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Thinking About "Value" in Handicapping...By Jay Graziani

We often hear the term "value" used by handicappers to describe what they perceive as a winning bet. This is often criticized as vague and insubstantial, and generally with good reason. But "value" is exactly what we as bettors or handicappers are looking for. If we thought the lines were fairly-priced, there is no way we could justify betting a side at -110 juice - that is a surefire loser. We have to think that the lines are significantly off from their true figures, enough to make a bet profitable.

You can find value by purchasing your TV at Wal-mart for $1000 when it is $1200 at Circuit City, and you similarly can find value by betting Indianapolis -9.5 if the line "should be" -10.5. That is value: buying something at a discount price, whether it be a new TV or a wager ticket at your local sportsbook. The concepts are intimately related, though shopping for merchandise is much more concrete than dealing with the probabilities inherent in thinking about value from a handicapping perspective.

Contrary to popular belief, there can be "value" in losing bets. Imagine I challenge you to a coin flip. If you call it correctly, I agree to pay you $1000. If you are incorrect, you agree to pay me $900. You can unequivocally say that you are on the value side of that bet, regardless of the ultimate result, since your expected payout, over the long term, is greater than your expected losses. Even if we agree to flip only once, and you lose, you will be out $900 but you still were on the (theoretical) winning side of the bet. Luck just didn't swing your way this time around.

For a more relevant example, consider an (unlikely) college football game where one team is favored by 39 with a total of 41, and you find an incredibly generous sportsbook that allows side-to-total parlays on this game. A cover by the favorite almost certainly sends the total over. If the favorite is a fair 50-50 bet, parlaying them with the over (at a 13-5 payout) must hold value. Likewise, if the game stays under, there is little chance of the favorite covering. If you think the under is a 50-50 bet, then getting it at 13-5 parlayed with the underdog must hold value. So both favorite-over and underdog-under parlays hold value, even though at least one (and sometimes both) of them will be graded a loser when the final whistle blows.

There are two benchmarks for determining if a potential wager has "value": Market Price - If your bet is at a better line than the one being offered now, or what was offered when the lines closed, you can say you have value. Theoretically, you could "sell" your ticket for a profit at this moment in time. Scalpers and screen-chasers use market lines to determine value nearly exclusively. Conversely, contrarian bettors often look for situations where market price may be less accurate (inefficient) due to unbalanced public betting. The downside, of course, is that the market often changes its opinion, a 3-point favorite may end up being a 6-point favorite by game time. Which number is right? Generally, we can assume the closing numbers are more accurate, as they represent the point where all bets are in, and therefore all opinions have had a chance to influence the lines.

Handicapping - If you have a model which predicts final point differentials, you can use that to come up with your own estimates of lines, and evaluate potential wagers against them. The downside is that you must be sure that your model is more accurate than the linesmaker's if you expect to win. In this case value can often be very subjective and dependent upon the predictive power of the person making the lines - there are varied opinions on the true probability of a team winning, and some of these opinions will be more accurate than others. Complicated statistics are not necessary in identifying value plays. Shortcuts can also used, usually in the form of "situational analysis". For instance, NFL home underdogs often have value (based on historical results), and going against the most public side of the week generally also has value. Thus, value can sometimes be identified without even evaluating the underlying line.

Of course, no one knows for certain what will happen in a sporting event, a poker hand, or a spin of the roulette wheel until after it is over. Unfortunately, most bettors/gamblers/handicappers fail to realize this, looking at past wagers simply as wins and losses. More typical games of chance involve well-defined probabilities, such as the probability of rolling a "7" with two dice or the probability of a 10 being the dealer's hole card in blackjack. Handicapping in sports is more challenging because determining the underlying probabilities is not trivial. It is easy to see things in black/white, win/lose terms, but just because your side lost doesn't mean it was a bad wager. You may have picked a 60% winner that just happened to run into one of those 40%-type days. Unfortunately you won't absolutely know for sure until you have placed hundreds of bets, by which time the knowledge may be a bit too late to save you from the poor house.

And here we come again to that concept of "the long term", a confusing idea to many, but one that is necessary to really get to the meaning of "value". Anything can happen in a single event, especially when the odds are close to 50-50 (like most against-the-spread bets). Imagining what will happen over hundreds or thousands of events is necessary to evaluate line value. Those with a mind for statistics will find it easy to determine what is significant and what is not. The rest of us can often just use common sense. A 14-4 "trend" is likely not significant, but a 560-440 situation probably holds predictive value, assuming you catch onto it before the rest of the market adjusts (if it hasn't already).

Unfortunately, estimating long-term win probabilities in sports is difficult, mostly hampered by lack of available data. It is impossible to say how many games the 2007 New England Patriots would win if they played the 2007 New York Jets one thousand times under the same conditions, since the exact conditions will likely never even occur twice. Therein lays the challenge in handicapping - determining value in available betting lines with limited data and variable conditions.

In gambling, it pays to be a frugal shopper, constantly hunting out wagering "bargains". Getting the best available line, scoring free half points, beating steam, and picking winners are all ways to extract value from a wager. Correlated parlays, teasers, and buying points can also hold value for those in-the-know and mindful of cost versus benefit. For sharp gamblers, searching out and exploiting "value" essential for long-term success.

Jay Graziani

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