Those who work or invest in the financial sector are more familiar with the term “beating the market.” Typically, it is taken to mean that the investor produces a better return than the market average. But this doesn’t really get to the heart of it. Investors can and do beat the market all the time. The more important question is whether they are doing that because they have been lucky or because they are skilled. One way to set about analysing the distinction would be to see how often the investor can anticipate the future movement of the market. A similar approach can be used for a sports betting market. If bettors are backing prices which more readily fall than rise after they have backed them, this would imply that, on average, they possess information about the events that had yet to be taken into account by the market as a whole at the time they make their bets. As such, a punter who causes a betting price to fall can be treated as someone smarter than the market. His action of betting is equivalent to bringing his superior information to the market, which subsequently adjusts to reflect that information until, assuming the efficient market hypothesis to be true, it is no longer exploitable for a profit.
The more information, through the opinions of bettors expressed via their wagers, that is brought to a market, arguably the more accurate (or efficient) it becomes at correctly estimating the true probabilities of sporting outcomes. Evidently, the point in a betting market at which the most number of opinions has been expressed occurs at its closing, i.e. at the start of the event. Thus we can begin to form a hypothesis: if the bettor or tipster more often than not manages to beat the closing price with the odds that he backs, this would be indicative of possessing smarter information than the market, and hence of possessing predictive skill. Indeed, this is precisely how sharp bookmakers mark their customers, using sharps to help them adjust their lines to become more efficient. Presumably, it is also how other betting brands seek out and limit/ban those sharps.
Taking a sample of 48 tipsters for which I had collected closing prices for their match bets, I set out to test whether any of them had been capable of beating the closing market. Together they advised a total of 7,170 bets (excluding voids due to retirements as well as erroneous data). Backing these tips to level stakes at the advised prices returned a profit over turnover (yield) of -0.94% at average odds of 2.466. This compares to a yield of -2.66% had those tips been backed at closing market prices with an average of 2.436. 59.1% of advised prices beat the closing market. 38 out of 48 (or 79%) of the tipsters managed to beat the closing market on more than 50% of occasions (50% being that predictable by chance alone). These results are indicative of a set of tipsters who, collectively at least, were bringing information to the market. Their distribution of actual price / closing price ratios is shown in the chart below, compared to what we might expect to see if players were only guessing. Their distribution shows greater kurtosis (values bunched more tightly around the mean) as well as a greater proportion of ratios above 1.00 (where advised prices were greater than closing ones). The difference between the two distributions is hugely statistically significant.
Nevertheless, despite bringing this information with them to the market, it was not enough to secure an overall aggregate profit. That much is probably obvious from the small difference between average tipped betting price and average closing price (just 0.03). We might wonder whether that was because the tipsters hadn’t secured the best possible prices.
Readers should consider evaluating their own performances against closing markets and their implied fair market equivalents, since arguably this provides another useful method to see whether you are smart enough to secure a profit from sports betting in the long run. If nothing else, it might offer you confidence during losing periods that the reason you had been losing was due to bad luck. Of course, by the same token, it may also indicate whether winning runs have been due to nothing more than good fortune.