Click Bait title! That said, we ‘re going to jump into a fun and controversial topic “Gambling”. According to a quick google search there are two definitions: 1) play games of chance for money and 2) take risky action in the hope of a desired result. Between these two, we think the first one is a little bit better since the second one implies all of your bets are “risky”… which we’ll argue is not the case at all times. Finally, before we begin, none of this is professional advice. We’re simply outlining how we think about it.
Play Games of Chance: This is an important concept in the first four words of the definition. Chance implies “probabilities” and the “expected value” is unlikely perfect every single time. When we talk about games of chance, we are not talking about games like roulette or the lottery where there is a massive edge to “the house” If someone defines gambling as playing games like slot machines, roulette, the lottery etc. we’ll agree and say you should never play. There is no fun in taking unnecessary risk. There are a multitude of other options with much better odds… Ones with emotion… sports/poker etc.
Step 1) Play Emotional Games of Chance: Here is where we would go ahead and say it is “okay” to gamble from time to time. In emotional games of chance such as Poker, Sports or Politics… it can make sense to take a *calculated* bet. The more emotions involved the better. Without emotions it makes it quite difficult to get an edge. In other games, the house typically has an edge so they win over and over again in the long-term. When people get involved the odds are never “correct” since emotions will always swing it in one direction or another.
Step 2) Get an Edge: We’ll use the last two public bets we announced on twitter. The NBA MVP race and the presidential election. Our edge is essentially two items: 1) stats and 2) reading emotions. Combining these two you should be able to get a decent feel for when certain events are heavily skewed in one direction or another. Do you need to be a mathematician? No. You just need access to the right software tools (MATLAB – Matrix Laboratory) works well for stats and the emotional reading is more of an art than science (we’d say it takes about 5 years to get decent at reading emotions of herds).
Step 3) Wait, Wait, Wait: As you can see we’ve only announced two bets over two years or so. We bet on both Westbrook and Harden for MVP (mid/late 2016) and Donald Trump (~11 months before election). Here is the “why” for both.
Westbrook/Harden: With the change in the NBA landscape, you knew that Kevin Durant, Stephen Curry and Lebron James were not going to win the MVP. This has nothing to do with stats and everything to do with emotion. When Lebron left for Miami, he didn’t win the first year because people were “upset” even though he was still the best player in the league by far. Why? A lot of the voting process has to do with emotion… Once we eliminated three of the best players in the league you were left with essentially: Anthony Davis, Russell Westbrook, James Harden and Kawhi Leonard. All in the real risk was Kawhi Leonard given that his team would win a lot (we looked at the odds and didn’t bet until a couple months into the season). Once the numbers started to show, the only risk was he’d have a breakout 2nd half which is extremely unlikely if you run the stats (offense stats Popovich vs. D’Antoni vs. Donovan). So the risk made sense.
Donald Trump: This one was much more “controversial”. To us it looked pretty similar to the same logic in a different fashion. There was more *emotion* against him… But the stats don’t lie. Run the stats on the history of back to back democratic wins (or back to back republican wins) after a two term presidency… And you’ll see they are bad. Even Democratic candidates knew Trump was going to be the republican ticket… and people were still offering 5:1 and even 10:1 odds against him… Insanity and 100% emotion.
Step 4) Calculate Your Own Probabilities: People on twitter are “shocked” we’re now betting on Floyd Mayweather because his odds are so “low”. That’s not how we see it. We entered already through various platform at a ~20% return ($5,000 bet gets you $1,000). This means it’s a 20% return in just 2 months. While it looks like a “worse odds bet” because the “dollar win is lower” we don’t look at it like that. Stick with running the stats and coming up with your own probabilities. Sure a $1,000 bet on Trump won a cool $5,000-10,000 but if someone gives you a ridiculous offer you should go ahead and play the game anyway.
Mayweather Risk: We’ll go ahead and give our odds. We think it should be at 20 to 1. That’s our own number and means $20 should win you $1… or… $20,000 should win you $1,000. That’s the more realistic line since we give him no “real” shot of winning. High security environment and high paychecks for both fighters should keep it clean. Note: we chat time to time with a boxer Ed Latimore and have encouraged him to do a breakdown of fighting style given his background.
