The Complete Square's Guide to Sports Wagering: Significance of Win-Loss Records.By J. Graziani

[Rogthedodger]

When handicapping sports it's essential to look at past results against the spread. A large part of handicapping involves looking for profitable, but undiscovered, situations. But a winning record may not necessarily indicate a profitable betting system. As we all know, a series of 50-50 events does not always provide results exactly as we would expect - luck can still play a significant role, especially over small samples. Flip a coin 10 times; you may get 5 heads, but you are more likely to get a different number, like 4 heads, or even 9 heads.

Now flip that coin 100 times, and you will still probably not see precisely 50 heads. And flip it 1000 times and you will be close to a 50-50 distribution, but you still are unlikely to hit exactly 50%. Likewise, you can have your dog pick a team for you for Monday Night Football every week, and it wouldn't be all that shocking to see man's best friend hit a 65% 11-6 record over a season. Does that mean you've lucked into ownership of some money-making superdog? Of course not, it just means that short term winning and losing streaks happen randomly.

We can use statistics to figure out how likely a given record is to be due solely to chance. While many people's eyes start to glaze over when math is involved, it's actually a simple process to determine whether a result is due to randomness. You first need to determine the standard deviation of your data; this is just the square root of the sample size. If you have a system that went 60-40 over the past 5 years, the standard deviation is the square root of 100, or 10. Now, determine how many standard deviations your record is from 50%. You can do this by taking the net wins in your system (wins minus losses) and dividing by the standard deviation. The higher this number, the better. Your 60-40 system is two standard deviations above the expected results (60 minus 40 is 20, divided by the standard deviation of 10). That is good, but it means there is still a 5% chance the results were just due to dumb luck.

You should shoot for three standard deviations above the mean, which means only a 1% probability of the results being due to randomness alone. For a 100-game system, that translates to a record of 65-35. For a 20-game sample, that same level of significance requires a 17-3 record, demonstrating how much of an influence randomness can have on short-term results.

This method takes into account not just the winning percentage, but also the sample size. We all know that most short-term trends or angles are worthless, merely blips in long-term 50-50 systems. Determining the statistical significance of a set of data ensures that the underlying system has proven itself over time. Of course, one problem in sports handicapping is finding a large enough sample of data. You may think that home underdogs of 4 or more points in the NBA playoffs are a good bet, but you only have a handful of games to go on. Short-term luck will have played a large role in whatever conclusions you reach from the data.

There are two ways to deal with sample size issues. One is to acquire more data by looking further into the past to analyze more games. The danger in this is that results from a decade ago may not accurately reflect conditions today or in the future. The other is to expand your criteria by looking at, for example, all home dogs in the NBA playoffs, or all underdogs of 4 or more points including regular season games. This gives you more data to work with, but expanding your criteria dilutes your original system and may cause you to miss valuable opportunities.

Evaluating significance applies to handicappers as well. How many gambling messiahs have we watched arrive on the scene with a 60% season, only to bat .500 the rest of their tout career while slowly losing their clients' money? If a handicapper hit 60% in the NBA last year, does that mean he is actually a 60% handicapper? Perhaps he is a 50% handicapper who just got lucky over the course of a season. Evaluating his record for significance is an important first step in determining his separating the men from the boys.

Finding a significantly winning system (or, even rarer, a winning handicapper) is only half the battle. As our friends on Wall Street like to say, "Past performance is no guarantee of future results". Changes in betting markets, sports rules, or other conditions can make past results unreliable for current situations. It's important to not only consider significance, but also the limitations of the data and adjustments in spreads that occur over time as winning factors are teased out of past results by linesmakers and handicappers.

"The Complete Square's Guide to Sports Wagering" is a recurring series aimed at educating novice sports bettors. The next article will examine correlated parlays.

6-01-08
Jay Graziani
MajorWager.com
graziani@majorwager.com

http://www.majorwager.com/frontline-665.html

[stevo]

Great piece Jay. I can't wait for correlated parlays.

