What is +EV Betting?
Positive Expected Value (+EV) Betting is not a hedging technique.
It is a strategy for people who have a higher risk tolerance and can emotionally handle some of their bets losing, with the reward being quicker bankroll growth than is possible with hedging strategies.
Let's Back Up Even Further - What is +EV?
Positive Expected Value is a fairly simple concept: the rewards outweigh the risks.
The main strategic component of hedging is minimizing risks.
The main strategic component of +EV is maximizing the ratio of reward:risk. Professional bettors generally do not use both strategies simultaneously, but instead favor one or the other depending on context.
An Example of +EV Outside of Sports
Let's play a simple game. We're going to flip a fair coin, meaning there is a 50% chance it comes up heads and 50% tails.
You can bet $1 on the flip, and if you win, you get a $1.10 profit. If you lose, your $1 is gone.
Hopefully you can immediately see the value here: 50% chance to be -$1, 50% chance to be +$1.10. You want to play this game as much as you can because you know that on average you will win and lose the same number of times, but each win outweighs each loss.
If you play 100 times with 50 wins and losses each, you profit $5:
(-$1 * 50) + ($1.10 * 50) = $5
For every $1 you wager, you expect to win $0.05 on average, making the Expected Value of one coin flip 5%.
...But +EV Has Volatility
Here's the problem: you don't always win exactly 50% of your coin flips. You can get unlucky and go on a losing streak. This doesn't mean your strategy is bad, it just means you need to account for volatility as a cost of doing business.
If you only win 40/100 coin flips, you are -$16:
(-$1 * 60) + ($1.10 * 40) = -$16
The chances of only winning 40/100 flips is about 2.3%, which is the same chance you win 60/100 and are instead up more than expected. I'll spare you the statistics for now -- the important part is understanding that negative volatility is both possible and over the long run, likely to happen at some points.
How Do You Account for Volatility?
Here's where most people fail when executing +EV strategies. Identifying and placing bets that are +EV is very easy. Sizing your individual bets in the context of a bankroll so that you maximize bankroll growth without taking unnecessary risks is much more difficult.
Let's go back to the coin flipping example. Instead of only betting $1 at a time, you now have the option to bet up to $100 at a time.
Let's say your starting bankroll is $100. If you bet all $100 on a +5% EV coin flip, there is a 50% chance you lose your entire bankroll after 1 bet. This is bad. Don't do this.
The question then becomes "How much should I bet at a time if I have a $100 bankroll and can bet up to $100 at a time?"
The Kelly Criterion
The formula for answering this question is called the Kelly Criterion:
f* = (bp - q) / b
Where:
- f* = fraction of bankroll to wager
- b = the net profit received on the bet (in decimal)
- p = probability of winning
- q = probability of losing (1 - p)
Let's calculate:
- b = 1.1 (equivalent to +110 odds)
- p = 0.5
- q = 0.5
f* = (1.1 * 0.5 - 0.5) / 1.1 = 0.045 or 4.5%
So you should wager $4.50 (4.5% of your $100 bankroll)
Back to Sports Betting
We can translate the coin example to American sports betting odds fairly easily: you can bet at +110 odds on a market that has "true" odds of +100. +100 = 50% chance.
If you understood the coin example, hopefully you also understand the logic behind betting on the Lakers moneyline if it is priced at +110 instead of +100. The principles so far are the same.
Sports Betting is More Complicated Than Coin Flips
The main difference between sports betting and flipping coins is that with the coin, you know the odds are 50/50. With sports betting, you have to guess at what the true odds are using incomplete information. The information changes -- a key injury after you've placed your bet could move the market either direction, changing the current estimate of true odds.
This additional layer of volatility makes using the Kelly Criterion as-is suicidally risky. Like with the coin example, betting too much increases the risk of losing your entire bankroll, popularly called "risk of ruin." You must avoid risk of ruin at all costs.
Professional Betting Strategies
What professional bettors do in real life is to adjust the Kelly Criterion by dividing their bankroll further. "1/3 Kelly" and "1/4 Kelly" mean you've used the Kelly Criterion and then divided by 3 or 4 to give yourself an additional margin of safety. This makes sense intuitively: if betting $5 on a coin flip from a $100 bankroll is optimally risky, betting $1.25 instead further lowers your risk of ruin because it is statistically less likely to go on a longer losing streak.
Underbetting does not carry the same risks as overbetting:
- With overbetting, you increase your risk of ruin
- With underbetting, you lower your risk of ruin at the expense of some expected value, which is the better of the two options
Perfectly sizing your bets is unrealistic given the volatile nature of betting odds.
Conclusion
Failing to account for bet sizing and bankroll management can render +EV betting ineffective and even ruinous, even if you are successful at identifying +EV bets.
Disclaimer: Sports betting carries financial risks. This guide is for informational purposes only and does not constitute financial advice.