The number one mistake in MMA betting (Jason Rothman)

The author of “Betting on MMA: Easy Money From the Toughest Sport,” Jason Rothman make an interesting parallel between stock market investing and sports betting. 

Here below are some of his valuable wisdoms.

The number one mistake in MMA betting – Part 1
“I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches – representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”
-Warren Buffett

“As Jesse Livermore said, ‘The big money is not in the buying and selling… but in the waiting.’”

“Success means being very patient, but aggressive when it’s time.”

-Charlie Munger

Drum roll please… The number one MMA betting mistake that people make is betting on too many fights. It is that simple. There are several reasons why betting too often is and will probably always be the number one MMA betting mistake, and we will explore them in this article. It all comes down to two main topics: the human nature of the sports bettor and the misguided incentives for many of the parties involved in MMA betting. First let’s take a look at why betting too often is the number one mistake. And then we will examine how the individual issues contribute to the overall problem.

Why is betting too often a mistake?

MMA betting, from my perspective, is all about finding low risk, high reward situations and then betting them aggressively. I do in MMA betting what Warren Buffett and his partner Charlie Munger do in the business world. Buffett and Munger practice value investing and they do it in the style of focus investing.

Value investing is the discipline of looking for investments in which the price of the investment is cheaper than the intrinsic value of the underlying business. An example of value investing is when in 1988 Warren Buffett began buying up Coca-Cola stock. In 1988 Coke was coming off of a couple of slow growth years and Wall Street had decided that Coke was a bad stock to buy. Wall Street was full of short-term thinkers who had convinced themselves that Coca-Cola’s stock should sell for around $40 a share. Buffett looked into Coca-Cola, thought for himself and ignored Wall Street’s groupthink, and determined that the Coke’s business was worth $59 a share. Buffett was getting a 30% margin of safety on his investment.

In 1988 Buffett had found himself a great value investment in the Coca-Cola Company. And in the style of focus investing, Buffett bet big and invested heavily in Coke stock. By the end of 1989 Coca-Cola stock represented 35% of Buffett’s company Berkshire Hathaway. Buffett found a low risk, high reward opportunity, and he bet on it in a big way. This is exactly what I advise in MMA betting. Your job as an MMA bettor is to continually search for low risk, high reward bets and when you find them bet them big.

In order to have a low risk, high reward betting opportunity, you need to have a large margin of safety. I advise having at least a 20% margin of safety. The margin of safety is the difference between your own handicap of a fight and the moneyline odds. Then you make your own handicap of the fight and compare your percentage odds to the moneyline odds (which can also be thought of as the market’s odds). When you have a large difference between your odds and the market’s odds, you have a bet. These low risk, high reward fights do not come around often, so when they do, I advise following in Buffett’s footsteps and betting them aggressively.
The major problem that most MMA bettors make is betting too often. Having a 20% or greater difference between your odds and the market’s odds on a fight is not a common occurrence. Maybe one year it will happen twice and maybe the next year it will happen fifteen times, but it is definitely not happening on every single UFC card. People who find a bet on every UFC card are betting way too often and costing themselves money.

The first issue is that when you bet so often, you will very rarely be getting a 20% or greater margin of safety. This is big deal. Nothing is more important in MMA betting than having a large margin of safety. The margin of safety protects us from our own stupidity, our overconfidence as handicappers, and from unlucky things out of our control like fighters coming into fights with injuries we do not know about, fluke knockouts, and bad judges. Having a large margin of safety is essential to being a profitable MMA bettor. It ensures that we are only making the most profitable low risk, high reward MMA bets.

In the field of engineering the margin of safety concept is well established. Every time engineers set out to build something they include a margin of safety. For example, imagine that we were an engineering firm hired by a city to build an automotive bridge. If the maximum traffic that could be on the bridge at one time was 100 tons, we would never want to cut it too close by building a bridge that could only withstand 110 tons of traffic. That would be way too risky. Instead, we would want to have a large margin of safety and build a bridge that could withstand 200 tons of traffic. The importance of having a margin of safety is easy to see when it comes to engineering, but it is hardly ever brought up in investing and sports betting. Know the margin of safety concept well, and have at least a 20% margin of safety on every bet that you place.

“In this game, the market has to keep pitching, but you don’t have to swing. You can stand there with the bat on your shoulder for six months until you get a fat pitch.”

