Introduction

After handicapping, the most important (and probably most overlooked) element to sports investing is money management. The "Million Dollar" question: "How do we maximize our gains and minimize our losses?" Winning 100% of ALL of our plays ALL of the time is one way. Uhh, well that's not going to happen. Having established that obvious fact, we need to focus on developing a more realistic approach to investing. After all, the goal is to turn a profit while knowing (and accepting) that a certain percentage of your plays will be winners and the others losers. What should be our targeted win percentage? 52.5%? 55%? 60%...higher?? For starters, this depends on the sport and the type of investment...money lines or spreads. Most amateurs to sports investing are unimpressed when professional handicappers report successful ATS win percentages in the mid to upper 50% range. Reality Check #1: Long-term win percentages do not live in the 65% plus range. Therefore, we must understand the law of probabilities and focus our attention on managing our investment capital (IC) correctly. Successful professional sports investors do both items well: consistent handicapping and managing their IC.

Money Management Theories in Focus

There are as many money management articles, "how to manuals" and theories to this subject as there are sportsbooks in Vegas and off shore sportsbooks in the Caribbean combined, probably more. Our goal for this article is to help you simplify the process and get you thinking about your own personal situation. Do a search on the subject of sports investing and you will find a high majority of these articles suggest that "flat betting" (using the same amount for every investment) is the way to go. While there are positives to this system...namely the fact that you do not allow emotions to dictate your per investment stake (e.g. chasing losses during losing streaks)....it ALSO means you are exposing more of your IC (by percentage) during those same losing streaks. Conversely, it means you are exposing less (by percentage of your IC) during winning streaks. Conceptually, "flat betting" does help you manage your money; however, it does not help us maximize our profits and minimize our losses for the reasons stated. Next, and almost as popular as the "flat betting" model, is the Kelly Criterion and the many variations of its general principles. At its core, the Kelly "formula" is used by investors to determine the precise percentage of IC that should be allocated to each investment so that long-term profits are maximized. In this scenario, the investment percentage is based off of expected win probabilities. Therein lies the problem. Most investors and handicappers do a poor job of determining their expected win ratio for each investment. There is always a certain amount of "luck" or randomness in sports investing, which can adversely alter your expected returns. The Kelly "formula" states that as your expected win ratio increases so does the amount of your investment, exponentially. If you over estimate your expected win percentage you would be exposing more of your IC than should reasonably be risked. In theory, volatility is not taken into account. Volatility is the amount of uncertainty and risk in the predicted outcome of any one sports investment selection. Again, the ultimate goal to long-term investing is to reduce your exposure to situations that would increase your chance at losses. Wildly increasing your invested amount due to expected probabilities can help maximize profits but at the cost of exposing much more of your IC than necessary.

SAC's Approach to Money Management

Reality Check #2: No money management system is perfect. SAC's approach is intended to help you diversify your sports investment portfolio effectively. Money management systems do not help us pick winners, but they do attempt to reduce volatility and grow consistent profits over the long-term. You will notice from our records that we deal in volume (for the purpose of diversification)...a higher number of daily selections compared to most other firms. The commonly used term for this methodology is the "Wal-Mart Approach"...volume investing with the intent to take relatively smaller daily profits with the purpose of growing CONSISTENT returns over the long term. Those who are extremely selective in their picks must maintain a higher win percentage to make the same profit of someone who is investing in greater volumes. It is our opinion that to truly invest correctly a higher volume must be maintained to off-set the uncertainty and risk unknown to any one predicted outcome. While we ARE concerned with maintaining successful win percentages, we also understand that profits are the ULTIMATE measurement of success. Besides, win percentages can be an extremely poor measurement of success in money line sports (i.e. MLB and NHL) where as an investor you should be taking a relatively higher percentage of underdogs to maximize profits thus sacrificing overall win percentages.

Let's illustrate the advantages of the volume based sports investing approach against a more selective approach.

In this example, you can see that by simply spreading the risk across numerous selections, a differential of +5.1 units is gained.

The ultimate question then becomes, "How much to invest per selection?" The Sports Asylum Consultants, LLC believes that an investor should invest a small percentage of their overall IC on each selection. As opposed to the "flat betting" model, the investor's per investment amount is automatically adjusted by the daily fluctuation in the total value of their IC. Hence, we are investing more per selection during upswings and less during downswings. The percentage invested should be a set amount as determined by the confidence level assigned to each play (i.e. SAC's star-rating scale). We should not merely assume our win probabilities and exponentially raise our investment amounts accordingly without considering the overall IC available (as in the Kelly "formula"). As discussed, we cannot predict for the volatility on a per investment basis which is why we are investing in higher volumes. However, through our detailed analysis and handicapping of each viable investment opportunity, we can reasonably assess which plays are slightly better investments than others. To account for these situations, we will assign a higher value (i.e. star-rating) to the selection. While increasing your percentage (based on SAC's scale) appears to expose unnecessary risk, keep in mind that as a part of our daily volume other lesser rated plays will be made to hedge that day's perceived risk and unknown volatility. Any money management system requires discipline. As an investor, it is prudent to do an assessment of your goals and measure your results on a routine basis.

Below is a table that displays SAC's recommended percentage, per play, by star-rating:

Final Comment

Reality Check #3: Thoughtful money management does not ensure that you are always making your expected return, but it will assist in limiting your exposure to losses and maximize your potential for consistent profits through long-term, effective diversification.