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Capitalizing Upon Market Inequities:
From Stochastic Modeling to Successful Sports Wagering

Clayton Graham
DePaul University, Chaos Group, Inc. & Analytical Advantages, LLC

Picking a winner is not at all the same as making a smart bet!

Sports wagering brings two separate “markets” together. First is the production market, the game itself. The second is the wagering or betting market. As a matter of practicality, the wagering market is itself in balance, i.e., bet clearing is covered through the process of adjusting the cost-payout ratio (the line.) Betting lines are translated into an expected probability of winning. This resultant probability is frequently inconsistent with the probability of the team actually winning.

Hence, the opportunity to capitalize upon the dichotomy between inequities between of the production and gaming markets is detailed and quantified. The presentation will include:

  • Identification of key metrics,
  • Fundamentals of gambling lines and odds,
  • Methods of production modeling baseball and basketball (similarities and differences),
  • Integration of economics (investment) with production.

Specific Palisade software utilized includes (and not limited to): StatTools, @RISK and Evolver.

Presentation will have a heavy graphic and visualization emphasis. Theoretical statistics will be tightly tied with pragmatic realities of game modeling and economically based decision making. Specific quantification will consist of:

  • Probabilities of winning a game,
  • Measurement bias of officials (umpires),
  • Quantification of player performance (baseball),
  • Expected values of return on investment,
  • Sports gambling optimizing algorithm.

Examples of actual results for current and past seasons along with predictions will be made. In short, it’s “Card Counting” for sports!

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