Sports Investing Strategies
Within the Sports landscape, our investor base is focused on Private Equity Funds, Family Offices, Sovereign Wealth Funds, High Net Worth Individuals and Industry Corporates seeking to make equity capital investments & M&A. Barstool sports founder dave portnoy returns after coronavirus scare Portnoy said his investment strategy relies on momentum, strong stocks and ignoring the “doom and gloom” that some networks.
Making Money by Betting on Sports
Most people think that sports betting is about finding ‘sure things,’ but in reality such ‘locks’ are nothing more than gamblers’ fancy. Just as in real estate, currency, stocks, or any other speculative market, ‘sure things’ simply do not exist. As a professional sports bettor, my goal is to find and exploit many small edges over a long period of time to earn a compounding return. Winning 55% of games is very significant, and with very conservative bet sizing, you can grow your return very quickly. Investing $10,000 into the stock market for a year and earning a 10% return is considered a great investment – but your return winning a modest 54% of your sports bets would trounce that return.
My picks have yielded a much higher risk adjusted return than the stock market. Obviously, the variance from season to season is formidable, but as anyone who had a significant amount invested in stocks or real estate in 2008 can tell you, such swings aren’t limited to sports. In the long run, my edge in what I do is far greater than the edge that you could hope to gain in any other speculative market.
Juice, and the power of 55%
Even though most sports bettors are losers in their own right (as a whole, bettors actually win an average of only 48% of their bets – less than they would expect to win if they just flipped a coin for every game), their losses are compounded by the fact that the house takes a cut of winnings, also known as the ‘juice’ or ‘vig.’ Most sports books charge a 10% commission on wins, which means that a bettor must actually win 52.4% of his games just to break even. (Wagering $100 per game, a bettor loses $100 with a loss and wins $90.91 with a win, so he must go 11-10 (11/21 = 52.38%) to break even).
In order to beat the juice and win in sports betting, a bettor must employ a disciplined approach in their analysis of each game using methods that have proven to be successful in the long run. I discuss my math models and analytical metrics in my Handicapping Methods essay, but you must realize that only the best and most knowledgeable handicappers can win more than 52.4% of their games. In their 2007 two page article about my handicapping success, the Wall Street Journal wrote, “…fewer than 100 people can sustain (win rates of 55%) over time. Most of them belong to professional betting syndicates that hire teams of statisticians, wager millions every week and keep their operations secret.”
Touts often claim to be able to hit 60% or higher, but as I explain in my essay on Bayesian Probability, anyone who tells you that their long term expected winning percentage is higher than 60% is deluding themselves. Ten or more years ago a sharp handicapper could win about 60% long term but those days are over, as odds makers have become more savvy in the past decade or so. For a bettor to claim a greater than 60% long term expected win percentage, that would be mean that Vegas would have to consistently release lines with egregious errors, and that simply just does not happen often enough nowadays for claims of a greater than 60% long term expected win percentage. Any short term win rates of around 60% or higher are simply due to blind, short-term luck. For instance, last year (2016) in the first season using a new NFL play-by-play model, Dr. Bob Sports’ NFL Best Bet sides were an incredible 66-26 (71.7%), but that record was enhanced by winning a very large percentage of close games (31-12 on Best Bets decided by 7 points or less) rather than splitting the close ones. It still would have been a great season on NFL Best Bet sides (62%) if the close games had been 50% but I still can’t expect the new model to win 60%-plus on sides based on that one season – although the play-by-play model back-tested at a very profitable 56% winners.
I often hear amateur gamblers erroneously claim that winning 55% of games isn’t even enough to beat juice. As demonstrated above, a bettor only needs to win 52.4% to break even, and a 55% bettor will be very profitable in the long run if they pursue an optimal money management strategy.
Sports Investing Strategies Online
Of course, as in any game of chance, there is variability in the actual results and just because you have won 55% in the past and expect to win 55% in the future doesn’t mean that you’re going to win 55% this upcoming season. There is variance in sports betting, as there is in most investments, and I calculate the standard deviation to figure out how much of my bankroll I can safely wager on each game during the season to accommodate potential negative swings while having very little chance of exhausting my bankroll. I have extensively quantified the variance that exists in sports betting, and use mathematical formulas to dictate the exact optimal amount to invest so as to maximize the ratio of profits to variance.
