Making Futures Bets

King Yao is the author of Weighing the Odds in Hold‘em Poker, and Weighing the Odds in Sports Betting. He uses his experience from making millions in financial derivative markets and translates it into gambling. Since he left his trading position in 2000, he has been playing poker and betting on sports. He travels to Las Vegas frequently, especially during football season.

Time Value of Money

You should consider two things before plunking down money on futures bets: the time value of money and opportunity costs. Futures bets often take a long time to settle. If you make a Super Bowl bet in August, you cannot collect any winnings until February. Instead of putting the money into the futures bet, you could have put it in a bank and earned interest. If the interest rate is 4%, then over the course of half a year, the bank account will earn 2%. A ROI of 1% on a Super Bowl bet you make in August is a bad bet because you have a higher ROI by simply putting the money in the bank for the six months it takes for the bet to be decided. Money in the bank has a higher ROI and is risk-free! The other problem with futures bets is that they tie up capital.

Unless you are making the bets on credit or using a betting exchange, you cannot get out of your bet and sell back your position without laying out even more capital. New opportunities may arise between the time you make the futures bet and the time it is settled, and you want to have enough capital to take advantage. Opportunity costs are tough to measure because it is difficult to predict if you will need the capital. But it is a possibility, and thus there is a cost associated with long-term bets.

A silver lining to these two negative issues is that other sharp bettors also take them into consideration. Their capital is valuable as they like to put most of it in action every week, spread out among many different bets. Some sharp bettors may pass on positive-EV futures bets or they may not even analyze them at all. Lines on long-term futures may stay juicy for a longer period of time as the sharp bettors concentrate on short-term wagers. When futures come closer to expiration, sharp bettors will start to analyze and bet on them.

I travel to Las Vegas frequently, but I do not live there. This means I do not enjoy the same opportunities that Las Vegas bettors enjoy. Living in Las Vegas, the local sharp bettors can make bets almost immediately when new lines are posted by the sportsbooks. Often I hear of great bets made by the Las Vegas locals, but when I get there, the lines have already moved and are no longer as interesting. But there are things left over for people like me who do not live there, positive-EV futures among them.

This is part of an occasional series of articles.

Excerpted with permission from the e-book version of Weighing the Odds in Sports Betting by King Yao, edited for this format.