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Prices, Point Spreads and Profits: Evidence from the National Football League

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Author Info

  • Humphreys, Brad

    ()
    (University of Alberta, Department of Economics)

Abstract

Previous research on point spread betting assumed that bookmakers attract an equal volume of bets on either side of games in order to maximize profits. This paper examines the viability of this assumption from a theoretical and empirical perspective. The model of bookmaker behavior developed predicts that expected returns are not necessarily maximized when the volume of bets on each side of a game are equal. Analysis of a unique data set containing information on point spreads, game outcomes, and betting volume for the 2005-2008 NFL seasons reveals widespread imbalances in bet volumes. Simulations indicate that this imbalanced betting generated positive profits, including profits larger than would have been made if the betting volume was balanced on all games.

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Bibliographic Info

Paper provided by University of Alberta, Department of Economics in its series Working Papers with number 2010-5.

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Length: 19 pages
Date of creation: 01 Feb 2010
Date of revision:
Handle: RePEc:ris:albaec:2010_005

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Keywords: sports betting; balanced book model; NFL;

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References

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  1. Woodland, Linda M & Woodland, Bill M, 1994. " Market Efficiency and the Favorite-Longshot Bias: The Baseball Betting Market," Journal of Finance, American Finance Association, vol. 49(1), pages 269-79, March.
  2. Avery, Christopher & Chevalier, Judith, 1999. "Identifying Investor Sentiment from Price Paths: The Case of Football Betting," The Journal of Business, University of Chicago Press, vol. 72(4), pages 493-521, October.
  3. Rodney J. Paul & Andrew P. Weinbach, 2005. "Bettor Misperceptions in the NBA," Journal of Sports Economics, , vol. 6(4), pages 390-400, November.
  4. Cain, Michael & Law, David & Lindley, Dennis, 2000. " The Construction of a Simple Book," Journal of Risk and Uncertainty, Springer, vol. 20(2), pages 119-40, March.
  5. Conlisk, John, 1993. " The Utility of Gambling," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 255-75, June.
  6. Rodney J. Paul & Andrew P. Weinbach, 2008. "Price Setting in the NBA Gambling Market: Tests of the Levitt Model of Sportsbook Behavior," International Journal of Sport Finance, Fitness Information Technology, vol. 3(3), pages 137-145, August.
  7. Woodland, Bill M & Woodland, Linda M, 1991. "The Effects of Risk Aversion on Wagering: Point Spread versus Odds," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 638-53, June.
  8. Gandar, John, et al, 1988. " Testing Rationality in the Point Spread Betting Market," Journal of Finance, American Finance Association, vol. 43(4), pages 995-1008, September.
  9. Raymond D. Sauer, 1998. "The Economics of Wagering Markets," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2021-2064, December.
  10. Rodney J. Paul & Andrew P. Weinbach, 2007. "Does Sportsbook.com Set Pointspreads to Maximize Profits? Tests of the Levitt Model of Sportsbook Behavior," Journal of Prediction Markets, University of Buckingham Press, vol. 1(3), pages 209-218, December.
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Cited by:
  1. Brad R. Humphreys, 2010. "Point spread shading and behavioral biases in NBA betting markets," Rivista di Diritto ed Economia dello Sport, Centro di diritto e business dello Sport, vol. 6(1), pages 13-26, Aprile.

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