My long term percentage on College Football Best Bets is 56% (1290-1017-40 over 29 years) and the new NFL play-by play model was 100-69 (59.2%) in 2016. However, despite being a combined 148-107 (58.0%) on Football Best Bets, college and NFL, in 2016, I will continue to use 55% winners as a realistic goal going forward. If I expect 55% on 200 Football Best Bets (I had 255 last year, which was higher than expected) then the expected profit at -110 odds would be 200 x (0.55 – (1.1 x 0.45), which is +11.0 units (or +22.0 Stars if my average Best Bet is rated 2-Stars). The Kelly Criterion recommends a wager of 3.4% of your bankroll for a wager with a 55% chance of winning and odds of -110. However, the Kelly formula assumes sequential betting and sports betting usually involves simultaneous betting, which is part of the reason behind using some fraction of full Kelly to reduce risk. If I play 2.0% of my initial bankroll per bet, or 1.0% per Star, (i.e. flat betting) then my expected return during football season (5 months) is 22.0%. Adjusting your bankroll after each week rather than flat betting will increase your expected return, as explained in the KC simulation section of my money management section.
A basketball season with 53.5% winners (my career percentage is 53.9%) on 500 bets would on average yield +11.75 units ( (500*.535) – (500*.465)*1.1 ), or +23.5 Stars if my average Best Bet is rated 2-Stars. Using a conservative 1.6% of bankroll per bet (full Kelly at 53.5% at -110 odds is 2.35% of bankroll), or 0.8% per Star, results in an expected return of 18.8%. So, despite a lower overall winning percentage and smaller average wager size, a season’s worth of basketball wagers is fairly comparable to a season of football because there are so many more Best Bets in basketball season.
The NBA Guru Basketball service has achieved even higher returns in the 5 seasons that the Guru has been with Dr Bob Sports. The NBA Guru has an incredible record of 647-532-20 (54.9%) on his Best Bets over 5 seasons and 1366-1118-41 on a Star Basis for +136.0 Stars (with an extra -0.2 for added juice), which is an average of +27.2 Stars per season. You can risk more of your bankroll per play with the NBA Guru because he has a higher win percentage and fewer plays. I recommend 2.0% of your bankroll per play, or 1.0% per Star on NBA Guru Best Bets.
Money Management
Money Management is as critical to a sports investor as picking winners. I have devoted many hours of careful analysis and math to optimal money management systems, which I have painstakingly outlined in my Money Management articles. Sports betting is more high risk (higher volatility and standard deviation of return) than stocks, but also results in a higher return if you follow a proven long term winning handicapper (of which there are very few).
My Money Management articles outline how to adjust your bet sizing based on your goals (expected return vs. probability of positive returns), your investment length (one season or many), your growth preference (flat or compounding), your risk tolerance (high or low) and the proportion of your overall bankroll which is made up by sports betting.
It is always better to set conservative expectations to avoid over betting.
Factoring in the Cost of my Service
The cost of my College football service is $895, the cost of the NFL service is $995 ($1,595 for both services), my Basketball service is $895 ($2,195 for all Football and Dr. Bob’s Basketball service), and the NBA Guru subscription is well worth the $1495 given how profitable he’s been ($3,295 for all Football and all Basketball, including the NBA Guru). You must factor in that cost when calculating your expected return on investment (ROI). As explained above, winning 55% on the Football Best Bets and 53.5% on my Basketball Best Bets would yield an expected profit of +45.5 Stars and let’s assume the NBA Guru profits +27.2 Stars as well (he’s averaged +27.2 Stars per season). Let’s say you decide to play 1.0% of your initial bankroll per star on the Football Best Bets and NBA Guru Best Bets and 0.8% per star on the Basketball Best Bets, as in the example above. Doing so would have an expected total return 68.0% per year based on flat-betting using your initial bankroll. Using an optimal betting strategy, as explained in the advanced money management section, would yield even higher long term returns while protecting the downside risk in the inevitable negative variance seasons that plague even the best long term handicappers.
If you had $20,000 that you could comfortably afford to risk as your sports wagering bankroll and $3,295 went to pay for the all Football and all Basketball service, then you would have $16,705 left for wagering. As explained above the expected return on the combined Dr Bob Football and Basketball and NBA Guru Basketball services is +68.0% per year (using a less optimal flat betting approach), which would result in a return wagering profit of +$11,359 on the $16,705 initial bankroll. The overall profit, after factoring in the cost of the services, would be $8,064 (($16,705 x 0.68) – $3,295 = +$8,064), which is a very good 40.3% expected return on your $20,000. That percentage return is higher for higher bankrolls and lower for lower bankrolls since the cost of service becomes a smaller percentage of higher bankrolls and a higher percentage of smaller bankrolls. If you want to subscribe to the all Football and all Basketball package you would need a total of at least $4,846 to invest to expect a positive return after factoring in the cost of the service. The calculations above are based on expected results based on long term records and some years are better and some years are worse.
What is a Point spread?
