Comparing the Goal of Market Makers in the Stock Market and Those Running your Sportsbook

Mark Lathrop

Friday, May 29, 2015 2:44 PM GMT

We explore the correlations between the sports betting world and that of Wall Street. What similarities can be drawn when comparing market movements, and how can you use this information to grab the betting odds at the right time?

When you are putting your hard earned down on a wager at your favorite sportsbook sometimes it is good to step back and assess how that line was put together in the first place. Why have some books added the dreaded ‘hook’ to a line while others have not? Why is a line moving against the public consensus side? One way to do this is to compare how the betting markets work as compared to other markets we commonly encounter, such as the stock market. There are some interesting commonalities between the two, but the differences often give us greater insight.

The easiest way to compare the way these markets work is to examine the true ‘goal’ of each market. In the stock market, market makers set the beginning bid (to buy price) and ask (to sell price) in a way to create equilibrium between market supply and demand. They want shares to change hands with the maximum of efficiency between buyers and sellers. After the market starts actively trading, this price seeks the equilibrium between buyers and sellers, at least those active that day, and moves in any direction this action takes. Since stock traders are looking at an underlying asset, versus a one time event, not all players will be looking to judge their asset a winner or loser versus the day’s equilibrium price on any given day.

This is an important difference between the stock market and betting markets, and because of this disparity, if there is a higher volume of demand for shares, even artificially due to a low volume of shares available to change hands, the equilibrium of the value of the underlying stock can go above or below the true value of the asset. Consider the following bid/ask spreads for stock “SBR”:
 

Ask Orders:

  • 200 Shares SBR at $10.00
  • 300 Shares SBR at $10.25
  • 500 Shares SBR at $11.00

Bid Orders

  • 1000 Shares SBR at Market Price


Now, while there are more active sellers who are willing to discard this stock for less than $11.00, when this single bid hits the market the stock will hit $11.00 as the available supply of shares meets the demand in the market that day. The big fish in the pond can and will have the greatest affect on the share price as equilibrium is reached on demand of available supply. This action could of course completely reverse itself the next trading day as the asset does not expire like a betting event will.

In comparison to stocks, the market maker at the book is selling ‘units’, with the goal of 50% of each betting side of an event going each way, leaving the juice as profit. If you think that a book is willing to risk going against the public, as if they somehow know an event’s outcome before it happens, think again. The proof of this phenomenon is seen often on the consensus tab of the SBR Odds information page. What happens is that smaller public betters have a vote on the consensus, without weighing the value of that bet. The books absolutely value the weight of the vote, in units, so while the consensus can continue to move towards the a majority on one side, the line can move against this public movement if enough heavy bettors take the opposite side. It looks something like this:

 

ARI vs. STL Total 8 Runs - 60% Consensus Over:

  • Bettor 1 – Over, 2 Units (20%)
  • Bettor 2 – Over, 1 Unit (20%)
  • Bettor 3 – Over, .5 Units (20%)
  • Bettor 4 – Under, 3 Units (20%)
  • Bettor 5 – Under 2.5 Units  (20%)
     

In this case, the line will move towards the Under to equal out the amount of units at risk for the Under side at the book – to equal .5 units. This is regardless of the consensus being at 60% of all bettors. The ‘unit’ is equal to the ‘share’ at play in the stock market above. A book can do this by adjusting the juice 10% or by enticing more bettors to take the other side of the line by moving the line itself. On the consensus tab found in the SBR Odds page, it is easy to spot when the juice is moving in the opposite direction of a consensus pick as heavy betting sharps take action to oppose the public for any given game. Keep this sharp action in mind the next time that you make your sports picks, and remember the ‘goal’ of the book at all times.