Understanding the Wager Pricing Policy of Bookmakers at the 2014 FIFA World Cup

I came across an interesting observation during this world cup, this time in relation to the pricing mechanism followed by the bookmakers.

This graphic shows the betting quotes on bet365.com of an outright WC win for each of the participating teams. Going by the law of demand, ceteris paribus, the bet price of an event is an inverse function of its probability. Hence, we can clearly see Brazil, Argentina and Germany are the obvious favorites of the bookies. Now an intelligent investor/gambler would be one who can compare the actual winning probability of a team vis-à-vis its speculative probability of winning. This is similar to arbitrage trading where the price difference is discovered between a security's fair value forward rate and its existing market value forward rate and thereupon arbitraging the price differential to earn profit. However in case of stock market, the inefficiencies decrease with time and the market price tends to move towards the actual fair value whereas in a betting exchange (which consists of more 'emotional gamblers' rather than 'wise investors'), the bookmaker would allow certain inefficiencies to exist so as to attract high volume of transactions.

In the current context, the actual winning probability of teams like Brazil and Argentina might be less than their speculative probabilities (as based on bet365 quotes) especially considering a likely Group 16 Brazil-Spain clash and Argentina's below par performance against Bosnia. On the other hand, teams like Italy and France who are coming at the back of decent performances are being traded at high prices i.e., the bookies want to make you feel that Italy is six times less likely to win the WC than Brazil. That's not right, is it?

Now before I end, I need to make an important disclaimer. Wagering agreements are illegal in India. I do not profess or encourage any sort of irresponsible gambling whatsoever. The above observation is just to share the application of basic statistics and investment fundamentals in sports. Enjoy the game!

For more such feeds, check my blog at investmentcalculus.blogspot.com

CII Conference on Business of Sports

LIVE Comments from Session 2: Is Sports a ticket to Good Education?

Speakers and Panelists

Nikhil Naz (Sports Editor, NDTV) is the Session Chair

Dr Nathan Price (Personal Excellence Consultant, Australian Institute of Sports, Australia)- Focusing on the athlete development which includes the following four features: Career and education support, lifestyle management, transition support and personal development.

Dr Paul Gaston (Associate Professor, Sports Science, Deakin University, Australia) - working on institution tie ups to promote sports sciences for students. Student networking through volunteer programs, Victorian based BioLab which provides high school students access to sports science research with fields like physiology, mathematics, sports fitness, etc.

Chirag Patel (Director and Chief Strategy Officer, KOOH Sports Pvt Ltd) - focus should be in grassroot level if we have to sustain in the long term, we are spread spread across 100 schools and 22 cities across India, have specialized academies, creating a platform to promote talent, we organized two seasons of Spread Star for athletics,

Col BS Ahluwalia (Director, Amity School of Physical Education & Sports Sciences)- sports is as important as academics and hence should be given due weigtage in terms of marks and incentives, running school level events, scholarships at university level, need of having a proper ratio between students and physical education teacher.

Miheer Walavalkar (Chief Business Officer, YouFoot) - Need for a better ecosystem for sports in the country. The board exams have killed more sports careers in India than injuries have.