Hedging In Sports Betting: What Is It
Have you ever thought about Hedging In Sports Betting and what it is exactly? To hedge is to bet on another possible outcome in addition to the initial bet that we took.
For example, you wanted to bet on Federer’s victory at the US open @ 2.00 because you are convinced that he will win. However, you are also a little afraid that Nadal will have a good tournament. You then want to ensure that your stake is reimbursed if Nadal wins. You will then cover your initial bet by betting a little money on Nadal @ 5.00 (for example). The goal: to be reimbursed for your bet on Federer if it is Nadal who finally wins the tournament.
In theory, making a blanket seems a good thing. We secure our bet and this reduces the part of the variance, i.e. the part of luck. We will lose our bet less often and therefore our winning curve will be more linear in the long term. But the question is; is hedging always a good thing?
The only viable way to win in sports betting over the long term is to play value bets.
A value bet is a “scoring error” at the bookmaker. This means that the odds he offers for a bet are higher than they should be in theory.
The rule to know if you must hedge a bet is therefore the following: we can cover a bet if the bet that we take in a cover is also valid, that is to say, that its expected long-term gain is at least equal to 0.
Table of content:
- Hedging In Sports Betting: What Is It
- Without making a hedge
- Calculation of the expected gain of the hedge
- Hedging or not?
- Formula to calculate a hedge
Does this sound a bit complicated to you? Here is an example to better understand. Let’s go back to the previous example:
You want to bet on Federer’s victory at the US Open @ 2.00 odds because it seems valuable to you. Indeed, you estimate that Federer has a 60% chance of winning this tournament. However, the bookmaker estimates that Federer has only a 50% chance with the odds of 2 that he offers. The bookmaker underestimates Federer’s chances of victory. We, therefore, have a value bet (provided your analysis is correct).
Without making a hedge
By playing this bet and if you do not make any cover, you have an expectation of winning of + 20% **. This means that by playing €100 on this bet, you will win on average (over the long term) €20.
Calculation of the expected gain of the hedge
If now, you want to cover on Nadal. Nadal has odds of 5. The bookmaker therefore gives him a 20% chance of winning (1/5 = 0.20 = 20%)
In the first case, you think that Nadal’s odds are valuable because Nadal has a 25% chance of winning for you. The bet that you will make on Nadal to cover the bet on Federer will therefore have an expectation of winning of 25%.
In the second case, you think that the odds are not valid because Nadal only has a 15% chance of winning for you. In this case, the bet you will make on Nadal to cover your bet will have an expected gain of -25%.
Hedging or not?
In this example, if you bet €100 on Federer without making a hedge, you will earn an average of €20 profit (ROI of + 20% because of €20 gain for a bet of €100).
If you bet € 100 on Federer by hedging € 25 on Nadal and the latter is worth, you will earn an average of € 26.25 in profit (ROI of 21% because € 26.25 in profit for a total stake of € 125)
If you bet € 100 on Federer by hedging € 25 on Nadal and the latter is not valued, you will earn an average of € 13.75 in profit (ROI of 11% because € 13.75 in profit for a total stake of 125 €).
Formula to calculate a hedge
To find the probability of odds, just divide 1 by the odds.
=> Here: 1/2 = 0.5 = 50% => The odds of 2 offered by the bookmaker amounts to saying that it gives Federer a 50% chance of winning the tournament.
To find the expectation of earnings, we use the formula: Hope = probability of winning * (the odds – 1) – the probability of losing.
- 1st=> The expected gain (or theoretical ROI) for Federer without coverage is therefore calculated as follows: E = 60 * (2-1) – 40 = 20%
- 2nd=> The theoretical ROI for Nadal at 25% chance of winning: E = 25 * (5-1) – 75 = 25%
- 3rd=> The expectation of winning (or theoretical ROI) for Nadal with a 15% chance of winning: E = 15 * (5-1) – 85 = -25 %.
To calculate the theoretical gains with a hedge, we use here the formula: Gains = Bet on Federer * expectation of gains + Bet on Nadal * expectation of gain
=> In the case where the expected gain on Nadal is + 25%: Theoretical gains = 100 * 20% + 25 * 25% = 26.25 €
=> In the case where the expected gain on Nadal is -25%: Theoretical gains = 100 * 20% + 25 * (- 25%) = 13.75 €.
Besides Hedging In Sports Betting, get to know How To Win Big In Online Sports Betting By Staking Small Money.
