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- [00:01]
David Stein
Welcome to Money for the Rest of Us.
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Co-host or Narrator
This is a personal finance show on money. How it works, how to invest it, and how to live without worrying about it.
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David Stein
I'm your host, David Stein. Today is episode 544.
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Co-host or Narrator
It's titled Sports Betting is Not Investing. Sports betting has gone from something taboo to Mainstream In Only six years after the US Supreme Court in 2018 struck down the the Professional and Amateur Sports Protection Act. That act effectively banned sports betting in the US since 1992. But now sports betting is legal in the US has been since then. In 2019, the revenue from sports betting was less than a billion dollars. Last year, it was close to $14 billion. And it's everywhere. There are ads everywhere. It's fully integrated into espn. Disney prediction markets such as Poly Market and Kalshi have adopted sports betting. In the case of Kalshi, they just introduced it this year and it's by far the largest aspect of their business. Now, I've talked about this before, but I got an email this week that intrigued me. I. I get dozens and dozens of pitches each week about being a guest on Money for the Rest of Us. And as you know, we rarely have interviews. But this one intrigued me. I'm not going to use individual's name nor his platform because I want to protect his privacy, because I'm going to use it as an example for how we can sometimes mix investing jargon, investing principles and apply it to gambling. And when we do so, it makes gambling seem like, well, yeah, this could work. And I kind of even felt that way. Whoa. Maybe it is possible to make money in sports betting if it's done safely, conservatively. We'll see if that's actually the case. So I get this email and this individual mentions how Money for the Rest of Us teaches investing principles. And he says he thinks that our audience, you would appreciate his sports betting approach, applying proven investment strategies to sports betting and making healthy returns with lower risk. His approach is to help people treat sports bets as a portfolio, using behavioral finance and a margin of safety to guide decisions, very much in the spirit of Warren Buffett and Charlie Munger's philosophy. Now, that is a great pitch, at least to me, given my approach. Is it possible this individual shared his statistics for the 2024, 2025 NFL season? He earned a 15.2% return on investment, close to 15% in the 2025 PGA. So season, he's beaten the S&P 500 index seven out of 12 months, stayed profitable nine out of 12 months. And he has a free newsletter where he shares his bets. And I, I replied that I would check out the newsletter and I signed up and I got the first bet. It was for a, a Pittsburgh Penguins game. And I thought well I'll, I'll see if it works out and I'll share what happened here in a bit. Now there have been some scandals in sports betting recently with the NBA. The federal prosecutors charged current and former NBA players and coaches with participating in an illegal betting scheme. They apparently the allegations is they shared non public information such as injuries, et cetera with bettors and that's become a scandal. And then just this past week in Major League Baseball, two pitchers from the Cleveland Guardians indicted for accepting bribes to throw specific types of pitches such as throwing balls in the dirt or slower velocity. And these are called prop bets where it's not necessarily about the outcome of the game but something that happens within the game which actually is becoming a more and more popular way to bet. Also this week Disney announced that it was breaking up with Pen Entertainment. They announced they had had a multi year deal for ESPN's BET sportsbook. So ESPN the sports channel had their own sports book and it I guess that they didn't get as much traction as they wanted and so they signed an agreement with DraftKings and DraftKings I guess will be this official sports book of ESPN. In the press release, CEO of DraftSkings, Jason Robbins said DraftKings is uniquely positioned to integrate and products with ESPN's iconic brand and storytelling power. Together we're delivering a seamless, engaging and responsible experience that elevates how fans connect with live sports by betting on them. And some of the surveys I saw, most investors believe they can make money betting on sports and I have never bet on sports. But I got this email and then I got my first newsletter. I said well maybe I should bet and mimic this trade as an experiment to see how it worked. This whole idea of being a responsible gambler. The National Council of Problem Gamblers quotes one study that indicated 16% of online sports gamblers met the clinical criteria for gambling disorder. And another 13% showed signs of gambling problems. This can be incredibly addictive, especially because a game and I thought about this, the game's way more interesting if there's some money on the line. Now what is this individual's approach that emailed me that has a newsletter and is equating betting with investing? His approach is one to view every sports bet as an investment, not as a lottery ticket. By making each bet with a margin of safety, betting with the odds of negative 150 or better. That means the implied odds of winning are at least 60%. And return on investment is capped at a 67% per bet. I have a statistics background. I have an investing background. But I'll admit odds and how they're quoted is not something I was terribly familiar with. So this whole idea of negative 150 odds, what, what does that actually mean? The two bets that I got sent this week, one had negative 700 odds and the other had negative 4. 