There's a lot in common about sports betting and financial markets. This includes the wisdom or mentality of the crowd sets the prices with the highly efficient markets, making the market difficult to outperform.

The Efficiency of The Financial Markets and The Betting Markets

In economic terms, markets are made efficient due to the "wisdom of the crowds." As James Surowiecki stated in his book The Wisdom of Crowds, the evidence from various fields is that when meeting the right circumstances, most people are collectively smarter than the individual experts in terms of decision-making and problem-solving, predicting and innovating.

The four requirements that make wise crowds are:

  1. Diversity of opinions
  2. Independence of members from one another
  3. Decentralization
  4.  Good ways for aggregating opinions

Besides the financial markets, the betting markets are also highly efficient and have long been used as the testing ground for Eugene Fama's efficient market hypothesis (EMH). He claims that the betting markets are more straightforward than the traditional financial markets. This is because of the fixed time during the reveal of a bet's value and also when the event ends. Most body evidence supports this view and even though the financial markets are not 100% efficient, they are still highly efficient. However, as we have never known who became rich from sports betting, we intuitively know that sports betting markets are efficient. But intuition is usually incorrect. We need to first have evidence to support our intuition.

Is Sports Betting Efficient?

According to the July 2020 issue of the Journal of Economics and Finance, the NCAA men's basketball tournament is one of the world's most popular sporting events and has contributed to a significant rise in the betting market. A press release from the American Gaming Association believes that Americans were expected to bet $8.5 billion on an event in 2019, with 4.1 million bettors placing a bet and another 7.6 were expected to place their bets illegally.

Hickman analyzed and collected data from Odds Shark, which offers closing betting line information of every NCAA tournament from 1996 to 2019. He examined the efficiency of the market and determined if the individuals showed any significant biases.

With many factors that influence his results, such as the price's movements bettors' views, Hickman came up with the findings below:

  • The results show that the market operates at an efficient level, with small influence in the way of detectable bias based on seeding. The higher seed wins most games but covers the spread below 50% of the time.
  • The market forecasts the actual score for high-seeded teams in a highly efficient way, with a total error in the forecast of only 0.05 points. About 0.5 points underestimate the score for the lower-seed teams.
  • The higher seed covered almost 50% of the time within the first quarter of the match, where the biggest discrepancy usually occurs. The higher seed covered 50.7% of the time within the game's second round and in rounds three to six covered 47.3%, which is slightly below the range of 47.6% needed to cover the bookmaker’s commissions.
  • The market seems more efficient when we lower the bar to matches with betting lines of 12 points. In these cases, 49% of the time is where the favourite dominates.

If you think the betting market in basketball is rather an anomaly, then let's look at an example from football (soccer). Guy Elaad, James Reade and Carl Singleton, the authors of the study in 2020 entitled Information, Prices and Efficiency in an Online Betting Market, saw the odds of prices by more than 50 online betting sites for the results outcomes in more than 16,000 in English association football matches within the 2010 to 2018 period. They conclude that no statistical evidence is within the standard levels (5% or 1% level, two-tailed tests) that sportsbooks excessively price in any of the match result outcomes.

The Connection between Sports Betting Markets and Investing

Even if a crowd of amateur bettors sets their prices in sports betting markets, it's hard to find the pricing errors to exploit. Around 90% of all trades in the investing space are made by large institutional traders who are setting prices, not individual, amateur investors. As professionals dominate the market, the competition is indeed tougher when compared to the sports betting market.

Every time a trader buys or sells stocks, they need to be aware that institutions have more resources. Therefore, it's more likely that they're on the right side of the trade while the individuals are on the wrong side.

Football is undoubtedly the most-watched sport worldwide, which is proven by the World Cup, where everyone from around the world anticipates the next one every four years. Because of this, it's also a favourite sport for betting and offers numerous betting markets for bettors looking to make money.

These top betting markets in football include match odds, which is by far the most popular market. Double chance comes in next that also offers three different outcomes. The Draw no Bet is also a famous market where bettors try to guess the overall outcome of the match. The over/under market offers you the option to bet whether there will be more (over) or less (under) the total goals, which is also a favoured market. Lastly is the Asian handicap, where you need to account for the goal handicaps before you bet on the game's result.

Choosing Betting Markets for Regular Profits

It may be overwhelming to find the best betting market in football, especially if you’re a newbie bettor. The most profitable betting markets include match odds, draw no bet, double chance, correct score, and over/Under bets.

These betting markets are considered the most profitable as they indeed have the highest probability of bringing guaranteed winnings. If you have a large bankroll, you should consider liquid markets as other bettors with bigger bankrolls use them as well. However, before you try out any of these betting types, you’ll need an established football betting strategy first.

Conclusion of Sports Betting Market Efficiency

Both the financial and sports betting markets are highly efficient. Both markets show that the crowd's wisdom makes both challenging to outperform. This makes sports betting a game for losers, as the odds of winning are so poor that it's pointless even to try.

Therefore, unless you're placing a high price on the entertainment factor, the best chance to win is not playing at all. Like winning in the loser's game of investing (choosing the right stocks/time the market) is not to play. We don't mean you shouldn't invest but choose low-cost funds instead (like index funds) that offer systematic exposure to the risks you're ready to take and do it in the most transparent way possible.