Analysing a Betting Record
Traditionally, the size and growth of the bankroll has been viewed as the primary measure of betting success. Frequently, claims are made by tipsters about the amount of profit they can generate for their members. “A guaranteed 90% profit over the course of one season”, “288% during the season”, “500% over the past 3 seasons” are just a few claims that have been made. Some claims may be fraudulent. For those that are genuine, they still provide little or no meaningful information about how such profit was achieved, how large the stakes were and consequently how great the risks were that were taken. To begin to answer these questions, we require a key piece of information: the yield, sometimes called either the return on investment or profit over turnover.
In finance, the yield is defined as the profit obtained from an investment, and more specifically the annual rate of return expressed as a percentage. In betting, similarly, the term may be used to describe the ratio of profit to the total amount wagered, more commonly known as the profit over turnover (POT) or sometimes return on investment (ROI), if returned stakes are also included. Betting yields, of course, cannot be fixed in advance as they can for dividend payments, which are paid on the investment of an initial lump sum, and will fluctuate continuously as the bettor experiences intermittent periods of success and failure. Furthermore, a profitable betting system should allow a punter to recycle money already won into future wagers, ensuring that much of the initial betting capital is not actually used. For the value bettor, however, the betting yield provides a much more meaningful indicator of success, because it can be related directly to his profit expectancy and the size of his edge over the bookmaker’s odds.
Whether or not a punter has an edge for a bet, and if so how large it might be, can only be estimated by applying the principles of value betting and forecasting. Nevertheless, the yield from a succession of bets already settled does provide a good idea of the average advantage a punter has secured. If he returns £1,100 from one hundred £10 singles, it appears he has, on average, gained a 10% edge over the bookmaker for each of these bets (assuming he was not just lucky). We’ll never know what the exact edge was for each of those 100 bets, just the average, based on the size of the overall yield. A return of £900, on the other hand, is evidence that he is struggling to beat the odds (again assuming this time that he’s not just been unlucky). For many punters a 5 to 10% loss on turnover is not uncommon. It is no coincidence that this is very similar in magnitude to the bookmaker’s typical profit margin expressed through his overround.
In the above example, a return of £1,100 from stakes of £1,000 defines a 10% yield or 10% profit over turnover (POT). Alternatively, we might describe this as a 110% return on investment (ROI). The relationship between POT and ROI is essentially the same as that for profit and return expectancy. Stakes are included in latter, omitted in the former. A negative POT or ROI less than 100% is evidence of a punter without an edge.
As we have seen from the profit expectancy calculations of different staking plans in the last lesson, the long run whatever money management method you use, your yield or ROI will ultimately be a reflection of your average betting edge over the bookmaker (assuming your stakes aren’t weighted too much in favour of some bets compared to others). In the short term, there will be differences depending on what staking strategy you are using and how much good or bad luck you are experiencing, and a short term yield may not necessarily reflect the true skill the punter has at match forecasting. For example, we now know that an unsophisticated loss chaser may temporarily postpone the inevitable disaster that awaits him, during which time he may mistakenly believe that his positive returns are somehow evidence that he has gained an advantage over the odds. Similarly, a strategy designed to win similar profits whatever the betting odds may return a higher yield in the short term than would be expected from the punters edge (if that could be known) because disproportionately more money is being bet on high probability propositions, that is shorter odds with a much greater chance of winning. The best staking strategy to apply to a yield calculation, and the one providing the most reliable indicator of the true advantage the punter has gained, is the level stakes strategy because equal weight is applied to every bet. That is not to say you should bet to level stakes, but merely that whatever staking plan you do use, it is none the less worthwhile analysing what you would have won from your betting had you used level stakes.
It is also possible to represent a betting history graphically by means of a time series or profit chart, named as such because it charts the evolution through time of a consecutive series of bets, and specifically the evolution of the size of the bankroll. Such time series are sometimes more helpful at illustrating the inherent randomness that permeates the whole evolution of betting profits. Unless we can fix matches we won’t win all the time, and whether we win or lose on a bet-by-bet basis will be dominated by random influences that affect all sporting contests. The evolution of the size of the bankroll will meander in an apparently random manner over shorter time scales, the amount of which will be dependent on both the type of betting odds we like to bet and the size of the edge we have. Betting at shorter odds will show less randomness than betting at longer odds, because we are winning more often. Punters with a greater edge are more likely to show more dominant longer term profit growth trends underlying the bet-to-bet ups and downs. A typical profit chart is shown below.
A key question to ask now is: how do we know when our yield is a reliable indicator of our betting edge? In other words, at what point do we begin to believe that we actually have an advantage over the bookmaker that we can sustain over the longer term? Or, when looking at our profit chart, when can we say that any trend is more important than the short term random variability? If we have been losing for some considerable time, the answer should be pretty obvious. However, being profitable from sports betting is not necessarily a sign of skill. In the short term it might well be the result of luck. Being lucky in gambling can only be profitable for so long, unless you have a bookmaker happy to offer better than fair odds. In the long run good and bad luck will cancel each other out leaving just evidence of the punter’s skill, or more usually the absence of it. There are means of testing when we can begin to believe our yield is the result of skill and not luck, and this will be covered in the next lesson.