In recent years, the federal government has taken various actions to make it harder to bet on sports over the internet.
That’s lucky for me, because when I used to bet on football, one of the key pieces of information I used was whether or not a team was a home underdog. For whatever reason, bettors don’t like to bet on home underdogs.
Recognizing this, bookies shade the point spreads toward the home underdogs. Because of the bettor bias, the bookies can set spreads so that home underdogs cover the spread more than half the time, but attract less than half the betting dollars. According to my estimates, home underdogs covered the spread almost 54 percent of the time over a 20-year period, but they still only attracted about 40 percent of the betting dollars in those games. As a consequence, these games are extremely profitable for the bookies: most of the money goes on the visiting favorite, who manages to cover the spread only 46 percent of the time. (For more on this, see an academic article I wrote on the subject.)
Even after I published that paper, the home-underdog bias remained alive and well. I nearly won an 800-person handicapping contest doing little more than picking home underdogs.
The last two years, however, have not been so kind to home underdogs. According to calculations made by Charles Monteleone, a graduate student at the Booth School of Business here at the University Chicago, home underdogs had a 44-45-1 record against the spread in 2007. That is not so bad, but it’s far from the historic performance. The real outlier was the 2008 season, during which home underdogs had a record against the spread of only 32-45-2!
Why this radical reversal? One possibility is that bettors finally caught on to the fact that home underdogs were a bargain, which in turn led the bookies to alter spreads so that they no longer favor the home underdogs. I think there is almost no chance that this is the correct explanation. Bettors have failed to recognize this bias for 20 years; there is no way gambling patterns could suddenly change this quickly.
The real explanation, I suspect, is that it was just bad luck — bad luck for the minority of bettors who play the home underdogs, but especially bad luck for the bookies. I wouldn’t be surprised if the poor performance of home underdogs destroyed a large chunk of the total profits for the bookmakers on the N.F.L. this year.
Home underdogs are of particular interest right now because, remarkably, in all four playoff games this weekend, the home team is the underdog. If I were a betting man (or more accurately, if I had an account I could bet on), I would be hammering the home underdogs this weekend.
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Why this radical reversal? One possibility is that bettors finally caught on to the fact that home underdogs were a bargain, which in turn led the bookies to alter spreads so that they no longer favor the home underdogs. I think there is almost no chance that this is the correct explanation. Bettors have failed to recognize this bias for 20 years; there is no way gambling patterns could suddenly change this quickly.
Going to disagree – I’m not a bettor myself (though I join pools), but a couple of years ago there were numerous columns that mentioned this home underdog point. I believe Bill Simmons of ESPN – one of the most widely read sportswriters – mentioned this very point in a couple of NFL prediction pieces. This could have spurred a shift in awareness that in turn was matched by the lines. You’d also have to factor in the far more easily attainable information on such patterns now readily available on the internet, which increases each year, particularly in the last couple of years.
In that article Simmons also suggested that the new stadiums being built to cater to club seats and luxury boxes didn’t provide the same advantage home teams once enjoyed.
Great post – & your “academic article” is a fine use of analysis in a practical forum. I advise everyone to click on the link.
While the home underdog phenomena is not a secret, it is, as this post points out, underutilized. I’m made money for years betting on the home ‘dogs, & done well in pools for the same reason. Of course it helps to be a little selective on choosing which home ‘dog to pick – e.g., the Detroit Lions were an awful team & a bad pick the whole year – but on the whole, the home ‘dog is a good “horse to ride” mixed metaphor intended
Betting patterns haven’t changed significantly, if at all. There are websites that show breakdowns of online wagers. People still love taking road favorites and as the post suggests, its been a tough year for the sportsbooks.
While he has a large audience, Bill Simmons has contributed nothing useful to gambling theory (theories based on anecdotal evidence are not useful) and his handicapping skills would hardly inspire a sportsbook to start shifting its lines.
Link to the Simmons article. Doesn’t explain why so much changed between 2006 and 2008 as I don’t think that many new stadiums had opened.
http://sports.espn.go.com/espn/page2/story?page=simmons/partone/081121
I do not understand how Mr. Levitt lacks a bank account with which to bet. 20 years of knowledge regarding the undervaluation of home underdogs surely should have reaped him a fortune. Am I missing something? Has he given it all to the Gates Foundation?
It’s because the divisional winners are so terrible when stacked next to the wild cards. Minnesota (my home team) barely beat the hapless 0-16 Detroit Lions (both times). The Cardinals won the weakest division in the NFL. In the AFC, an 11-5 Patriots couldn’t make the playoffs, but an 8-8 San Diego Chargers did.
Just because the NFL uses the seeding method it does, that doesn’t change a mediocre team into a great one.
A large factor is the current NFL playoff format. Assuming large variances in different divisions (i.e. some divisions are much stronger than others), underdogs should be favored. Byes are awarded to the top 2 conference winners, which would likely play in the stronger divisions. Home field advantage in the wildcard round is awarded to the weaker division winners, who then host wildcard teams from those stronger divisions.
How many teams this year would want to host the 11-5 New England Patriots this weekend? They didn’t even make the playoffs! I doubt that either the 8-8 San Diego Chargers nor the 9-7 Arizona Cardinals would want to host them any more than the 12-4 Indianapolis Colts or the 11-5 Atlanta Falcons whom they are facing.