In almost every write up or pick published, we will refer to value in some form or another. This is especially true come baseball season, when betting the moneyline replaces the pointspread. We are often asked by readers, what exactly is value? Or, what do you mean when you refer to value? And, why is value important when it comes to betting?
In my way of thinking, locating value is handicapping and handicapping is locating value. I am a value handicapper. Always have been and always will be. Whether it is picks, articles, analysis, game notes or whatever else; value is the primary theme throughout. It is a tremendously important concept to understand.
Let’s quickly look at the dictionary definition of this term; both as a noun and verb.
Value, Noun - An amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else; a fair price or return.
Value, Verb - To estimate the value, or worth, of; to rate at a certain price; to appraise; to reckon with respect to number, power, importance, etc.
To further translate value, it may also help to look at how it relates to other disciplines we’d deem similar to betting sports for profit.
Countless individuals all over the world use the purchase and sale of common stock as an investment vehicle. Moreover, many of the most successful equity investors of all time buy strictly on a value basis. What all value investors seek are stocks trading below their intrinsic value. Their are various methods of determining value for a company, but primarily it is items such as cash in its bank account, its plant and equipment, the inventory in its warehouses, the land it occupies, intellectual capital, etc. Quite simply, if a value investor can find a dollar worth of assets selling for 50 cents, he will buy.
America’s second richest man—Warren Buffett—has distinguished himself as the most successful investor of our time. Mr. Buffett did not attain this stupefying wealth by purchasing companies at or above their market value. He has not achieved a 29% annual compound rate of growth the past thirty years by paying a dollar for a dollar worth of goods. No, Buffett only sinks money into businesses that are priced below what they are actually worth. This concept is not at all complex. Buy something of worth for less than its worth. But in order to do that, one must possess an accurate method of evaluation.
As it pertains to the stock market, this could mean any number of things. Price to earnings ratio, book value per share, future earnings potential, etc. Like handicappers, each investor is different and uses his or her own method. What all successful value investors possess, however, is an uncanny ability to dig deeper that what is on the surface. Perhaps a crisis has driven the per share price of Company A from $10 down to $7. An astute investor may see the nature of this problem as only temporary and buy Company A at a 30% discount. Whatever the case may be, it is the knack for locating value in areas that others cannot or do not see.
Most real estate investors are also seeking value. When one spots a property, he or she considers many different aspects before any sort of investment is made. Aspects such as comparable prices in the neighborhood, price per square foot of the property, condition of the property, location of the property, etc. In sum and similar to a value investor in the stock market, a successful value seeker in real estate possesses his or her own valuing model. A set of criteria that helps them establish comparative value to price, which in turn leads to sound investment decisions. And contrary to popular belief, the most successful of all real estate investors are not buying much in a booming market. To do so would mean paying full price. It is under depressed economic conditions or in an undeveloped area that a dollar worth of property can be purchased for 50 cents. Once again, the requirement is an uncanny ability to dig deeper tham what is readily apparent on the surface.
Finding value is not limited to investing. After all, my mother in law is the bargain shopper of all bargain shoppers. She has an excellent sense and system for finding rock bottom prices for groceries, cars, hotels, etc. Again, it is a matter of determining how price equates to the goods or services returned. If Store A does not sell pantyhose and kitty litter at a decent price, then it is on to Store B or Store C or the Internet or a catalog, etc.
By now, one must wonder how any of this relates to sports handicapping?
In our assessment, the handicapping process is a simple matter of using a system or set of criteria to determine price. And price in the world of sports betting is the point spread or the money line. When a capper refers to his or her “Power Ratings”, it is a reference to an assigned numerical value for a team, stadium, player, league or anything else applicable to the outcome of a game they would be betting. This “set of criteria” guides their evaluation of which events provide the most suitable return on investment. A value oriented handicapper studies the sporting world assiduously—compiling stats, trends, observations, characteristics or whatever else deemed relevant—in an effort to uncover hidden angles that the betting public and oddsmakers may have completely missed.
And speaking of the oddsmakers and betting public; finding value goes hand in hand with understanding the psychology of both. If the public is more inclined to bet Side X of Game Y, oddsmakers place a higher price tag on Side X to compensate. Assuming the public is wrong—which they normally are—this would be a terrific opportunity to fade Side X at a bargain price. To quote Mr. Buffet; “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” In layman’s terms; most gamblers bet teams that have become popular for one reason or another and in so doing, they overpay.
The value seeker is either betting teams no one else is paying attention to or fading teams that have become overpriced out of popularity. A blind $100 bet against the “Public Darling” Lakers in each of their 2003-2004 regular season games would have yielded a tidy $1,810! Dating back two years, a blind $100 bet on the lowly Golden State Warriors would have netted an NBA Best $2,040. If we had a nickel for every time we uttered the phrase “the overvalued Lakers” and “the Warriors look like a ‘golden value’ tonight”; we could retire altogether. One of the most imperative aspects to understand about gambling is good doesn’t always equal good bet.
