Why You Should (Almost) Never Cash Out In Sports Betting

Key Takeaway: Don’t cash out your value bets.

In recent years, sports bettors have been given the option to Cashing Out their bets in the middle of a game. This has grown to be a very lucrative revenue source for bookmakers. In this article we will explain:

  1. What it means to “Cash Out” in sports betting

  2. The formulas behind Cashing Out

  3. Exemplify an option to Cashing Out

  4. Conclude whether one should take advantage of Cashing Out or not.

  5. TLDR: Don’t cash out your value bets.

Cashing out in Sports Betting is something that is considered to be the safe option, a middle-way between partially winning the bet and risking to lose it all. This option makes sure that the bettor can receive payment at any given point in time during the game, as the bettor withdraws from the bet when in the lead.

Let us say that we have a soccer match between “Team A” and “Team B”. If you bet $100 on Team A, with decimal odds of 3,20, your full payment from the bet would be $320.

If Team A is ahead at half-time, but not in an impressive fashion, you have the opportunity to cash out, and immediately receive a portion of the full payment. This will cancel the rest of the bet, and you might only receive $160 instead of $320.

This is due to the elimination of risk throughout the second-half, where Team A might not be able to keep their lead to the very end of the game.

Learn and understand the calculations behind Cashing Out in Sports Betting.

Learn and understand the calculations behind Cashing Out in Sports Betting.

What formula lies behind the Cash Out?

The formula behind Cashing Out is compiled from real-time odds and the full payment of your current bet.

In the example previously stated, the Cash Out option at half-time was at $160 instead of $320. The Cash Out option is obviously lower than the full amount, but if we look closer it is actually lower than what the correct, or “fair” amount is as well.

The fair amount of a Cash Out option is found by the following formula;

Full payment of bet / Real-time odds 

If we use the formula on the example given, we have;

$320 / 1,60 = $200

This means that by Cashing Out during half-time, you would lose $40 compared to what the real and fair value of the bet is at this point in time.

This is more than likely to be the case in any given game, as the bookmakers are looking to take advantage of every opportunity to make money of the bets, or in this case make sure that they do not lose additional money from the bet. The bookmakers are likely to have a margin on the odds, and have a margin on the offered opportunity of the Cash Out as well.

This is largely why the Cash Out is an option that will harm your profitability in a long run, and should not be included in your betting strategy.

But, are there situations in which the Cash Out option is an attractive option?

- The short answer is: Yes (see examples below)

When the Cash Out option offered exceeds the market price

In some rare cases, the Cash Out option will have a higher value than what the odds from other bookmakers are. This is an indication that the offered Cash Out option is listed at a value above what the actual fair price is, and is definitely a favorable option for the bettor to take.

High values and acting rationally

As previously mentioned, the long-term strategy of a bettor should be to maximize profits through seeing out all bets to the very end. Despite this being the case in most situations, acting rationally should also play a part in your betting strategy. This means that you should be observant of your bets as they are happening, and always look for the best options for yourself.

Cashing Out might be relevant when discussing bets that are of very high sums of money or if a bet with very high odds has almost been fulfilled. In these situations, the bettor can choose to act in a rational way and Cash Out with the guaranteed payment.

For example, a bet on a team considered to be on the lower side of the table to win the league, with a $2000 stake and 200,00 in odds is nearing the end of the season. However, the competition, has improved their play lately and is very close to re-gaining the lead.

In this situation, the sensible thing to do might be to Cash Out, and receive some payment as a guarantee, rather than risking being left with nothing.

The full payment of the bet would have been $400000, and the Cash Out option might be $205000. The fair price however, would be the full payment / the real-time odds of 1,80.

This would have given a correct value of $222222. In this scenario, it might be wise to explore the option of Cashing Out, even though you might feel like it is a loss. So if you find yourself with a big bet on Leicester to win the Premier League again at 200 i odds and they are in the lead with 3 points and 3 games to go. You should consider cashing out the bet. (Really you should not place these bets in the first place, as they have sky high variance. In addition the bookies take very high margins on futures markets, which diminishes the value to be had).

Lowering the opportunity costs

When operating with bets that are connected to a long timeframe, the opportunity costs will increase. The opposite is the case for bets connected to a shorter timeframe, as the opportunity costs will decrease. Therefore, to lower the opportunity costs, it might be useful to Cash Out on some of the bets with the longest timeframes, if the right opportunity presents itself.

There is, however, an alternative to Cashing Out;

Hedging

Hedging a bet will contribute to a reduced level of risk, but will also decrease the return on your investment. This alternative to Cashing Out will also put the bettor at greater risk of having your bet voided. However, If you place the hedge side of your bet at a sharp bookie or betting exchange you should be fine in 99.9% of the cases.

Hedging, in short, means to exploit the differences and changes in odds between the different bookmakers, to create a guaranteed profit from a certain game. This is a rarity, and does not happen in a bunch, but there are certain situations in which this can happen (see great example from an article we wrote on How to Hedge Your Sports Bets here.

If Team A has very high odds long before kickoff, and this suddenly changes into Team B´s favor, it would potentially be possible to exploit this. As long as the profit from the bets on each side covers the risk on the other, the total profit from the bet will be guaranteed. Typically you will get better odds on hedging the bet than you will on cashing out. So it is the recommended option of the two.

Cashing Out is not an option for Sports Bettors who want to make money from betting in the long run

In addition to losing on the margins the bookmakers take from the bets and from the offered Cash Outs, the Expected Value of the bet will decrease compared to seeing out the bet. Read more on Expected Value here. The bettor also runs the risk of getting limited or even banned from certain bookmakers.

Key Takeaway: Don’t cash out your value bets.

Hedging Bets: A strategy for reducing your risk when trading sports?