Before I delve into rigorous explanations of how a bettor can gain an advantage against the point spread, it is important to understand what the spread actually represents. Point spreads were invented to keep bettors interested in games between teams of different talent levels – if a perennial powerhouse like Alabama plays a mid level team such as South Alabama, you’ll find very few people willing to bet on which team will win the game since Bama would be such a prohibitive favorite. However, most are willing to bet on whether Alabama will ‘cover the point spread’ and win by a certain number of points. If the point spread is 21.5, then the Crimson Tide must win by 22 or more points for their side of the bet to cover, while South Alabama must either win outright or lose by 21 points or less to cover their side. Point spreads are designed so that the probability of each outcome is roughly equal, and are generally set so as to approximate the median score differential between the two teams at the given site of the game.
However, skewed public perception, results-oriented analysis, and unsound metrics result in point spreads that are often biased one way or another. While the casual bettor does not possess the capacity to exploit these advantages, I have used mathematical models, situational analysis, significant trends and quantitative player analysis that are far more complex and accurate than anything else on the market to gain an advantage, which is why I have won 53% to 56% of my Best Bets (depending on the sport) over the last 29 years.
How are the lines set?
While the odds makers do to try approximate the median margin of victory between two teams, they also try to reduce their exposure to risk by setting lines such that the public money will fall evenly on both sides of a game, so that they can offset the bets against each other and earn a profit on the juice (cut of winnings taken by the house, explained below) without exposing themselves to large potential losses. Thus, odds makers are often in the business of gauging public perception rather than team performance, and therefore the betting public actually sets the line. In more recent years, the betting public has had less influence on the odds than professional betting syndicates or sharp money has had, but there is still value to be found – although in different ways than in previous decades. If Georgia is 4 points better than Georgia Tech according to my advanced metrics and analysis, but the aggregate public perception is that Georgia is 7 points better than Georgia Tech, then the posted point spread is likely to be closer to 6 or 7 points (public perception) than it will be to 4 points (the realistic difference between the teams). This makes my job as a professional handicapper much less daunting; not only can I exploit lines where the odds makers are off, but I can also exploit the uniformed opinions of the general betting public, and more recently take advantage of betting syndicates and ‘quants’ that rely more and more on algorithms but can overlook some of the hidden value in changes in team personnel or lineups and in the particular match up between two teams.
Isn’t gambling risky?
I don’t believe that the term ‘gambling’ applies to what I do. I sell information to subscribers, with which they can take positive expectation positions in uncertain markets. With correct financial optimization and bankroll management, long term risks are nominal compared to the risks of investing in other, more conventional markets. Just as a single stock may go up or down in a day, any one team may win or lose a given game. But as long as the investor maintains a long-term perspective, understands variance, and doesn’t over-extend themselves or bet more than they can easily handle, risk can be highly mitigated, and they can earn a very attractive risk adjusted return.
Share this
Sapphire Sport's Michael Spirito discusses the Silicon Valley-based venture fund’s investment thesis, why it backed mobile video startup Buzzer, and how sports tech has changed during the coronavirus pandemic.Speak to any self-respecting venture capitalist and they’ll likely talk up the importance not of investing in a particular product or service, but the people behind it.
Conventional wisdom within the investment community says that establishing trust in an entrepreneur or founding team is a critical part of the due diligence process, perhaps even more critical than determining the future potential of a company’s solution or business plan. At a time of restricted personal interaction and economic upheaval, however, the process of building much-needed rapport between individuals has only grown more challenging.
Nevertheless, startup investors and founders have found ways to connect and do business during the coronavirus pandemic. In recent months, major funding rounds announced by startups of all kinds have clearly shown that business is booming in the burgeoning sports tech sector, and there have been few signs that the onset of Covid-19 has had any discernible impact on investor appetite whatsoever.
- Sports Tech Investment Week A SportsPro special series
One investment company that has remained notably active throughout the pandemic is Silicon Valley-based Sapphire Sport, a US$115 million venture capital fund which was launched by Sapphire Ventures in early 2019 to invest in early-stage technology companies at the intersection of sport, media and entertainment.
Backed by an investor group comprising no fewer than 24 limited partners whose businesses span the full gamut of the sports media industry, Sapphire Sport's financiers include everyone from heavyweight rights holders such as Major League Baseball (MLB) and City Football Group (CFG), to major brands and organisations like AEG, SAP, Sinclair Broadcast Group and Adidas.
Upon launch, the fund boasted an investment portfolio of five sports-related startups, including at-home fitness system Tonal - which recently raised US$110 million amid surging interest in connected fitness - and the ultra-successful digital network Overtime. In the months since the Covid-19 outbreak, it has injected further capital into at least two more companies: Buzzer and GreenPark Sports, both of whom feature on SportsPro’s latest list of sports tech ideas to invest in now.
Shortly after those deals were announced, SportsPro sat down for a virtual chat with Michael Spirito (left), a founding partner at Sapphire Sport and former 21st Century Fox executive, to find out more about the fund’s approach to sports tech investments and how it has been able to navigate the pandemic.
