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The Complete Square's Guide to Sports Wagering: Being Contrarian, Part I...By Jay Graziani

We often think of sports gambling as a battle of bettor versus bookie. However, that's not quite true, because betting lines are not static. If everyone is betting Team A at a line of -5, pretty soon the line will move to Team A -5.5, then Team A -6, and so on until a reasonable equilibrium is reached where betting interest starts to be generated (and money starts coming in) on their opponents. True, a linesmaker sets the opening line. But from there, the action is in the hands of the "market", all the players and sportsbooks collectively. When the normal balance goes askew due to a lot of "square money" on one side, "value" situations can arise.

A good comparison is the stock market. When everyone is optimistic and buying, prices rise, often causing the underlying stocks to become too expensive. Likewise, when the mood is pessimistic, stocks tend to become oversold. This is the old "fear and greed" dichotomy that seemingly defines the financial markets. And in general, those that have bucked the trends have been the most successful. In other words, if you want to make money, you should be buying when everyone else is selling, and selling when everyone else is buying. Buy in cold markets to pick up value, sell in hot markets where your investments are overpriced and you can receive more than they're fairly worth. This is an oversimplification, but a trend that mostly holds true.

The converse, buying when everyone else is also buying, means that you will likely pay too much for your investment because you are competing among a lot of other bidders who like that same investment - the old "supply and demand" conundrum. But in a cold market there is little competition to buy, and prices are lower since many want to sell. Therefore, you can make your purchase at a discount to "fair value". This same principal applies to sports betting. If you are betting the same team that everyone else is, you probably are paying too much for them, in the form of a line that is worse than deserved. Likewise, betting on teams that everyone else is scared to bet often earns you a slightly more generous line than normally warranted.

You can think of linesmaking as trying to accomplish one of two things: either balance out the sharp action with other sharp action on a game to hedge exposure, or instead balance the high-dollar sharp money with high-volume public money to cut downside risk. Since pro bettors will risk many times what a recreational gambler does, balancing the two sides is often difficult. In other words, sometimes the money will be evenly divided, with "sharps" on both sides, and public money making very little impact. Here the sharps define the market and the line is "fair value". Other times, the public money will become so overwhelming that the public drives the line and it becomes a battle of "sharps versus squares". Identifying these situations and siding with the "sharps" will tend to put luck on your side.

There are two conditions when the public money can offset wiseguy action. First, the event might attract enough squares to bring in the sheer volume of bets necessary to counteract the sharp wagers. This is the case for something like the NFL, which receives broad recreational wagering support, particularly on Monday Night Football and during the playoffs. The "MNF home underdog" angle held up for many years for this very reason.

The other situation where public money can overwhelm the market is when limits are kept low enough to minimize the damage the sharps can do. This situation applies to wagers like the UFC, which has decent public support combined with low limits, giving the average Joe more of a say in setting the market prices than in most sports. With $5000 bet limits, it takes 100 $50 bettors to balance one max wager from a sharp player. With $100 limits, it only takes two squares to neutralize that wiseguy. In other words, it is easier to counterbalance winning bettors when you severely cap the amount they can win per game, and this causes the lines to be biased towards "the public".

Contrarian strategy is not a golden goose. Ask anyone who played against the highly-favored Boston Celtics in the NBA finals, or those who faded the New England Patriots throughout the regular season at what seemed like over-inflated lines, only to watch the Pats go 10-6 against the spread (I am personally guilty on both counts). But patience is the contrarian's friend, and those same Patriots ended up going 0-3 ATS in the playoffs, when the stakes were higher. Indianapolis and Dallas also failed to cover a single game in the playoffs, despite being heavily favored (along with New England) in the futures lines.

The key to finding good contrarian situations is to be in tune with public perception surrounding players and teams. The teams everyone are betting hand-over-fist, the "can't lose locks", the teams on the highlight reels of Sportscenter, are the teams you should look to go against. The teams that everyone is scared to bet likely hold hidden value. In the next installment, I'll take a look at some specific strategies for incorporating contrarian wisdom in sports betting.

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

Jay Graziani

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