[count zero]

This is a useful article for beginners, since it introduces them to the concept of evaluating past and future results. Most beginners just fire away. But you miss an important point, which is that the confidence levels you mention (2 standard devs, 3 standard devs, etc) are not reliable outside the unchanging world of the physical sciences. Z-scores of 2 or 3 are very weak indicators for real-world applications, depending on the degree to which conditions change from the test sample to the target sample. The anecdotal evidence I've accumulated over the years tells me to at least double the required confidence levels for sportsbetting, i.e., get interested at 4 SDs and get excited at 6 SDs. Needless to say, these cases are rare.

The wise researcher should also be wary of "tightening" betting concepts to force a strong z-score. Heavily circumscribed methods with small sample sizes invite regression to the mean.

[SlipperyPete]

Screw statistics. No amount of number crunching will help you if the team you just bet on doesnt show up. Stats are unreliable.
Team psyche for any given day is way more important.
Try to learn to figure that out. If you can, you will ALWAYS be ahead of the game

[RaisinCapital]

True pete... each game is an independent event. Looking into the future much better than the past.

[drunkguy]

Originally Posted by count zero

This is a useful article for beginners, since it introduces them to the concept of evaluating past and future results. Most beginners just fire away. But you miss an important point, which is that the confidence levels you mention (2 standard devs, 3 standard devs, etc) are not reliable outside the unchanging world of the physical sciences. Z-scores of 2 or 3 are very weak indicators for real-world applications, depending on the degree to which conditions change from the test sample to the target sample. The anecdotal evidence I've accumulated over the years tells me to at least double the required confidence levels for sportsbetting, i.e., get interested at 4 SDs and get excited at 6 SDs. Needless to say, these cases are rare.

The wise researcher should also be wary of "tightening" betting concepts to force a strong z-score. Heavily circumscribed methods with small sample sizes invite regression to the mean.

Yea 3 SDs should probably be looked at as a minimum threshold. Much safer to play around in the 4+ range, although I think finding situations at 5 and 6 SDs is nearly impossible for most sports due to sample size issues


Thanks for the post count, good points

[southie]

Excellent post. I'm a novice to this forum and it provides an excellent starting point for handicapping. I look forward to more such articles from yourself. Thanks.

[drunkguy]

Originally Posted by southie

Excellent post. I'm a novice to this forum and it provides an excellent starting point for handicapping. I look forward to more such articles from yourself. Thanks.

Thanks, happy to hear it might be of some help

[SwampHog]

Great Post Rog, you can never get too fancy for a refresher course in this game, and it helps galvanize your thoughts. The math is the most unchanging aspect of this business, as CZ states, it's the attaching of the math to the real life shit that makes handicapping as much art as science. At least until IBM builds Deep Punter and kicks all our asses.

[drunkguy]

Originally Posted by SwampHog

At least until IBM builds Deep Punter and kicks all our asses.

you know, I often wonder how much harder it would become to make money in this if it were legalized and "mainstream"


I would guess big financial firms would be able to suck all the profit out of the market fairly quickly with advanced modeling and data mining


Luckily those guys are too busy analyzing the stock market to be bothered with basketball games

[SwampHog]

I hear you, I have Extermination Level Event nitemares too.

But you know, every market is deemed "efficient" until you bitch-slap it, as long as the fear of losing money/delirious hope of making money remains as the driving force in any market, there'll be angles.

At least for now. A computer that's right and never blinks would be the 1 horseman of our apocalypse. The nice thing about our industry though is that it's in large part a race to current information and evaluation of same, doesn't play to the strengths of a computer's brute force strength.

[drunkguy]

you're definitely right

some angles would become obsolete from large-scale datamining, sharps will just have to keep coming up with new angles (like they have to now anyway)

and forward-looking predictions do take a little more intelligence than just crunching past numbers. Luckily handicapping requires both looking at the past and forecasting into the future

[DrunkenGoon]

Originally Posted by drunkguy

you know, I often wonder how much harder it would become to make money in this if it were legalized and "mainstream"


I would guess big financial firms would be able to suck all the profit out of the market fairly quickly with advanced modeling and data mining

Luckily those guys are too busy analyzing the stock market to be bothered with basketball games

Have you seen the performace of these guys in the market lately? I say bring it on. Then again, most of these deep pocketed Wall Street guys are playing anyway, and it would be my guess that a lot of them are the squares that keep this industry going.

[Uncle B]

Good work, Jay....Looking forward to the follow-up..