Mayweather Match Gets Rigged: This is a real risk since we’re talking about sports here. Just like the NBA bet, where stats don’t always matter (emotions matter as well), if the match is rigged we’re screwed. Rigging includes: 1) Ref somehow allows a low-blow or some strange attack that goes “missed” and Mayweather gets KO’d, 2) Judges somehow give him the win if the fight goes 12 rounds and 3) somebody drugs Mayweather
Risk of DQ: Mayweather has fought the best people in the world for about 20 years with zero losses. Anyone with basic knowledge of boxing knows he didn’t “cheat” any of those wins including the controversial KO of Ortiz where… Ortiz was getting embarrassed and tried to head-butt him. For those with good memories – Mayweather 61/125 power punches 49% and Ortiz at 22/117 or 22% -. And. He won in Jabs at 14% vs. Ortiz at a whopping 0%. Therefore, the chances he gets DQ’d are RAZOR thin, but “anything could happen”.
Illegal Bet & Throwing the Fight: This isn’t a risk. We see it floated on social media but the reality is he would lose more even if he bet $100M+ on himself. His brand would be destroyed and he would lose out on revenue for 40+ years. By beating Conor (ideally badly in a few rounds), he’ll elevate the *status* of boxing and generate more money for the sport and himself over the next 40 years. We’re unsure if this will do any real brand damage to MMA (we’ll see) since people will realize
Outlandish Other Risks: The last set of crazy risks include things we could barely even comprehend. Such as: 1) illegal gloves being used – e.g. Antonio Margarito, Luis Resto, 2) Mayweather gets injured for some insane reason – tears a tendon during fight, breaks something in a strange way moving around the ring and 3) somebody jumps in the ring and KO’s Conor for no reason giving Mayweather a DQ win
Zero Disrespect to Conor: As a note, if this was an MMA fight, we would put every cent onto Conor in a brutal KO in probably 50 seconds or so. The reality is MMA and Boxing are not really related for those that are at least familiar with both sports (notice all the pro-boxers hint at it being a joke but don’t want to screw either of them out of hundreds of millions of dollars). They are both fantastic to watch. But. They are not the same. Just look at the tactics used in boxing, if you tried to do a lot of these things in an MMA fight you’d be on the ground in seconds, KO’d or worse.
Step 5) Get Good at Math: We’ve talked more about sports/politics but you can also learn Poker and a few other games (potentially blackjack in special situations). With statistics alone you can gain an edge in both games and place bets based on expected values and more importantly *adjust* your bets as you go through different hands through a game. The more variables there are to choose from (ability to move around the bet size) along with your knowledge of the number of cards in the decks you can make expected value positive wagers over and over again.
Step 6) Expected Value Positive? Lets assume that you believe you have a 51% chance of winning. Does this mean you should bet everything you can? Of course not! It means you could bet on it but it’s not that attractive. This is something you’ll have to figure out on your own. Given the math set up you can see we likely bet close to the same amount on Westbrook/Harden combination as we are on Mayweather/Conor. In addition, you can see that we bet *more* on Donald Trump. Why? It all depends on your calculated expected value. Example: we would have taken even Odds on Trump but it was 5:1 to 10:1 very good spread, we would take Mayweather up to ~12:1 but at 14:1 or so it’s not worth it.. so on and so forth. Note: we have no doubt there is some mathematical way to do it but we still view gambling as a fun *profitable* hobby and don’t take it too seriously.
Step 7) Have Fun: As you can see… We don’t have a raw calculation for step 6. The reality is we should. That’s okay for us since we treat it as a fun hobby/game and as long as we’re making money over the course of 5-10 bets… It’s alright with us. We do not bet more than we are willing to lose based on our own calculations. This is also why “low dollar win spreads” like Mayweather are not attractive to some people, they just can’t afford to lose $10,000 for example in a single day. That’s fine and we’re “gambling” that’ll change once you make a bunch of money!
Concluding Remarks: As usual? Since everyone says Gambling is bad… You know what to do… the opposite. No one “needs” to gamble, we’re simply pointing out how we think about the process. If someone is losing over the course of a year, it’s time to call it quits for another year and revisit the strategy. If someone is winning on a consistent basis then it’s certainly a fun hobby to have. Just remember, exactly like a work environment, always trick the counter party into thinking he’s smarter than you even if he has no experience in the topic. Then make the bet.
On an extremely cheesy note… Thank you to all of our subscribers for the advanced pick-up of Efficiency! For those that received the email (check your junk mail as well), you’ll have until July 21 to pre-order (as stated in the email). While we’re definitely not going to make a financial return on it given that we put a good deal of time into making it as clean as possible (no junk words) it was extremely fun to create it. We’re thinking of new ideas to gift out small tokens of appreciation for the purchase in the future (we already have a few ideas).
