At a glance, sports betting looks like stock trading. Sportsbooks’ odds go up and down like stock prices do. Sportsbook lines and stocks both depend on their teams’ or companies’ performances. There’s an element of chance associated with stocks and sportsbook lines. However, there are a few key differences that make a stock portfolio a wise investment and a sportsbook account a poor one.
Sportsbooks Make Money When You Lose
While a financial advisor is legally obligated to advise you according to your best interests, sportsbooks are not on your side. Sports betting can be a fun activity, but the odds are stacked against bettors.
If sportsbooks offered perfectly fair odds, they couldn’t make money. Offering an exact 50/50 chance of either side winning, for example, would leave profits to chance. If one team was more popular than the other, then that team could still have more wagers on it. Here’s what a hypothetical could look like:
|Team||Sportsbook Odds||Amount Wagered On Team|
More people wagered on the popular team, so there’s more money on that team. If the unpopular team wins, then the sportsbook walks away with $200. But if the popular team wins, the sportsbook loses $200. That means the sportsbook will struggle to be profitable in the long run.
Calculating the exact odds of a team winning doesn’t help sportsbooks either. A hypothetical underdog could have a 1/3 chance of winning, and the favorite could have a 2/3 chance of winning. However, over a series of bets, the sportsbooks still breakeven at best. The underdog could still win a third of the time and earn a higher payout as a result. That higher payout would come from all the money bet on the favorite to win. True odds cancel each other out and eliminate sportsbook profit.
The House Advantage
The sportsbooks’ solution is a house advantage, just like casinos. Take these odds for example:
|Team One||Team Two|
When these odds are converted to percentages, both teams have a 52.38% chance of winning. That means the total probabilities in the game add up to 104.76%.
That extra 4.76% is the overround. With a little more math, it shows the sportsbook expects to make a 4.54% profit on that line. In this case, it doesn’t matter who wins. The sportsbook will make enough money to pay the winners and to pocket money for itself. That way, it can make money over a series of bets even if an underdog makes a surprise victory.
Sportsbooks aren’t built to be profitable for the bettor. They’re built to be profitable for the sportsbook.
How Stock Portfolios Are Different
Stock portfolios are built for long-term profitability. The goal is to buy stocks at a low price, wait for it to rise, then sell them at a profit. For example, if you buy stock shares worth $100, you could wait for them to be worth $200. Then, you could either sell those shares and make $100, or you could keep waiting to see whether the stock would go higher. Although individual stocks can be volatile, investors can buy a group of stocks that diversifies risk. The group of stocks can perform well even if some of them lose value.
In contrast, sportsbook lines are on one game or event, and there’s no partial credit on a bet. Bettors either win the whole bet or lose their wagers. They only have one chance to call an event one way or the other. Stock traders have more freedom to gain from a stock purchase than a sports bettor.
Financial Advisors Are On Their Clients’ Sides, Too
While sportsbooks tilt the odds in their own favor, financial advisors must advise clients based on clients’ goals and risk tolerances. The Securities and Exchange Commission’s (SEC’s) rules include a Fiduciary Duty Rule mandating this requirement. For example, investment advisors must:
- Know the different levels of risk of different types of securities.
- Understand their client’s goals and risk tolerance.
- Craft an investment strategy with the client’s requirements.
Sportsbooks don’t take their bettors’ financial interests into consideration like this. They may take steps to ensure their bettors don’t ruin their lives for sports betting by offering responsible gaming resources.
However, financial advisors’ jobs are to grow their clients’ portfolios. No sportsbook can make that claim.
Sportsbooks Are Regulated By State And Investors By The Federal Government
The closest thing to a federal mandate concerning sports betting was the Supreme Court decision that allowed states to choose whether to legalize sports betting. That was great news for sports betting fans, but the news isn’t all good. Every state has different sports betting rules. For example, Coloradans can download any sportsbook apps they want, set up an account, and start betting. However, other states have different rules:
- Michigan doesn’t allow online sports betting yet.
- Nevada makes bettors register their sportsbook accounts in person.
- Pennsylvania allows online casinos, which Colorado still doesn’t.
However, consumer protections are similar so far. For example, sportsbooks are required to display links to responsible gaming resources for problem gamblers. Similar requirements are likely to be part of the regulations in the next states that legalize sports betting.
However, there’s still room for inconsistencies to pop up from state to state. They may be small differences like the ones listed above, but different gaming protections from state to state could sow confusion among bettors.
The Many Powers Of The SEC
In contrast, anyone who trades stocks or consults an investment advisor knows what to expect nationwide. The SEC creates and enforces investing rules to protect investors with formidable strength by:
- Bringing civil suits against bad players in the industry.
- Overseeing investment brokers in all fifty states.
- Writing opinions about regulatory events in the industry.
- Stopping suspect stocks from being traded for up to ten days.
The SEC’s rules standardize the financial industry. Whether investors are trading securities in Colorado or Alaska, the same financial regulations govern the investment process. There are no inconsistencies in investment broker requirements, so financial advisors must meet the same minimum standard in every state.
Whether you’re an investor, a broker’s client, or a publicly traded company, the SEC ensures the investment industry’s safety and fairness for everyone. Sportsbooks can put all the safeguards in place they want, but they don’t have the tight regulatory framework that your 401k is protected by.
The One Exception To Sportsbook Profitability
While sports betting is not a tenable investment strategy for most people, there are a few skilled computer scientists who can make a good return on sports betting. If you’re well-versed in machine learning and training deep learning algorithms, then you can create a strong predictive model that could give you an edge.
Most of us don’t understand the neural networks or the process of training a neural network to make accurate predictions. Instead of holding out for an underdog’s big win, you should invest in the S&P 500 for an average return of 9.8% per year. That’s a far more financially sound decision.
Sports Betting Vs Stock Trading
Sports betting lines may look like stocks, but they’re not sound investments. Sportsbooks are leveraged in the sportsbooks’ favor, while stock trading approximates a company’s true value. Stock traders can also hold onto a stock for as long as they want to see how the stock performs. Sports betting lines are closed when the game is over. Finally, sports betting regulations vary state by state, while investment regulations have a federal framework that sets performance standards for all industry players.
And if all that wasn’t enough, sports betting is gambling. You’re not beating the house without some serious specialized knowledge.