Gambling Odds, Vegas Revenue, and Futures

Las Vegas is a place for where people go for many reasons, but one of the big draws is gambling. People hope to strike it rich with

In a perfectly efficient gambling market, the probabilities of each scenario would add up to 1. For example, in the championship futures odds, one of the teams must win. If we have N teams, and the probability of any team winning is W, then

WoW post math

However, odds cannot be perfectly efficient. Casinos and odds makers need to make money to stay in business, so they need to take action in the middle of the betting. To test how efficient the market of each sports league was, I obtained futures for the NFL, NBA, and MLB from Las Vegas Insider. First, I had to convert odds to percentages.

WoW math post 3

So if a team’s odds of winning were 6:5, turning that into a fraction, that would be equal to 45 percent probability. I did this for each team’s odds and added the total probabilities. I did this for the championship (Super Bowl, NBA Finals, World Series) as well as conference championship (AFC/NFC, Western/Eastern Conference, AL/NL).

WoW graph 2

We can see that MLB odds are the most inflated. In the NBA and NFL, championship odds are more inflated than their respective conference finals, whereas NL odds are the most inflated in MLB. In terms of theories for why this would happen, we can look at the Las Vegas Gaming Commission’s report. The NFL receives the most most gaming action, much from big events like the Super Bowl. NFL sports books may have more competition during the regular and off season, thus must have more favorable odds to attract betting. MLB has the smallest betting pool, and thus may have a crowd of die-hard betters that will place action even with distorted odds. Betters in NL cities may be heavier betters, and these inflated odds may be necessary to maintain profitability in this small sector.

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