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[Already know what a value bet is? Skip to Getting Started #02 and learn how to find value bets using the dropping odds strategy]
What is a Value Bet?
A value bet is a mathematically profitable bet. A value bet occurs when offered odds imply a lower probability than the actual likelihood of an event, making it mathematically profitable over time.
Unlike an arbitrage bet you are not guaranteed to make money on any one value bet but over a statistically significant sample size you are almost guaranteed to profit from consistently placing value bets.
Value Bet: Coin Flip 🪙
We all know a fair coin has a 50% chance of landing on heads and a 50% chance of landing on tails when flipped.
Now let’s imagine your friend has offered you odds of -120 (1.83) for the coin landing on heads. What we need to do is figure out whether this is a value bet or not, if it is then we should accept his offer if it isn’t then we shouldn’t.
A value bet will have what we call in maths positive expected value and a non value bet will have neutral or negative expected value bet. Here is the formula for expected value:
(probability of winning x profit) - (probability of losing x stake)
So let’s imagine for a second we accepted our friends offer and placed a $10 bet on the odds of -120 (1.83). What is the expected value of the bet?
We know the probability of the bet winning (landing on heads) is 50% because the coin is fair so we would input:
(0.50 x profit) - (probability of losing x stake)
The next step, which is calculating the profit of the bet, can be a bit confusing when using American odds. The formula is slightly different depending on whether the pick is a favorite (-) or an underdog (+).
Here’s how you go about each:
Determine the sign before the odd: + or -
For an underdog (+):
- Divide the stake by 100
- Multiply the result by the odds to calculate the profit
For a favorite (-):
- Divide 100 by the odds
- Multiply the result by the stake — that's the profit
So let’s get back to our bet and calculate the profit using what we’ve learned above. Remember we’ve been offered underdog odds so we need to divide the stake by 100 and then multiply the result by the odds:
(100/-120) x $10 = $8.33
Now we know the profit we can input it into our expected value formula:
(0.50 x $8.33) - (probability of losing x stake)
The next input to calculate is the probability of losing again we know that the coin is fair so the probability of it landing on tails and therefore us losing the bet is 50% so we can go ahead and input that:
(0.50 x $8.33) - (0.50 x stake)
The last input is our stake, if you remember we staked $10 so let’s finish off the calculation with that input:
(0.50 x $8.33) - (0.50 x $10)
= -0.84 (-$0.84)
Oh no! This bet has a negative expected value of $0.84 meaning we would expect to this lose that much per bet if we placed it over and over again. Luckily we took the time to calculate the expected before placing the bet for real.
Now we know not to accept the bet at odds of -120 (1.83) let’s imagine we counter offer our friend with odds of +120 (2.2) and he accepts. Would this be a value bet for us?
(0.50 x 12) - (0.50 x 10)
= +1.00 (+$1.00)
Yay! The expected value is positive $1.00 meaning we would expect to profit $1.00 off each bet if we ran it over and over again.
Unfortunately the reality is you won’t be able to find any value bets on coin flips because that would be too easy but you can find plenty on sports bets on popular sportsbooks like Bet365, Draftkings and Fanduel. The math is exactly the same it’s just the context is different. Let’s now look at an example of a value sports bet.
Value Bet: Sports Bet 🏈
As we already know we need to know the probability of the bet winning in order to calculate expected value. As a reminder here is the expected value formula:
(probability of winning x profit) - (probability of losing x stake)
While that was very simple for our coin flip bet because we know for sure that a fair coin lands on heads 50% of the time and tails 50% of the time it is not so simple for sports betting because the true probability of event occurring like Manchester City winning is often disagreed upon due to the complexity of calculating such a thing.
For the sake of staying on track let’s just assume we know for sure that the probability of Kansas City beating the Atlanta Falcons is 55%. Below you will see that Bet365 are offering us odds of -105 (1.95) which have an implied probability of 51.20%.
Let’s calculate the expected value of a $10 bet at Bet365’s odds of -105 (1.95):
(0.55 x $9.52) - (0.45 x $10)
= + 0.74 (+ $0.74)
Bet365 is unknowingly offering us a value bet so we should take them up on the offer by placing a bet!
You might be thinking that “that’s all well and good but how am I suppose to calculate the true probability of Kansas City beating Atlanta doesn’t that require a bunch of data and complex calculations?” You might also be thinking “no bookmaker is ever going to be dumb enough to offer me value bets!”
You would be wrong in both instances, you don’t need to do any data crunching and you would be surprised how often bookmakers get things wrong.
In the next guide i’m going to take you through exactly how to find these value bets without having to do any complex maths using the dropping odds strategy → Getting Started #2: How to find value bets using the dropping odds value betting strategy