering it. (“I found a $100 ticket…”) As Stu acknowledges, “I wasn’t going to admit to having all 3. I’m not that honest.” The manager, shocked that a customer was asking him for anything other than a light, said that unless the buyer had taken the extremely unlikely precaution of writing down the ticket’s 15-digit serial number, there was nothing he, the manager, could do. The ticket and its siblings were Stu’s.
So there it was – a potential $3000, just for being in the right place at the right time.
But also a potential $0. After all, the Ravens, like any other given team, probably won’t win the Super Bowl. So how to maximize Stu’s return?
Hedging. If you’re only vaguely familiar with the term, it means forgoing the possibility of a particular payout for the greater possibility (or better yet, the certainty) of a smaller one.
Say Stu had found the tickets the week before the Super Bowl, and the Ravens happened to be playing in it. To hedge optimally, Stu would wager enough money on the other team to guarantee him the same payout regardless of who wins. Formula coming henceforth. Formula contains one addition and one division, two operations you hopefully mastered by the 4th grade.
But Stu found the tickets during the preseason. Although the oddsmakers expected the Ravens to have a good year, giving them 10-1 odds to win a 32-team league, there’s no guarantee the Ravens would even make the playoffs. Baltimore is leading the AFC North at 8-3 and looking as good as anyone expected in a tight division, in a tight conference, in a tight league.
But had T.J. Houshmandzadeh dropped on 18-yard touchdown pass with 32 seconds remaining against Pittsburgh on October 3, and Ray Lewis not recovered a fumble 3 weeks later in overtime against Buffalo, Baltimore would likely be on the outside looking in at the playoff picture.
Say Stu had advance knowledge that the Ravens would miss the playoffs. Could he have hedged enough money to guarantee himself a payout?
No. It’s unlikely any offshore wagering site offered a proposition on something as esoteric as the Ravens missing the playoffs, but if one did, it would likely set the odds around 2-5 (given that Baltimore was 10-1 to win the whole thing). That’d be a 40% return on Stu’s money, but then what if the Ravens do make the playoffs, which the oddsmakers say they probably will? Now Stu’s out the price of his hedge bet, and still needs to have multiple playoff games break the right way. After all, Stu’s ticket wasn’t for the Ravens to simply get invited to the pageant, but to win the talent and swimsuit competitions too. Stu would have to hedge every playoff game the Ravens are alive for, approximately doubling his bet and thus halving his potential return every time.
What if the midsummer genie said “the Ravens will make it to the Super Bowl” without specifying who’d win? Which is a pretty bold proclamation for a genie to make. Yet now, at least, we can get this down to exactly one hedge bet. But for how much?
Say Atlanta represents the NFC. The smart thing would be to place a bet on Atlanta costing
$3300/(m+1)
where m is the odds on Atlanta. Stu’s payout would be
$3300m/(m+1).
We use $3300 because that’s what Stu would pocket if his original tickets all came in: $1000 on each of three $100 10-1 tickets, plus the original $100 that the anonymous poor sucker spent on each.
Let’s say after Atlanta wins the conference, the odds on them to win the Super Bowl are 5-11. Stu would bet $2143.75 on them, guaranteeing himself $1156.25. If Atlanta paid even money, he’d wager $1650 to guarantee himself $1650. If Atlanta was an 11-5 underdog, Stu would wager $1031.25 to guarantee himself $2268.75. The better Baltimore does this year – the bigger a favorite they are – the better it is for Stu.
But this is the Super Bowl, and neither team is likely to be as big a favorite as 5-11 nor as long an underdog as 11-5. The game is supposed to be between somewhat evenly matched teams.
What if the genie said “the Ravens will make it to the conference championship”? That’s still a valuable thing for a gambler to know going into the season, or so you’d think.
By the time we get to the NFL’s round of 4, Stu could truly hedge his Super Bowl bet only by wagering on the 3 remaining teams. Which, on average, would probably each pay around 3-to-1. Or could pay a lot worse. So if he took them all, covering every outcome, Stu would be winning close to even money. But again, he’d still have to risk a ton to keep his original, “free” bets live.
Working backward yet another step, even when there are still 8 teams alive, Stu couldn’t hedge himself more than a few bucks. Every time the number of participants increases, the number of possible outcomes does too. Double them, and you again halve (or close to it, depending on odds) Stu’s potential payout. Were the genie to guarantee Stu that the Ravens would make the playoffs, he still couldn’t make any money.
And that’s with the benefit of a nonexistent genie. Even a free 10-1 wager can’t be manipulated into a bet that guarantees anything more than a tiny sum.
If free gambling isn’t worth the effort, think about how useless it is to pay for the privilege.
