Vegas Vice: A Word on College Football Investing

<I>TSC</I> examines methodologies for investing in this perennially highflying sector.
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LAS VEGAS -- It's football season!!

And that means it's time for recreational investing, or, as we like to call it here in Las Vegas, gambling.

Betting on sporting events has some similarities to investing. Well, actually, it has more similarities to trading, and more than a few people have compared more active trading to gambling. It's not a shock that Wall Street trading houses are a hotbed of football pools, NCAA pools and the like.

But being successful in gambling is a lot tougher than being successful as an investor. First, like investing, successful gambling takes a ton of work. You always hear about a cousin who won big by betting on his favorite color. But those people are flukes, and without rigor it's pretty near impossible to sustain any kind of success in the gambling world.

Sports betting involves both quantitative reasoning and fundamental analysis. Quants rely heavily on statistics. Many handicappers, for example, study a statistic known as yards per point (or YPP). A team that averages 300 combined (running and passing) yards per game and scores 20 points per game has an offensive YPP of 15 (300/20). A decreasing number here generally signals a good offensive football team (and one that is becoming more efficient).

Similarly, on the other side of the ball, a team that allows 300 yards but only 10 points has an extremely effective bend-but-don't-break defense.

Sports quants also look at a team's (or a particular coach's) historical record against the point spread. This week, for example, note that since 1987, Vanderbilt is only 2-10 against the spread in the game following a meeting with Alabama.

Fundamentalists rely some on statistics but also look at team matchups -- is one team substantially faster than the other at the skill positions? -- and the psychology of the matchup -- is a team motivated by revenge? There's a little more gut in the thinking, as opposed to the nerdish, quant-driven view. Fundies will also consider whether a team had a particularly physically or emotionally draining game the week before and whether a team has a strong rivalry game the following week.

Sports betting also involves momentum players, who try to ride winning streaks, and contrarians, who will bet on weak teams if they are getting enough points.

The Numbers

Why is it so tough to win in sports betting? Let me explain. In football, the bookmaker requires the player to lay out $11 to win $10, but the player gets to choose which team he wants with the point spread. In order to make a profit, a player must select about 53% winners. To arrive at this number, consider 100 hypothetical wagers of $100. If the bettor wins 53 and loses 47, he has a profit of $130.

53 x $100 = $5,300.

47 x $110 = $5,170.

Profit = $5,300 - $5,170 = $130.

Note that the bettor who produces only 52% winners will lose $80; this gives the bookmaker a theoretical 4.54% advantage. To arrive at this number, consider 10 lay-$11-to-win-$10 bets on one side and 10 on the other: The bookmaker takes in $220 and pays out $210, so his theoretical hold is 1/22, or 4.54%. The "theoretical" tag stems from the fact that a bookmaker rarely balances his books. Indeed, if his volume on one side is too heavy, he "moves the line" to attract wagering on the other side. This subjects him to being "middled" or "sided."

To illustrate, Ohio State opened as an 8-point favorite over UCLA on Sunday. Money came in on OSU; the bookmaker moved the line to 9; still more money came in. The bookmaker then raised the line again, to 10 (where it stands as of this writing). Now, if the line goes to 11, the "wise guys" -- the equivalent of arbitragers on the Street -- who bet Ohio State minus 8 will bet on UCLA plus 11. And if Ohio State wins by 9 or 10, they'll win both of their bets. This is called a "middle." Alternatively, if Ohio State wins by 8 or 11, the wise guys will win one bet and push (tie and get their money back) on the other. This is called a "side."

Note that the best of the professional gamblers in Las Vegas win 55%-58% of their selections. Thus, the tout services that scream they hit 80% winners are to be avoided at all costs.

They're as believable as that

Padinha

double nutcase.

This Week's Picks

Here's one of the more interesting statistics in college football: Simply betting on teams that returned 16 or more starters would have produced a 55.8% (318-252) win rate over the last four years. Similarly, betting against teams that returned 10 or fewer starters would have produced a 55.5% (294-235) win rate (and note that the win percentage was slightly higher for early-season games).