Generally speaking, what has been the impact of the pandemic on the sports tech space? Has it opened up new opportunities to invest, perhaps brought new companies and solutions to the fore that were previously flying under the radar?
Just to rewind the movie a little bit to when and how we launched the fund about two years ago. We’re the early-stage fund at Sapphire, we’re a first-of-its-kind fund. We’re investing in the future of consumption and the technologies that are helping drive consumption paradigms and consumption business models now and into the future.
The trends that we were already witnessing in consumption, and quite frankly that we were investing against, going back a couple of years have only been magnified, intensified and accelerated [by the pandemic]. We’re looking at what products are out there or being contemplated or launched, what entrepreneurs are out there building products that will help drive better and more efficient forms of consumption.
The other bucket we look at is the stakeholder world: teams, leagues, athletes, media rights holders, brands, sponsors, merchandisers, retailers, etc. Every part of that world is involved in the consumption ecosystem, and all they’re trying to do is better their linkage to the end user, the fan, the consumer, whoever it might be.
These industries have been fairly slow to evolve and createhttps:>
How has the pandemic affected the way in which you, as an investor, go about the business of meeting entrepreneurs, understanding the concept, and ultimately doing the necessary due diligence?
It’s a great question and, quite frankly, the best and most poignant question you can ask somebody in my position, as an investor, in this incredibly unique period of time. We’ve never seen a period of time like this. Any other period of market disruption - whether it was 2001, 2008/09 - you could still see people in person. There’s nothing you could do to prepare yourself for a period of time in which personal interaction basically gets shut down for an indefinite period.
I’ll speak on behalf of Sapphire and as part of the venture investing community in Silicon Valley and beyond, and how we think about the process of getting to know an entrepreneur, getting comfortable with a founding team and an idea, and what the steps are toward making an investment.
It requires a different way of thinking about it and the ability to get comfortable over a video call.
We’ve actually done three new investments over the past several months, the first of which was Buzzer. Bo is somebody that I knew previously. We actually started to put the deal together at the NBA All-Star Game in Chicago in mid-February, one of the last events that we were all at. We started to put together what that would be right before Covid.
Since then it’s been interesting and challenging to get to know entrepreneurs over Zoom. In some cases, I’ve been able to go on socially-distant walks and coffees with entrepreneurs when the opportunity has presented itself. We, again, have gotten to the point where we’re in the process of closing an investment in companies and with founders that we actually have not met in person, so it requires a different way of thinking about it and the ability to get comfortable over a video call.
You do the same type of diligence, you do all the similar types of checks and balances and customer calls before you make an investment, but you really have to cross that threshold on the personal relationship basis in this environment.
Just like every venture investor who has negotiated, done diligence and closed a deal with an entrepreneur they actually haven’t met in person, we’re not going to know what that is going to yield until years down the road. But in the cases where we have made that investment without meeting in person, we’ve just made the adjustment and gotten as comfortable as we possibly can.
- ‘It’s thoroughly complex’: How City Football Group is redefining soccer club ownership
Even if they are all seeking new ways of driving consumption, how do you ensure any investments you make align with the differing interests and expectations of your various limited partners?
Each vertical within the industry, from a stakeholder perspective, is represented in the fund - that’s why it’s a first-of-its-kind fund. Each of them, in their own way, is trying to build a better connection to their end consumer, and it’s through technology, it’s through digital product. We, as a Silicon Valley-based investment firm, are doing that - that is what our stated goal is.
Personal Investing Strategies
When we look at where the opportunities are for investment, we’re looking at where the big marketplaces are within that - digital health and fitness, gaming and esports, digital and next-generation media - and then the enterprise and infrastructure that runs all of that. That’s where we think the biggest potential drivers of value from a venture investment perspective are, and that benefits everyone within our LP group.
At the end of the day, our LPs are financial investors; they are investing in a venture fund, such as Sapphire, toward long-term financial benefit. But we have the unique vantage point to look at these worlds in which we’re investing, where the use cases are, through these LPs and their lens. If they’re all trying to solve the same goal, even if they’re operating in a different part of that realm, [there is] a unifying theme.
Finally, what is the most overhyped sports tech trend or product heading into 2021?
Sports Investing Strategies
I would say it’s more interesting and more resonant as digital products that better link the brand or the entity to the consumer are being thought about, but if AR/VR doesn’t happen now, it’s not going to happen. There’s never been a better tailwind for that part of the industry. It was over-invested about two or three years ago and subsequently became under-invested over the past 12 to 18 months.
To me, I’m still yet to see the consumer adoption or the use cases around great AR/VR products, so it’s an area where our tentativeness towards investment probably hasn’t changed. We’re still tentative about what that industry might bring to bear.
Sports Investing Strategies List
This interview forms part of SportsPro's Sports Tech Investment Week. Read more here.