If you just found out how to convert odds into probabilities, you’re probably feeling pretty smart. Not only are negative odds favorites and positive odds underdogs. But you also know how much the sports betting lines you’re looking at are taking from bettors. You can figure out the vig. It skews the odds a little, but you still have a good idea who the better team is, right?
There are two factors that skew win/lose probabilities beyond reason: hype and money.
How Hype Skews Win/Lose Probabilities
Betting on the election is illegal in the United States, but it’s legal overseas. And international sportsbooks took a lot of wagers on the 2020 presidential election. However, they didn’t set their odds based on electoral college math like:
- An incumbent president running on a bad economy is near-certain death.
- The Red Mirage that showed Republicans ahead before mail-in ballots were counted.
- Influential pollsters like FiveThirtyEight favored Biden on election night.
None of these hard data points mattered. Instead, Trump supporters, believing that Trump could not lose the election, bet heavily for him to win the election. They were so sure that it caused offshore sportsbook odds not to reflect the true odds of the election. In fact, they flipped. Offshore sportsbooks had to make Trump a massive favorite to balance their financial risk. Otherwise, they risked losing a catastrophic amount of money if Trump won.
The Financial Tightrope Sportsbooks Balance On
Bettors know there are two ways to win a moneyline bet at a sportsbook:
- Bet a lot on a favorite to win a little.
- Bet a little on an underdog to win a lot.
When favorites win, bettors win less, and when underdogs win, bettors win more.
But sportsbooks have to make sure they have enough money to pay winners no matter the outcome. They take nothing for granted. So, if bettors wager all their money on one team to win, sportsbooks have to transform the other team into a more tempting bet. Sportsbooks will:
- Lower the odds on the team with all the money.
- Increase the odds on the team with little money.
The odds flipping mid-game doesn’t necessarily mean sportsbooks believe the other team is going to win. It means that sportsbooks want bettors to put more money on one side of the line and put less money on the other. Sportsbooks are just rebalancing on their tightropes.
But that didn’t stop Trump supporters at offshore sportsbooks. Even when reality forced sportsbook odds toward reality, Trump supporters were undeterred. Slate reports that when BetOnline’s Trump odds were at +525 – a 16% chance of winning – 80% of presidential wagers were on Trump. Eventually, Biden bettors cleaned house, but Trump bettors continued chasing their loss.
Moral of the story? Don’t bet on a team just because they’re your favorite. Take the sportsbook odds on underdogs and favorites with some caution.
Super Bowl Odds
The election was a clean case study in taking sportsbook probabilities for favorites and underdogs with a grain of salt. We could watch the election probabilities change in real-time and compare them to sportsbooks. Surprise, surprise, they didn’t match. Sportsbooks had to factor in the financial liability of most fans betting on one team, regardless of the team’s chances.
|Pre-Game Odds||Pre-Game Win Probability||Halftime Odds||Halftime Probability|
Setting your feelings aside, did the Chiefs really have less than a 1-in-4 chance because they were two touchdowns behind halfway through the game?
No. The probability of the Chiefs winning was not that low at halftime and Tom Brady hadn’t locked a win up. The odds changed dramatically because of money.
When the Buccaneers started winning, sportsbooks anticipated a slew of bettors wanting to cash in on underdog odds. Sportsbooks made the potential reward for betting on the Chiefs bigger to get some cash on that side of the line, too. Remember, the losing bets pay the winnings, and sportsbooks can’t run out of money.
The Chiefs didn’t deliver in the second half, and the odds adjusted accordingly. However, it was not a sure thing at halftime. There’s always room for a rebound from a team. (Broncos fans understand the corollary – that a great first half doesn’t guarantee even a good second half.) Extreme odds partway through the game don’t mean the game is called. They mean sportsbooks are trying to balance their risk.
I’m writing this late at night on February 10, 2021. March Madness starts on March 18. If my editor is as fast as I am – and he’s quick – you’ll have five weeks’ notice to avoid two stupid mistakes:
- Don’t bet on a team just because you love them.
- Don’t confuse extreme odds with an early call to the game.
The election showed us how hype can skew sportsbook probabilities until reality forces them to rebalance. The Super Bowl showed us that extreme odds are the result of real-time rebalancing.
If you’ve made either betting mistake, it’s okay. You have a chance to avoid them during March Madness. Just make sure you use your head to bet and not your heart. Bettors don’t have to lose money because they got overly excited about a budgeting process. Run through our Gambling 101 guides before March Madness begins, and set yourself up for a better chance at success.