Creating a Profitable Betting Strategy.pdf

Creating a Profitable Betting Strategy for Football by Using Statistical Modelling

Niko Marttinen

M.Sc., September 2001

Department of Statistics

Trinity College Dublin

Supervisor: Kris Mosurski

Abstract

Our goal was to investigate the possibility of creating a profitable betting strategy for

league football. We built the Poisson model for this purpose and examined its

usefulness in the betting market. We also compared the Poisson model against other

most commonly used prediction methods, such as Elo ratings and multinomial

ordered probit model. In the thesis, we characterized most of the betting types but

were mainly focused on fixed odds betting. The efficiency of using the model in

more exotic forms of betting, such as Asian handicap and spread betting, was also

briefly discussed.

According to market research studies, sports betting will have an increasing

entertainment value in the future with the penetration of new technology. When

majority of government-licensed bookmakers are making their transition from online

terminals into the Internet, the competition will increase and bring more emphasis on

risk management. In this thesis, we investigated the benefits of using a statistically

acceptable model as a support of one’s decisions both from bookmaker's and punter's

point of views and concluded that it would have potential to improve their

performance.

The model proposed here was proven to be useful for football betting purposes. The

validation indicated that it quite effectively captured many aspects of the game and

finally enabled us to finish the season with positive return.

1 Introduction ................................................................................................. 1

1.1 Structure of League Football ................................................................ 2

1.2 Betting on Football............................................................................... 3

1.2.1 Pari-mutuel Betting ...................................................................... 3

1.2.2 Fixed Odds Betting....................................................................... 4

1.2.3 Asian Handicap (Hang Cheng) ..................................................... 5

1.2.4 Asian Handicap vs. Fixed Odds .................................................... 8

1.2.5 Spread Betting .............................................................................. 9

1.2.6 Person-to-person Betting ............................................................ 10

1.3 Betting Issues..................................................................................... 11

1.4 Return Percentage .............................................................................. 12

1.5 Internet Betting .................................................................................. 13

1.6 Taxation............................................................................................. 18

1.7 Scope of the Thesis ............................................................................ 19

2 Literature Review ...................................................................................... 21

2.1 Maher-Poisson Approach ................................................................... 21

2.2 Alternative Prediction Schemes.......................................................... 26

2.2.1 Elo Ratings and Bradley-Terry Model ........................................ 27

2.2.2 Multinomial Ordered Probit Model............................................. 30

2.3 Betting Strategies ............................................................................... 31

2.3.1 Unconstrained Optimal Betting for Single Biased Coin .............. 32

2.3.2 Unconstrained Optimal Betting for Multiple Biased Coins.......... 34

2.3.3 More on Kelly Criterion ............................................................. 35

3 Data Description and Model Formulation................................................... 37

3.1 Data Description ................................................................................ 37

3.2 Poisson Regression Formulation......................................................... 38

3.2.1 Assumptions............................................................................... 38

3.2.2 Basic Model ............................................................................... 41

3.2.3 Separate Home Parameter Model................................................ 47

3.2.4 Split Season Model..................................................................... 50

3.2.5 Comparison among Poisson Models with Full Season Data ........ 50

3.2.6 Odds Data and E(Score) Model .................................................. 51

3.2.7 Poisson Correction Model .......................................................... 53

3.2.8 Weighted Model......................................................................... 55

3.3 Comparison among Poisson Models Week-by-week .......................... 58

3.4 Elo Ratings ........................................................................................ 60

3.5 Multinomial Ordered Probit Model .................................................... 62

3.6 Comparison of Approaches ................................................................ 64

4 Betting Strategy and Model Validation ...................................................... 65

4.1 Value Betting ..................................................................................... 65

4.2 Betting Strategy ................................................................................. 66

4.3 Money Management........................................................................... 66

4.4 Validation on Existing Data ............................................................... 67

5 Discussion ................................................................................................. 71

5.1

Implementation of the System ............................................................ 71

5.2

Applications of the System................................................................. 72

5.2.1 Bookmaker’s Point of View........................................................ 73

5.2.2 Punter’s Point of View ............................................................... 73

6 Summary and Future Work ........................................................................ 75

6.1 Summary............................................................................................ 75

6.2 Future Work....................................................................................... 75

6.2.1 Residual Correction .................................................................... 76

6.2.2 Other Types of Betting ............................................................... 76

6.2.3 Bayesian Framework .................................................................. 79

Appendices........................................................................................................ 80

Appendix A ................................................................................................... 80

Appendix B ................................................................................................... 81

Appendix C ................................................................................................... 82

Appendix D ................................................................................................... 83

References......................................................................................................... 88

iii

Chapter 1

1 Introduction

Independent forecasters predict an explosive growth in global online betting.

Ernst & Young (2000) claim in their market research paper that the driving force

of Internet and digital technology will open up mass-market sports betting by

delivering live entertainment, news and information to Internet linked PC’s,

mobile phones and interactive television. More and more people have access to

the Internet, which has evolved the sports betting business among other e-

commerce businesses. It is inevitable that this change will bring new forms of

betting into the picture. For example, so far the only live action betting has been

spread betting. The spread betting firms accept the bets made “in running”, which

means that the bets can also be placed while the event is going on. If the player

notices that one has few bets going against him/her, those bets can be sold in

order to minimize the losses. The only reason why spread betting has not fully

taken off is its complexity. In order to attract casual punters, the game format

needs to be quite simple. Balancing between simplicity and people’s interest

requires a lot of creativity. Recently introduced person-to-person betting has

effectively captured both these criteria. Punters can take each other on in several

different topics and the gaming operator monitors and settles all the bets.

Whether it is fixed odds, tote, spread or person-to-person betting, wagering will

be much faster in the future and the requirements for the system operating this

increase accordingly.

Security, speed and pricing are the most crucial issues that will distinguish the

profitable Internet sports books from the failing ones. Technology providers are

responsible for the first two, but odds compilers mostly cover the pricing issues.

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