Key takeaways

  • Hedging sports bets can enable you to reduce your risk, but it will also reduce your potential ROI. Therefore it is a tradeoff between risk and reward that you as a trader have to make.

  • Be aware of potential pitfalls such as bookmakers voiding your bets as they can leave you exposed with high risk and no upside.

“A hedge is an investment to reduce the risk of adverse price movements in an asset.” - Investopedia

Russian Premier League: Ural vs Rostov

Russian Premier League: Ural vs Rostov

An Example of Hedging a Sports bet in a Russian Premier League Game

As a sports trader you can reduce your risk by hedging a trade you have placed. For instance on November 30th, 2016, Ural played Rostov in the Russian Premier League. The opening odds for the game offered by Pinnacle is included in the table below. Rostov both being higher placed in the League and being a team that beat Bayern Munich at 15 in odds in the Champions League the week before was the favorite to win the game.

Soft bookmakers typically place their odds lower than the odds offered by the sharp bookmakers such as Pinnacle, because they have a lower payout rate. 2,5 hours before kick-off, November 30th, the Norwegian bookmaker Norsk Tipping (NT) offered the game at 2.95 for a Ural win. However at this point in time the odds at Pinnacle had dropped to 2.17 (removing their 2,5% vig, the true odds would be 2.26) resulting in a 30.5 % edge [ ((2.95 / 2.26) -1) *100% ]. Next, Norsk Tipping most likely noticing a large amount of money placed on a Ural win adjusted their odds to 2.6 resulting in the odds below.

However, this was still a 15% edge versus Pinnacle. I placed the bet at 2.6 on NT with a stake of 850 NOK or approximately 100 USD. If Ural wins I would get a return of 260 USD and a profit of 160 USD (Stake returned - Initial stake). After I had placed my initial bet, I kept monitoring the odds at Pinnacle, which kept dropping. With such a large edge I now had the opportunity to hedge my bet to completely eliminate any potential losses if Ural failed to win, while making a smaller profit if they win. This was achieved by placing a bet on Rostov to win on the Asian Handicap line of +0.5 at Pinnacle at 1.96 in odds about 20 minutes after taking my initial position. Meaning that if the match ended in a draw, Rostov would have a 0.5 goal handicap, the result being a Rostov win. By hedging on Pinnacle I would have a return on investment of 11,7% given a Ural win [ 1 / (1/2.6 + 1/1.96) ]. While breaking even on any other outcome (a draw or a Rostov win), so basically I was freerolling the game without any risk of potential losses. An important point to note is that hedging differs from arbitrage, because the bets take place at different points in time. This enabled me to get a much higher ROI while taking positions on both sides than what I would have achieved through arbitrage at the time I placed my initial bet. 

Odds for hedging my bet

Odds for hedging my bet

Expected profits after hedging my bet

Expected profits after hedging my bet

New Information in the form of Lineup Changes Made the Odds Drop

The odds at Pinnacle kept on dropping all the way until kick-off as new information became known to the market. Most likely due to Rostov resting several key players, the pictures below compare the lineup Rostov fielded vs Bayern on the left and Ural on the right.

 

Lineup comparison for Rostov in this game vs their last game

Lineup comparison for Rostov in this game vs their last game

When the match started Ural had become the favorite and Rostov the underdog. Pinnacle offered the following odds:

Closing odds at Pinnacle

Closing odds at Pinnacle

The vig-free closing odds offered by Pinnacle at a Ural win would be 1.76 [ 1.71 / 0.973 ]. (You can read more about why the closing line is a good approximation of the true odds of a game here). The closing edge versus my initial trade at 2.6 would have been a 47,7% edge [ ((2.6 / 1.76) -1) * 100%) ]. It is also worth to note that I would have had better odds on my hedge trade if I had placed it closer to kick-off.

The Pros and Cons of Hedging a Sports Trade

The game ended with Ural winning 1-0, giving me a profit of $60. However, if I had simply stuck with my initial trade of a Ural win at 2.6 in odds without hedging I would have made a profit of $160. This highlights the pros and cons of hedging sports. The advantage of hedging was that I managed to eliminate my risk on the game. However, the disadvantage was that I reduced my potential ROI.

Btw, the winning goal was incredible! (27 seconds into the video)

Now, because of Norsk Tipping’s specific rules, the Ural - Rostov game was not offered as a single, meaning that I had to match it with another game to form an accumulator. I ended up combining it with another team scoring 2 goals or less in another game at 1.01 in odds. They ended up scoring 2 goals, so it was a close call, that ended with the trade being good. However this also meant that in reality my hedge trade was not completely risk free. If the 1.01 game had not gone in, I would have ended up losing the $100 I placed through Pinnacle. Also, bookmakers often reserve the right to void bets where the odds is wrongly set. This could potentially have left me with a huge -EV trade. So if you are going to hedge your trades, make sure you are familiar with your bookmakers rules and practices. 

Lessons Learned from Hedging a sports bet

What did I learn from this experience? One can only make decisions with the information one has available at that point in time. I could not know whether the market would continue dropping in odds on a Ural win after I placed my initial trade or whether it would swing the other way. Therefore I made the decision to hedge my trade and freeroll the game for a guaranteed profit if Ural ended up winning. In hindsight, I would have made the same decision if the trade had been a single on NT. However if I come across trades in the future where there are hedging opportunities, but the game is not offered as a single I would rather run the risk with the potential upside of a larger return on investment

Key takeaway

To sum it up hedging a sports bet can enable you to reduce your risk, but it will also reduce your potential ROI. Therefore it is a tradeoff between risk and reward that you as a trader have to make. In addition, you should be aware of potential pitfalls such as bookmakers voiding your bets as they can leave you exposed.

By

Marius Meling Norheim

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