Thursday, October 27, 2005

Hedging: Common mistakes

Hedging: Common mistakes

In general, hedging is a bad idea in sports betting. People think about hedging bets that they have made where they have already won part of the wager, or look like they are winning the wager. Here are a couple of examples:

A 2nd half hedge
Player bets the Underdog +10 in a football game. At the half, the Underdog team is winning by 14 points! The player then decides to bet the Favorite by laying points in the second half. This way the player has a window of a big middle. Let’s say the line in the 2nd half was the Favorite -10. So now the player has a 14 point window where he wins or ties both bets.

Underdog wins by 4: win one bet, push on the other
Underdog wins by 1-3: win both bets
Favorite wins by 1-9: win both bets
Favorite wins by 10: win one bet, push on the other

This is irresistible to many players. Their maximum loss is very small, just the vig. And their maximum win is now two bets. It feels like they are being given a 20-1 shot on 14 points. Feels good, doesn’t it?

But here’s the problem with that. The original bet of the Underdog +10 has such a great chance of winning if they are up by 14 at the half, that it should be pretty much counted as a 90% winning ticket. In fact, what is going on with the hedge is that the player is only losing the vig to the bookmaker. And, if other players have the same idea of hedging their Underdog wager, then that means the line is probably too shaded towards the favorite.

Think about it – who is likely to use the 2nd half line to hedge? The players that bet the favorite or the players that bet the underdog? The players that bet the favorite are not going to think about hedging because they would be putting themselves into a reverse middle of 14 points…no one wants that. So this means when the Underdog is winning by so much at the half, the line is likely to be shaded towards the favorite.

So the hedger in this scenario has two problems:
1. he loses on his hedge because he has to pay the bookmaker’s vig.
2. he may lose even more on the vig or the line because the line/vig is already shaded towards the favorite by more than it should be.

There may be reasons to bet the favorite in the 2nd half – but those reasons should have nothing to do with the existing wager of the Underdog in the game. Think of those two wagers as two complete wagers. One is already a very likely winner (the Underdog +10), while the other is simply flipping a coin and paying vig to do so.

A parlay hedge
This is a silly mistake to make, but one that I understand people make all the time. It’s when someone places a parlay with many teams – say 5 teams – with one of the teams on Sunday night or Monday night. If they win the first 4 games, they automatically think about hedging the 5th game so they can lock in some money. Typically, they are just betting the opposite team on the 5th game at the same line that they took the initial team.

Player parlays 5 teams that pays 20-1 (this in itself is a poor odds to get, but that’s for another topic). The player wagers $10 and hopes to win $200.

ATL -2
OAK +3
SEA -3
IND -14
BAL +10.5 – Monday Night game

The player then goes to win the first four games. But then on Monday afternoon, he decides to bet PIT -10.5, so that he is guaranteed a winner. He may bet as little as $10, so he is guaranteed a push if PIT covers. Or he may bet as much as $110 to win $100, so he wins $90 regardless of who covers the game.

Here are the problems with this thought process:
1. He’s giving up edge both ways. Not only is he giving up edge on the Parlay side (fair odds on a 5 team parlay should be 31-1, and if he had bet the games individually at -110, it would be 24.3-1), but he is also giving up the vig on the PIT hedge. This is how bookmakers make money!

2. Why did the player play a 5 team parlay? Why not only play a 4 team parlay if he is going to hedge the 5th game after winning the first 4 games.

In the next post, I’ll discuss issues when it may be correct to hedge. In my mind, there are only three solid reasons to hedge.

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