May 23, 2010 | In: Articles
Calculating Return on Investment in Sports Betting
This article addresses the Return on Investment (ROI) a player can expect at various winning percentages. Ever wonder how to calculate your return on investment? What can you realistically expect at various winning percentages? Read on…
The “investment” we are speaking of is the money laid to win a bet (for example $110 to win $100) and, if applicable, the cost of a sports service. The “return” is the net winnings or losses based on that investment. We can look at historical average returns for common stocks as a reasonable benchmark. Over the past 75 years stocks have returned around 10% per year.
Now what about sports betting? ROI is calculated simply by taking the net winnings or losses and dividing by the amount risked (invested). So, if you put up $110 to win $100 and win the bet, your ROI on that single bet is 90.9% ($100 / $110). So, if you have 100% win rate, your ROI is 90.9% – not too shabby!
But, as we know, a more realistic expected win rate over the course of a season is probably in the 50%-60% range. With a 10% vigorish, you need to hit 52.38% to break exactly even – an ROI of 0%. Here’s the ROI at various win rates assuming a 110 risk to win 100:
Now, let’s quickly talk about timeframe here. When we refer to the stock market returning 10%, that means 10% per year – or 5% for six months. Since most sporting event seasons are about six months, our benchmark, to do as well as the stockmarket, is really just a 5% return. So if we use stocks as a benchmark, you need to hit around 55% to match the benchmark return for stocks. A 57.6% winning percentage nets you exactly a 10% return – or double what you could expect from the stock market. Not bad!
You probably detected a pattern there as well. Basically, for every 1% increase in win percentage, you can expect a 1.9% increase in ROI.
The Effect of Purchasing Picks on ROI
Now, as one of my subscribers (A. Gordon) astutely pointed out, most analyses of ROI don’t ever calculate in the cost of a service. The above analysis assumes you invest $110 to win $100. What if you pay for a service as a way to increase your winning percentage? You need to add the cost of the service into the “investment” portion of the ROI calculation. Here’s an example:
Let’s assume you play $100 games and invest $750 for a season subscription to a sports service. Let’s also assume you play about five games/week (120 games over the course of a season). Your investment per game has now increased $6.25 per game ($500/120 games). So you are now investing $116.25 to win $100 on each game. To break even now, you need a 53.76% winning percentage (versus 52.38% without a service) and a 59.1% rate to earn a 10% return (versus 57.6%).
These calculations vary depending on the amount bet, number of games, and amount of the service. But as you can see, at these levels, if you believe a sports service can increase your winning percentage 2-3%, it makes financial sense to invest in the service. For example, if you paid $750 for a sports service that helped you go from 56% to 59%, the $750 investment in the service would result in additional winnings of $450. If the service helped you go from 56% to 62%, the $500 investment would result in $1,225 additional winnings. And, if a sports service could help you turn a losing season (50%) into a winning one (60%), the sports service investment would net you $1620 in winnings versus a $600 loss on your own ($2,220 difference). The less the sports service costs relative to the amount you bet, the better these numbers become and vice versa.
I hope this helps shed some light on what you can expect to net at various winning percentages with and without a sports service.