Value Betting Explained
This article will explore the concept of value betting and the steps to identify value, select value bets, and use a value betting strategy. First, let us look at value betting as an idea or concept. Value is a term used in investing. It is no different used in the context of sports betting. If a bet is priced for less than it is worth, then there is value in the price.
What is meant by price? The odds that a bookmaker gives are based on their calculations of probability of the event or events. ValuePunter specialise in advising on soccer Asian Handicap betting, so this introduction to value betting uses soccer Asian Handicap betting as an example. Asian Handicap betting is a popular way to bet on value.
What is meant by worth? The worth of the bet is the real chance of the event happening or not. If the probability of the event in question is greater than the odds from the bookmaker suggest, there is value and a betting opportunity.
Probability and Odds
Time for a reality check; the bookmakers are very good at making their predictions using lots of information about player form, past results and hopefully gut feeling (this is when they make mistakes). This ensures they stay in business. The ability to spot value opportunities ensures that the betting enthusiast will win over the long term.
To make a value betting strategy work, you need a good way to make a prediction of the probability of an event happening. This is the difficult bit and the important part of value betting.
There are two routes to take here. Either use methods to calculate the probability by crunching the numbers personally, use a prediction service offering to do the work for you, or use a tipster. Tipsters remove all the time consuming number crunching out of selecting value bets. Good Asian Handicap tips should make an accurate probability estimate.
Again, if the probability estimate gives odds that are shorter or less than the odds offered by the bookmaker, there is value.
Here is an example; For a soccer match Chelsea - Liverpool the probability estimates for the home team winning (Asian Handicap -0.5) and for a draw or the away team winning (Asian Handicap +0.5) could be 52% - 48% (total 100%).
The next step in identifying a value bet is to convert the percentage probability (which might have been produced personally, using prediction services or using a tipster) to odds. The odds are the reverse number of the probability estimation. In the example that would be 100 / 52% = 1.92 (home team winning) and 100 / 48% = 2.08 (a draw or the away team winning).
After comparing betting odds you find a bookmaker offering odds of 2.15 that Chelsea wins. At these odds you would receive a larger payout than the true chance of the event happening would suggest. Let's see what the profit margin is in this example bet. Divide your predicted odds by the bookmakers odds; 2.15 / 1.92 = 1.119. Over the long term if each value bet you found produced a profit of 1.119 that would give you a profit margin of 11.9%.
Coupled with a good staking plan this method of soccer value betting can be most rewarding. The Kelly staking plan is designed to maximize growth of the betting bank over the long term. This long term horizon suits value betting. If you are confident that the probabilities that you calculate, or get from a prediction service are greater than the bookmaker's estimate, this kind of staking plan can produce positive results.
The Kelly Staking plan uses this formula;
- S = (K / P - 1) / (K - 1)
- K = The odds given by the bookmaker
- P = The player's fair odds estimation
- S = Optimal stake from the bankroll
Let's enter the numbers from our example;
- S = (2.15 / 1.92 - 1) / (2.15 - 1)
- S = 0.104 = 10.4% of the betting bank or bankroll
Typically it is not advisable to bet such a high percentage of the betting bank. You would have to be very confident of your predictions (over confident perhaps). In order to reduce the risk of betting too much of your betting bank, the Kelly staking plan uses something called the Kelly divider. This provides flexibility allowing you to set your own risk level.
The Kelly Divider usually uses a number from 4 to 10. This number controls how quickly the betting bank will grow and reduces large fluctuations in the amount of money won and lost. In the example we will use a divider of 7, which you can decrease as your confidence increases. The higher the Kelly Divider, the smaller the stake size.
- S = (2.15 / 1.92 - 1) / (2.15 - 1) / 7
- S = 0.015 = 1.5% of the bankroll
To round up. This article is a good (hopefully) introduction to value betting. What we have not done here is to explain how to calculate probability estimates personally. The process is tedious and time consuming. The ValuePunter processing system finds bets where there is a mathematical advantage for the punter. The probability estimate is calculated using power ratings, statistical analysis and closely monitored team news.
The ValuePunter staking plan is a Kelly / 5 (using a divider of 5), where 1/10 units means 0.2% of the bankroll and 10/10 units means 2.0% of the bankroll. In the example above, our stake size would be 10/10 units = 2.0% of the bankroll.
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