Sports Betting – Variance

Variance is a major part of analyzing statistics, which is a key element to understand in sports betting.

Variance is a probability distribution curve that applies to anything that has multiple outcomes with fixed probabilities, from coin flips and dice rolls to poker hands and batting averages.

If would be great if we could just win every night, that would be a low variance however that just isn’t how it works, sports betting has very high variance. In fact, you should expect about 10-30 times as much variance betting sports than you would experience betting the stock market. Variance will be very high in the short term and reduce over the long term.

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Smaller Numbers = Higher Variance

It is extremely important to note that thanks to the “law of large numbers”, the fewer games bet, the higher the variance. What does this mean? It means that the chances of winning a lot or losing a lot increases as the number of bets decrease. It also means that over the short run, my picks (and all sports betting in general) has a much higher variance than do other investments (like the stock market). The stock market tends to change very little on a daily basis (usually less than 1%). Meanwhile, your sports betting bankroll will see much larger daily swings (sometimes more than 10%).

Think of it this way. If we flip a coin, we expect to see heads 50% of the time and tails 50% of the time. If we flip a coin 3500 times, we would expect to be very close to 1750 heads and 1750 tails. It would be extremely rare, with 3500 “trials” to vary far from that. But if we flip it 200 times, we are much more likely to vary from the expected 100 heads and 100 tails. It would not be unreasonable to see 60% heads on 200 trials.

Another way to think about this is to compare it to diversification in the stock market. If you index (buy every stock in the market), your yearly return will be relatively stable. But if you load everything you have into just a few stocks, your returns will be much more variable (you can win or lose a lot).

Variance In Sports Performance

Here’s another demonstration of variance using something we are all familiar with: sports.

Dwight Howard is one of the best NBA players in history at hitting shots. He makes 57.8% of his shots. And, if we had to guess what his shooting percentage will be over the next month, or the next week or even the next game, we would be wise to guess around 58%. But, the reality is that his shooting percentage could vary greatly from that expected number, especially over small samples. And of course that is what we see. In the 2010-11 regular season, in the 78 regular-season games in which he played, Howard’s field goal percent per-game ranged from .250 to 1.000.

If you can get to the point where you can truly understand and emotionally cope with the concepts above, you can do very well in sports betting. Just remember, it’s easier said than done! Sign