Tuesday, October 21, 2008

Tampa Bay Rays and 200:1 odds

I just read an article on ESPN about the Tamp Bay Rays and how they were 200:1 longshots to win the world series at the start of the season. That means that a $100 bet on the Rays to win the World Series made back in spring training would be worth $20,000 in about a week if they win.

Because some Rays fans likely make this bet every year as an act of faith for the "loveable losers" some sports books are now on the hook for a potentially large some of money. Millions of people bet on sports each year. If just a fraction of a percent of those people bet on the Rays then a sports book could have an imbalance of hundreds of thousands of dollars.

This imbalance means they are forced to get more money bet on the Phillies than normal, to hopefully "cancel out" their risk. This ensures they will make a nice profit with virtually no risk. An improbable "cancellation" of the World Series being the only lame outcome.

So what does that mean? Are the Phillies over-valued? What I mean is, should one bet on the Phillies because they are being offered better than "true" odds. The sports book, when analyzing all relevant data, came up with a figure to represent how likely the Phillies were to win.

However that figure is designed to draw a fifty-percent share of all money bet. So they exaggerated it to draw greater than a fifty-percent share, hoping to cancel the money they stand to lose if the Rays win and they have to make those payouts.

To conclude, the sports books are purposely exaggerating the Phillies line to draw in more money. And shouldn't we be happy to oblige? It may not be arbitrage, but it is an interesting scenario. And if the line does correct then maybe an arbitrage case could occur?

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