50 odds. The American odds system. And I'll link to a note that, that I got. This information is based on how much money you need to wager in order to win $100. So if the odds are negative 150, you would have to wager $150 to win $100. And you can calculate the probabilities of that by dividing the amount you need to wager by $100 plus the amount you need to wager. And so if we take 150 divided by 100 plus 150, which would be 100 divided by 250, there would be a 60% probability of winning. Now, the probability of winning were even greater than the two of the trades that were sent this week. One of them was based on NFL Week 9, and it was betting that was whether any team would have a shutout. In other words, they wouldn't score any points. And they wagered that, no, there would be no shutouts that week in the NFL, the odds were negative 700. This individual wagered $100 and won $14.29. And we can again calculate the probabilities of a no team shutout bet. We could take 700. The odds are negative 700. So 700 divided by 700 plus 100. So 700 divided by 800 is 87 and a half percent probability. So that is very low risk, very high probability of winning, but you're not going to win very much. In this case, the individual bet a hundred dollars and won $14.29. That's a 14% G gain. But he could have lost, and then he would have lost $100. The Pittsburgh Penguin bet had odds of negative 450, and so the implied probability of winning was around 82%. And so this individual is making bets that have a high probability of winning, and then he's varying how much he bets, and he's betting on events with a high likelihood. He writes, no bet should be a head scratch or involve much. What if. And it happens that betting on high likelihood events usually yields a low to mid double digit return on investment. And it and it does for an individual bet. The problem is because the return on each individual bet is relatively low that when there's a loss it takes a more successful bets to make up that loss. If you if you're only making $14 on a successful bet but losing $100 if you lose, then you need five, six or so of those bets where you're winning. The other thing this individual likes about his approach is combines two enjoyable things, making money and watching sports. Now what I really liked about this individual is he does what I have often said if you're going to get involved in trading or in this case betting to track your performance, track how well you've done. And this individual started tracking this in the fourth quarter of 2024 and had a pretty good year. His win percentage was 81%, he bet 42 times and his return on investment was 7.4%. So he bet $5100 and had a return or realized return or made $377. That's great. Three months. This year has been more of a challenge. He's has won. His win percentage was 73%. That's how many bets he's won. Made 85 bets. But his return on investment's been negative 6.3%. He's wagered $16,450 and he's lost $1,044. Before we continue, let me pause and share some words from this week's sponsors. I've been using Deleteme for several years now because Deleteme makes it easy, quick and safe to remove your personal data online. At a time when surveillance and data breaches are common enough to make everyone vulnerable, Deleteme does all the hard work of wiping you and your family's personal information from data brokers websites. This isn't just a one time service, they're always working for you. They recently sent me my quarterly privacy report showing what information they found and are getting removed. I have an active online presence so privacy is really important to me and that's why I continue to use Delete Me. So if you have ever been a victim of identity theft, harassment, doxxing, or you know somebody that has terrible experience. But that's where Deleteme can help. So take control of your data and keep your private life private by signing up for Deleteme now at a special discount for our listeners. Get 20% off your delete me plan when you go to JoinDeleteMe.com David20 and use promo code David20 at checkout. The only way to get 20% off is to go to JoinDeleteMe.com david20 and enter code David20 at checkout. That's JoinDeleteMe.com David20 code David20 as an.
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David Stein
Individual investor, you want to invest confidently and retire securely, but the knowledge and time it demands can at times feel overwhelming.
