# Relative-Value 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.

Let’s discuss some basic principles of sports betting. All sports bettors should know the information below. You should not be betting online or anywhere else without this fundamental knowledge.

## Relative-Value Bets

Efficient game lines can help value wagers in other similar markets from a relative-value point of view. If there are two related markets one of which is efficient, then you can use the efficient market to value the line in the other market. Some examples are NFL first half lines compared to NFL game lines, Super Bowl proposition bets adjusted for the total in the game, and NBA exact series lines calculated on expected individual game lines. Another name for relative-value bets is derivative bets because their valuations are derived from efficient lines in another market.

## Zero-Sum Game

Sports betting is a zero-sum game; the combined profits and losses by all participants equal zero (ignoring expenses like taxes and casino employee wages). When someone wins, someone else has to lose.

Sharp bettors can beat sportsbooks by betting into inefficient lines. To the extent that there are not enough bets on the other side, sportsbooks are footing the EV of sharp bettors. Sportsbooks are not happy to take unbalanced big bets from bettors identified as sharp. But sportsbooks may be happy to take sharp action if it helps balance their risk. In that case, sharp bettors are beating square bettors indirectly, and both sharp bettors and sportsbooks are rooting for the same side. Square bettors make up the negative side of the zero-sum equation that allows sportsbooks and sharp bettors to both make money. Thus square bettors can be viewed as the driving force in the sports-betting market.

## Market Value in Finance

In the financial markets, “marking to market” is the act of assigning a fair value to stocks and other financial assets. Usually the fair value price is the price of the closing trade of the day. This price is used to value investments to find the current market value of portfolios.

The concept of market value is also useful in evaluating sports wagers. It allows the user to determine the actual risk in the wager for a particular game. It also allows the user to compare one bet to another for relative-value plays and is useful for hedging purposes. It is not used enough by sports bettors and many fall into a trap of not understanding the true risk of their wagers.

In the financial markets, the market value of an investment (MVFinancial) is simply the price times the number of shares owned.

MVFinancial = Current Price x Shares

If you own 100 shares of Apple, and the current price is \$50, then the market value of your shares is \$5,000 (\$50 x 100). The market value of your shares is the same whether their cost was \$10 per share or \$60 per share.

## Market Value in Sports Bets

Calculating the market value of a sports wager (MVSports) is similar. The “Current Price” is replaced by the probability of the ticket winning. The “Shares” is replaced by the amount you get back if the wager is a winner. The amount you get back includes the initial wager as well as the winnings because the sportsbook keeps your initial wager and does not return it unless you win your bet. (To do otherwise is called “credit betting,” and there is no credit betting in Nevada). The market value of a sports wager is the probability of the ticket winning times the amount you get back.

MVSports = Probability of Ticket Winning x Amount you get back

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.