When a bookmaker opens a market for an upcoming game, the opening odds are calculated based on statistical analysis of the team’s past performances, factoring in any other relevant piece of information such as injuries.
Once the odds become available, the players bet on the markets they consider good value, causing the bookmakers to constantly adjust the odds in order to maintain a balanced book and avoid exposure on one side.
The odds offered just before a game begins are called the closing line and reflect all statistics, news, wagering activities and market sentiment. The closing line should be the most efficient point of the market, and therefore the most accurate representation of underlying probability.
Understanding positive expected value
To take luck out of sports betting and achieve long term success, one has to be able to identify bets with positive expected value, i.e. bets that have a bigger chance of winning than the odds imply. To find out more information read our article on How to calculate expected value in sports betting.
In probability theory, the expected value of a random event is the long-run average value of repetitions of the experiment it represents. Let’s take a coin toss as an example. Assuming that the probability of both heads and tails is exactly 50%, a positive expected value bet would look as follows:
For every $10 bet on heads, the expected profit is $0.50:
(amount of bet) x [(odds for heads -1) x (probability for heads) – 1 x (probability of tails)] =
$10 x [(2.10 – 1) x 0.5 – 1 x 0.5 = $10 x (1.10 x 0.5 –0.50) = $0.50
Since the expected value is a positive number, betting on this market would be profitable in the long run, despite the fact that there is a 50% probability of losing in a single coin toss. The goal, therefore, is not to win every bet, but to make decisions that have positive expected value.
The goal is not to win every bet, but to make decisions that have positive expected value
Efficient market theory
In sports betting, however, the probabilities are not as clear-cut as in the example of the coin toss. If you add to that the constant fluctuation of odds from the moment they become available to the point they close just before the beginning of a match, the question that arises is: Which odds represent the probabilities of the outcome more accurately?
According to the efficient market hypothesis the closing odds are on average more accurate than the opening odds in predicting the probability of how a fixture will play out.
The efficient market theory is widely used in the financial markets and dictates that in an efficient market, where a large number of individuals try to maximize their profit by predicting future market values of securities and where current information is freely available to all, competition leads to a situation where, at any given point in time, the actual prices reflect the intrinsic value of the security.
How does that apply in the context of sports betting? Since all publicly available information is reflected in the fluctuation of odds, no bias on the betting outcomes can persist in the long term.
If the bettors, for example, notice inefficiency in the existing odds (e.g. generous odds on the underdog), they will try to take advantage of it by betting on that market. This will lead to odds shifting lower until no such inefficiency exists.
The closing odds are on average more accurate than the opening odds in predicting the underlying probability
Since the opening odds don’t reflect all the information in the market, inefficiencies will inevitably exist and the fact that the bookmakers have adjusted the odds makes the closing odds an unbiased reflection of the probabilities of an event outcome.
The importance of beating the closing odds
One of the main concerns among successful bettors is whether their success represents a genuine edge over the bookmaker or simply a stroke of luck. By tracking your ability to beat the closing odds, you have a measurable way in your hands to differentiate between reliable strategy and blind luck. A consistent track record of beating the closing odds is, therefore, an indicator of consistent profits in the long run.
The example of Chelsea
With Chelsea enduring a terrible run of form, we worked out what the payout would be for a rolling $10 bet on every league defeat for Mourinho’s team this season.
Below you see the opening and closing line odds for the seven Chelsea losses in EPL. In most matches the sharp money came in against Chelsea with the pre-match odds fluctuating substantially.
|Man City (A)
A $10 parlay on our closing lines would pay $279,490.
A $10 parlay on our opening lines would pay $518,098.
Beating the closing line doesn’t itself guarantee an individual bet will be profitable, but given that Pinnacle is regarded as one of the sharpest bookmakers online, consistently beating our closing line in the long run is the best indicator of winning bettor. And remember as winners are welcome at Pinnacle, you’ll be free to keep betting no matter how successful you are.