Pensacola – Bettors seeking consistent returns during the upcoming NBA preseason might want to fight the urge to back the favorite.
That’s one finding from recent research conducted by a pair of University of West Florida business professors.
“Doing something really simple, which is wager on all the underdogs in the NFL preseason games, has been a profitable thing to do if you look over 20 years,” said Dr. Kevin Krieger, associate professor in the University’s Department of Accounting and Finance.
Krieger and Dr. Justin Davis, associate professor in the University’s Department of Management and Management Information Systems, recently published “Preseason bias in the NFL and NBA betting markets,” a study in which they used NFL (1995–2014) and NBA (2005–2014) data from preseason games to determine if there were inefficiencies in the way the bets were valued.
“The idea of this preseason study was that the most difficult thing to do in any market is prediction,” Davis said. “You try to factor your prediction based on past information and based on new information you have, but what happens when there is a severe lack of information?”
A lack of information can make betting during the preseason difficult. It can also leave the house unsure where to set the betting lines.
“In the preseason, we have a dynamic where there a lot of floating variables that have little predictability, Davis said. “We don’t know who’s going to play, and the players who are going to play aren’t the same people we’ve seen in previous years.
“And when major players do get in, we don’t know how long they will be in the game. At some point that lack of information starts making it a lot more equitable in how to predict things.”
Krieger said the thing that most interested him was the behavioral finance element of the sports betting market and how this lack of information related to what bettors saw as their own knowledge and what conventional wisdom the house uses to set point spread. A point spread is a way of handicapping a game. The perceived dominant team is given a number of points they are expected to win by and the team must win or not lose by that number.
“My working theory is that people are overly confident in their ability to judge events and process information and apply it correctly,” Krieger said. “The markets for these preseason games try to overcomplicate things and fold in information that’s meaningless. And so lines get set that are five points or three points or two points, and there probably doesn’t need to be any line at all.”
The reality is that teams aren’t trying very hard in preseason games, Krieger said.
“A lot of these players aren’t going to play for their squads in the regular season,” he said. “You could almost just flip a coin and pick the game. So if someone is going to give you free points to bet on an underdog, just take the free points.”
Those free points can mean more winnings for the bettor, according to Davis.
“The study shows the more points you’re getting, the better a bet it is,” Davis said. “If you’re getting three points, the underdog would still be profitable. But, when we broke down the data further, if you’re getting five points or more, all of the sudden the return on it becomes extreme. It all just shows that we (bettors) really don’t know what’s going on in preseason games.”
The pair are planning to continue their research and have already collected data from other sports, such as college football and Major League Baseball.
“We are looking for systematic inefficiencies that in the long run would give a return,” Davis said. “You have to realize that if you are going to get into sports betting, this is a market just like others. And there are going to be ups and downs, and you have to be in it for the long haul with a proven method if you are actually going to see a return.”
Ultimately, both Davis and Krieger see larger applications for their continuing research.
“The goal of the research is to tie in the financial aspect with a strategic approach to analyze a market – the data as well as other contextual variables – to exploit opportunities in other sports markets,” Davis said.
Krieger said that how prices are set – often incorrectly – continue to drive his interest.
“My focus is always mispricing – why do people make the mistakes that they make when they are trying to value what something is worth,” he said. “There’s a lot of people that like to fancy themselves ahead of the curve when there’s no curve to get ahead of. The simplest explanation tends to be the best one and in this paper the simplest explanation is that the participants in these contests just don’t care. It’s a coin flip.”