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Co-host or Narrator
Each month there's thousands of data points and dozens of new ETFs.
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David Stein
What's actually important and what can you safely ignore? That's why I created Money for the.
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Rest of US plus PLUS Membership builds.
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David Stein
Your knowledge and confidence, helping you meet the demands of protecting your financial Future.
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In fact, 95% of plus members now.
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David Stein
Feel they better understand financial markets and economic trends. With a monthly investment strategy report curated by me, you can quickly understand current investment conditions and how to best position your portfolio. Money for the Rest of US plus.
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Also offers nine model portfolios. These are all ETF portfolios that you.
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David Stein
Can use to pattern your own investment portfolio. They range from ultra conservative to aggressive.
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We have an all stock ETF portfolio.
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David Stein
An all bond portfolio, an income strategy.
- [13:34]
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Role based and these model portfolios are dynamic. They'll occasionally be adjusted based on investment opportunities and risks.
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David Stein
Finally, with PLUS membership, you can get your questions answered by me in our weekly Q and A podcast episodes on.
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Co-host or Narrator
Our Money for the Rest of Us.
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David Stein
Live streams and in our community forum. To learn more about money for the rest of us plus and sign up, go to moneyfortherestofus.com join that's moneyfortherestofus.Com j.
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O I n what's going on here? Well, when you bet online sports betting, you're not betting against the other person that's on the other side of the trade. The sports bet book is who you're betting with. These betting platforms, they need to make money and so they're getting a cut. And when they're setting the odds, like let's say there's two evenly matched teams. So if you win you would get a hundred dollars and if you lose you would lose $100. If you're just betting with an individual, that's that's how it would be set up. And It'd be like 50, 50 odds. But with a sports bet the odds might be negative 110, which means you need to bet $110 to win $100 because that $10 is known as the vig. It's short for vigorous or sometimes called the juice apparently. But it's it's the built in commission that's the sports book platform gets. It's their margin, it's their profit. Which means that even if you see these high success odds, a trade or a bet that has an 88% chance of that outcome taking place, that probability includes the sports book's profit, which means as a better, you have to do better than those odds. I wrote this individual and I pointed that out. I said one thing that stands out in your stats is that even with a solid 73% win rate, the portfolio shows a negative 6% return. And that shows how the implied odds already include the house's margin. At negative 150, for example, you need to win closer to 62 to 63% to break even. So unless the actual success rate exceeds the implied odds, the math would work against you over time, the longer you play, you can have a run 3/4 or 3 months in 2024, but over the long term, this has a negative expected return because of the profit that the sports book gets. And that is why gambling is gambling and investing is investing. Investing has a positive expected outcome, a positive expected return. If you're investing in the s and P500, you're receiving dividends. Those dividends are growing over time because it's. There are companies growing earnings over time. It's tied to a productive economy. It's not a zero sum game because the pie keeps growing. If we're just betting with our friends, it's a zero sum game. I win, my friend loses, my friend wins, I lose. In sports betting, you play long enough, everyone loses except the sports betting book. Now this individual wrote back and said that kind of reaction, restating what he's doing, that he's comparing it to the S&P 500 so that people start to understand that there's a way to bet in sports that's not like the hype machine out there with where you're taking massive low probability wins. And apparently that's all over social media. This is a safer approach because you'll lose less than, you're just not going to lose as much, but you're still going to lose. Now in his case, he says there was an element of flexibility and he had two losing bets in March, one for $300. Well, he lost two $300 bets and one $200 bet. And that's taken a while to dig out of the, out of the hole. And he says, this takes me back to Warren Buffett's golden ticket example whereby he emphasized if you could only buy 20 stocks over your lifetime, you really think about it first. That's where the process and discipline come into play. And he says he really enjoys it and I glad he enjoys it. But it's very different. Warren Buffett selecting 20 companies or any investor now buying individual companies is already challenging enough in order to outperform the market. Most active investors do not. But most active investors, if they pick 20 stocks will indeed make money. It'll be