nep-spo New Economics Papers
on Sports and Economics
Issue of 2023‒05‒08
four papers chosen by
Humberto Barreto
DePauw University

  1. Forecasting Soccer Matches With Betting Odds: A Tale of Two Markets By Whelan, Karl; Hegarty, Tadgh
  2. Calculating The Bookmaker's Margin: Why Bets Lose More On Average Than You Are Warned By Whelan, Karl; Hegarty, Tadgh
  3. Risk Aversion and Favorite-Longshot Bias in a Competitive Fixed-Odds Betting Market By Whelan, Karl
  4. US Taxation of Gambling Winnings and Incentives to Bet By Whelan, Karl

  1. By: Whelan, Karl; Hegarty, Tadgh
    Abstract: We compare the properties of betting market odds set in two distinct markets for a large sample of European soccer matches. We confirm inefficiencies in the traditional market for bets on a home win, an away win or a draw as found in previous studies such as Angelini and De Angelis (2019), in particular that there is a strong pattern of favourite-longshot bias. Conversely, we document how a betting market that has emerged in recent years, the Asian handicap market, can generate efficient forecasts for the same set of matches using a new methodology for mapping its odds into probabilities.
    Keywords: Sports Forecasting, Betting Markets, Market Efficiency, Asian Handicap
    JEL: G14 L8 L83
    Date: 2023–02–23
  2. By: Whelan, Karl; Hegarty, Tadgh
    Abstract: If betting markets are efficient, then the expected loss rate on all bets on a game can be calculated from the quoted odds. Guides to sports betting tell bettors how to do this calculation of the predicted average loss rate. We show that if bookmakers set higher profit margins for bets with lower probabilities of winning (as implied by the evidence on favorite-longshot bias) then average loss rates across all bets will be higher than predicted by this widely-recommended calculation. We provide evidence from betting on soccer and tennis to illustrate that average realized loss rates on bets are consistently higher than predicted by the conventional calculation.
    Keywords: Market Efficiency, Sports Betting, Favorite-Longshot Bias
    JEL: G14 L83
    Date: 2023–02–22
  3. By: Whelan, Karl
    Abstract: Research on sports betting has generally found a favorite-longshot bias: Bets on longshots lose more than bets on favorites. Existing research focuses largely on pari-mutuel betting but favorite-longshot bias is also evident in fixed-odds online betting markets of the type that are growing rapidly around the world. Explanations for this bias in previous work on parimutuel markets cannot explain why it would be a feature of competitive fixed-odds betting markets. We show how disagreement among gamblers and risk-aversion on the part of bookmakers in a competitive market can produce a pattern of favorite-longshot bias resembling the empirical evidence.
    Keywords: Sports Betting, Gambling, Favorite-Longshot Bias, Risk Aversion
    JEL: D81 G14 L83
    Date: 2023–02–09
  4. By: Whelan, Karl
    Abstract: Sports betting is growing rapidly in the US after its legalization by the Supreme Court in 2018. This paper describes the treatment of gambling winnings and losses in the federal tax code and shows how the system may incentivize some gamblers to substantially increase the scale of their betting in order to have a chance to win. This incentive stems from the fact that gambling losses can only be deducted if taxpayers are filing for itemized deductions, meaning the scale of gambling losses has to be large enough to push a taxpayer’s eligible deductions over the standard deduction. This incentive to engage in large-scale betting applies mostly to lower and middle-income households.
    Keywords: Taxation; risk taking
    JEL: D81 H24 L83
    Date: 2023–02–06

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