The value equation is not limited to just which teams, but also can correspond to which match ups. Most gamblers bet on what we call “Spotlight Games”. The Super Bowl, Monday Night Football, the Red Sox vs. Yankees, Florida St. vs. Florida, etc. Value cappers know all to well that most data is already priced into match ups of this nature. This of course leads to an efficiently tight line. Bargain bettors are more interested in a Kent State vs. Central Michigan football game or a Big West basketball match up between Pacific and UC Riverside.
Quite simply, lesser known match ups do not attract the same sort of scrutiny or betting action as the “Spotlight Games” do. The premise being soft lines are thus more readily available on “Under the Radar” types of match ups. A soft line is when the oddsmakers have made a mistake, which usually is the result of them not caring as much. Does a sportsbook stand to lose more by incorrectly setting a college football line on Oklahoma vs. Texas (Spotlight) or Rice vs. San Jose St. (Under the Radar)?
Value exists all over the place if you have the right pair of glasses on. When Jordan first announced he was coming back to the NBA, the level of excitement and anticipation out of the sports world was remarkable. But that excitement may have paled in comparison to my own sentiments about his return. While most were talking about how much “better” Jordan would make the young Wizards, we were foaming at the mouth in anticipation of how “overvalued” he we would make the Wizards. Longtime readers may remember we actually wrote an entire article on the subject. Here are a few paragraphs from it:
“We will be looking to fade Washington at every opportunity possible, as they no doubt will be overvalued based on Jordan’s return. The rational is simple. The public loves Michael Jordan and since most bet with their heart rather than their mind, this fondness will translate into unwarranted and excessive action on the Wizards. Why do you think TNT just announced they will be airing Washington Wizards’ games whenever the schedule permits them to do so? Televising the Wiz last year would be like selling ice to an Eskimo, but televising the Wiz with Jordan is another story altogether. Quite simply, people want to watch Jordan. And many of those same people will want to bet Jordan. Naturally, the oddsmakers will offset this dynamic by shading the Wizards’ line to entice action on the opposing side.”
“Even those that have matured past the “bet with your heart” stage will view Jordan’s return as an opportunity to make money backing a vastly improved Washington team. As if the oddsmakers are unaware of his return. As if they will be caught off guard if the Wizards are better when he arrives. To be quite honest, that line of thinking is almost comical. Guys, this is an exceptional opportunity. If you do not listen to another word I say this whole year, that is fine. But look long and hard at fading this Washington team moving forward, as they will be inordinately overpriced.”
While hindsight is always 20/20 and a fair share of our expert assertions have turned to crap, Jordan and his Wizards were in fact overpriced that season. They actually finished the year with a league worst 32-49-1 ATS (39.5%) record. And while on the topic of accurate and inaccurate, we should mention that knowing about value and being able to find value are completely different animals. It is tough. Betting the games is tough. No two ways around it. And nothing in the world of sports betting is foolproof. The most successful value bettors do not win everyday and can indeed go on prolonged cold streaks.
Just last year, we watched—in complete dismay—NFL Favorites cash at a 65% clip over the span of a few months. The NFL more than any other sport is Joe Public’s stomping ground. Mr. Public loves the better team and bets favorites at an alarmingly high rate. And during those two months, the squarest of squares was cleaning the bookmakers and wise guys’ clocks. Proper order was finally restored, but it goes to show that any sort of theory will have its ups and downs along the way.
The very fact value cappers seek to play unpopular selections and go against conventional wisdom makes it a very easy strategy to second guess when results turn sour. During times like these, the key is to maintain focus on why the theory is sensible in the first place. About a decade ago, there was enormous criticism aimed at stock market fund managers with a value oriented approach. Warren “the world’s most successful investor of all time” Buffet being one of them. After all, the Internet boom was skyrocketing tech companies to unheard of price levels. IPO millionaires and investment gains in the quadruple percent range were the norm.
Between January of 1995 and February of 2000, the diversified—but tech heavy—NASDAQ soared from a level of 755 to 4696. Companies like Lucent and countless others shot up from the middle teens to over $100 per share, splitting a few times on the way. Meanwhile, the dinosaur value investors were being left in the dust. Many of them actually lost faith in their once logical idealism opting for a “go with the crowd” approach instead. But true value investors understood something the rest of the world could not. None of it made any sense! We are talking about companies with market capitalizations so large and earnings so low, that it would take a thousand years to pay back its investors. Hell, profits didn’t even matter. Paying $100 per share for a business that lost money somehow become sensible.
If the Yankees had beat the Devil Rays 50 times in a row and were predicted to slaughter them again, would they be a good bet at -$30,000 to win $100 in the 51st game? Of course not. The price is ludicrous. The Yanks would need to win 99.7 times out of the next 100 meetings for that to be an accurate line. By the way, Lucent now trades at $3.60, the NASDAQ has been cut in half—up from having lost more than 75% of its value—and all but a few of the Internet high flyers are Chapter 11. But that’s what happens when you win 50 in with a row with the Yankees and decide to play them at -$30,000.
Value as it pertains to sports betting is about finding teams that are under priced in relation to their expected win rate. If you are adept at uncovering opportunities that others do not see and can be steadfast in your contrarian methods during times of adversity, you stand an excellent chance of being a prosperous handicapper. That is the way it looks from here, anyway.
William first published this article in 1999, but revises and then republishes it once a year for his newer readers.