A variation of the returning-starter theory produces even better results: During the first month of the season, betting on teams that returned at least 14 starters and had a plus-five-returning-starter edge over their opponents would have produced a 69.7% (90-39) win rate over the last four years.

Here are this week's picks. These of course are merely opinions and meant for the intellectual enjoyment of the reader. They are not intended to drive action of any kind.

Indiana (plus 1) over North Carolina.

This matchup fits the plus-five-returning-starter theory: Indiana, a 1-point home dog, returns 19 starters, while North Carolina returns 11. Emotional factors also favor the Hoosiers -- last week North Carolina lost a hard-fought game with Virginia on a last-minute field goal. Indiana, meantime, cruised to a 21-0 lead over hapless Ball State, but let up in the second half; Ball State covered in the 21-9 game. Note also that Indiana coach Cam Cameron is now in his third season at the helm, a season when most "new" coaches hit their stride (because the team has had adequate time to assimilate the coach's offensive system). His first game in 1997 was a 23-6 loss to North Carolina. Time for revenge!!

Illinois (plus 4 1/2) over San Diego State.

This matchup fits the 16-plus-returning-starter profile -- Illinois returns 17 -- but the Illini have proven miserable for the last five years: Their home record is 4-18-1 against the spread. Last week they routed a quick but inept Arkansas State squad 41-3. San Diego State, meanwhile, also routed (they crushed Division I-AA South Florida 41-12). Still, the difference between the strength of the Big 10 and the new Mountain West Conference is huge. San Diego State's quarterback, Penn transfer Brian Russell, was only 8 for 17 in pass completions last week. The Illinois defense is solid this year. This should be a tight game all the way, with the game being decided by a field goal either way.

Eastern Michigan (plus 32 1/2) over Michigan State.

This is a classic "sandwich" game for Michigan State: Last week they won a nationally televised game revenge game against Oregon, and next week they play rival Notre Dame. One of the keys to handicapping college games is to determine when a team will not be "up" for a game. While this game is very important for Eastern Michigan, Michigan State has bigger fish to fry. Eastern Michigan's quarterback, Walt Church, completed 32 of 44 passes at Michigan in a losing effort last year. He has an experienced corps of receivers and should put some points on the board. If the game gets out of hand in the second half, Michigan State will rest their starters for the Notre Dame game, and a "backdoor cover" is a distinct possibility.

Nebraska (minus 30) over California.

Since 1992, Nebraska is 27-15 against the spread as a home favorite. During the same period the Huskers are 4-1 against the spread in games against Pac-10 teams. Nebraska has two decent quarterbacks this year, Bobby Newcombe and Eric Crouch. Both will receive playing time -- and therein lies the value of the bet, since the Cornhuskers will not simply play conservatively in the second half. Last week, California could not cover as a 19-point favorite against a weak Rutgers squad. Every questionable call in that game went Cal's way, yet Rutgers still had more first downs (20 against 13). Nebraska, meanwhile, had a 543-169-yard edge on Iowa and covered a 28-point spread. It should be muggy in Lincoln on Saturday and Nebraska will methodically wear down a good California defense. Cal will be hard pressed to score more than 10 points against the Cornhuskers.

Good luck. Intellectually speaking, of course.

Addendum

Hey. James Padinha, economics writer, here.

Barry is the general counsel for a Las Vegas gaming corporation. He's been an amateur gambler for more than 20 years and is pretty damn successful at it. Last week he took Marshall over Clemson, Louisville over Kentucky and Houston over Rice (all three were winners), and yours truly rode his

Gonzaga

pick to riches last March. All in a legal way, of course.

Anyway, vote below if you want to see Vegas Vice every week. You can also write

Kansas and tell him what you think, including whether you want to see both college and pro picks.

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