profitable. Whereas sports betting over time, unless you have some type of insight, informational edge, predictive abilities, it's just extraordinary. But because this is so random and we have the probabilities there, you have to do better than the odds that are already there that include the sports books profit. So I replied again, I agree that process and discipline are essential. I wrote the challenge I see is that variable bet sizes can't compensate for a system which with a slightly negative expected value over time. And I mention my book because a whole chapter of money for the Rest of us 10 questions to master successful investing is. And one of the questions is this investing, speculating or gambling? Investing has a positive expected return. Gambling has a negative expected return. And we know it. Because why would a sports book set odds where ultimately they wouldn't make money? Plus all the money they have to spend promoting and advertising that's expensive and that is paid for by the bettors, both the winners and the losers. And so it has a negative expected return because of that, which means as you continue to bet over time with a slight negative expected return, even if it's a highly probable event, this individual has been right 72% of the time, but he's down 6% this year, negative 6% return on his betting quote portfolio. Because in order to make a positive return, he would have needed to be right 80% or more beat the odds. And that's impossible the longer you play. But it seems like it would work. I had to really step back and think about this. And there is a behavioral finance angle to this. There's the overconfidence bias that even if the odds are stacked against us, we feel confident that, well, we're just better at predicting outcomes for sports. Which is why if you believe that you need to track how you're doing, which is what this individual is doing. And then gamblers fall into what's called the gambler's fallacy. Assuming recent wins mean that a pattern will continue, you get a lucky streak or you can have an unlucky streak like this gambler did. He lost $300 in a trade now it sounds like he probably does smaller trades. You only win 14 or $15. You bet a hundred and the odds are 80% probability. But there's still going to be that 20% of the time where you lose $100. And again because of the profit margin of the Sportsbook, how they set up the odds over time, it's going to be negative. Now you're not going to lose all your money. Well, if you play long enough you will, but you're potentially going to be down 8 to 10% per year over the long term with periods where you do better. That's the way the math is, has.
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David Stein
To be that way.
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Co-host or Narrator
And then the final behavioral finance angle is this illusion of control because one has knowledge of sports and because odds are so great. It just seems like, well, yeah, these are low risk bets with a high probability of winning. And it's in sports that I know and I'm being selective and I'm not making big wagers. Seems like it should work. I kind of fell for it. Then I had to step back. Well, why doesn't it work? Well, because the Sportsbook platform has to make money and they are the ones setting the odds and they set odds at a way that they will always make money on every single trade, which means play long enough. Repeated exposure to events with negative expected outcomes will ultimately lead to a negative return. Repeated exposure. And that's why sports betting is not investing. It has a negative expected return. Investing is a positive expected return and speculation. There's disagreement on whether the return will be positive or negative. And in my mind gold could be example of that commodity futures. But betting gambling negative expected return. So we can't use investing language that can be highly seductive. It's just not correct. You just can't beat the math.
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David Stein
That's episode 544.
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Co-host or Narrator
Thanks for listening. You may be missing some of the.
- [22:39]
David Stein
Best money for the Rest of Us Content Our weekly Insider's Guide email newsletter goes beyond what we cover in our podcast episodes and helps elevate your investment journey with information that works best in in written and visual formats. With the Insider's Guide, you can discover investing in economic insight provided only to our newsletter subscribers. Unlock greater investing confidence with high value snippets from our premium products plus membership and asset cap further connect with the money for the Rest of Us team and community. And when you sign up, we'll also send you our exclusive investing checklist to help you invest with more confidence right away. You'll also get our introductory email series on eight essential investment principles that, if followed, can make you a better investor. We'll also share our recommendations for podcast episodes, articles and books. The Insider's Guide is the best next step to get the most out of your investment journey. If you're not on the list, go to moneyfortherestofus.com and subscribe right there on the homepage.
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Co-host or Narrator
Everything I've shared with you in this.
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David Stein
Episode has been for general education.
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Co-host or Narrator
I'm not considered your specific risk situation have not provided investment advice. This is simply general education on money investing in the economy. Have a great week. SA.