-Warren Buffett

The second problem that arises from betting on too many MMA fights, is that you run the risk of depleting your capital and missing out on the chance to bet big on the low risk, high reward opportunities. If you bet on high risk, low reward fights (which is exactly what you do when you bet too often) you will often go on losing streaks and your betting funds will be depleted. When this happens, and it definitely will happen from time to time, you will not be able to bet as big as you could have on the huge opportunity that is a low risk, high reward fight. To me, this is just stupid. Why take large risks over and over for only small rewards when you can just sit back, wait for the fat pitches right down the middle, and hit them out of the park by betting bet? There is no rule that says you have to place bets all the time. I advise doing what Warren Buffett does with investing – be patient, save your money for the fat pitches, and fire big when you find these low risk, high reward opportunities.

This is the end of part 1 of the The number one mistake in MMA betting. I will post part 2 of the article tomorrow.

Jason Rothman

Author of “Betting on MMA: Easy Money From the Toughest Sport,” and an all around good guy.

The number 1 mistake in MMA betting – Part 2

Now that we have covered why betting too often is the number one mistake in MMA betting, let’s take a look at the reasons that cause this mistake to continually be made.

“Patience – resist the natural human bias to act.”

-Charlie Munger

The first reason why MMA bettors bet on too many fights is themselves. As Charlie Munger says, the natural human bias is to act. It is unnatural for us to be patient and sit back and wait for great opportunities (like Warren Buffett advises us to do). In addition to the human instinct to act, sports bettors are gamblers who like the action. The only reason that I bet on MMA fights is to make money. But the majority of MMA bettors, even if they do not admit it to themselves, value the rush that they get from betting more than making money. You must admit to yourself that you get a sense of enjoyment from betting on fights, and then you need to get over it. Betting on MMA is about making money. In order to make the most money, you need to be very selective about which fights you bet on.

Another reason why making too many bets is the biggest MMA betting mistake is because of the sportsbooks where the bets are placed. The sportsbooks have no interest in who wins a fight. All the sportsbooks care about is how much money is bet on a fight. The sportsbooks make their money by taking a vigorish on each bet. The vigorish is the house fee for matching two sides of a bet, holding the money while the fight takes places, and paying out the funds to the winning side.

Again, the sportsbooks have no interest in who wins a fight. All that they care about is increasing the total amount of money that is wagered on a fight. As the total amount of money bet on a fight increases, the amount of the house’s vigorish fee increases. If $1 million is bet on a fight, the house will make $50,000. If $10 million is bet on a fight, the house will make $500,000. And so on. How do the sportsbooks make more money? They encourage more action. As more bets are placed, the house makes more money. So it is in the interest of the sportsbooks to try to increase the number of bets that MMA bettors make. The sportsbooks’ encouragement to make more and more bets is a major reason why MMA bettors place too many bets.

Like the sportsbooks, the MMA media is also encouraging too many bets. Included in the MMA media are the major MMA news websites, as well as the MMA betting experts pitching betting advice on Twitter and their own websites.

MMA news websites make their money by creating content, getting hits, and selling ad space on that content. More content leads to more eyeballs, which leads to more ad revenue. It is in the MMA news websites’ best interests to create more and more content. A good source of content is MMA betting advice articles. They can do these for every UFC card. The UFC is planning 31 events for 2013, and you can bet that the MMA news websites will have a gambling advice article for each and every one. The problem is that the best and only true advice for most of these cards is to not bet on any of the fights! On most UFC cards, there are no low risk, high reward betting opportunities. And the best thing that you can do most of the time is to not bet on any of the fights. But do not bet is boring advice and does not make for a revenue generating article. The MMA betting advice on most of the MMA news websites is garbage. The reason they put out betting advice articles for every card is to generate ad revenue. Avoid getting caught up in the you must bet on every UFC card hype that these news websites’ stories generate.

Another issue of increased content means increased revenue is with the MMA betting “experts” on Twitter who run their own for-pay advice websites. Their pay models work like this; they sell advice packages on every UFC card. For betting advice on one UFC card they charge $100 and for betting advice on three UFC cards they charge $200 and so on. This pay model incentivizes the “experts” to pump out advice content on every single UFC card, regardless of whether it really is good advice. The more “advice packages” created and sold, the more money they make. And guess what, no one is going to pay to hear don’t bet over and over, even though don’t bet is often the best advice when it comes to MMA betting. These betting advice experts are not going to make money unless they are telling people to bet! The experts are incentivized to find profitable bets even when none really exist. Be wary of the people selling MMA betting advice packages. They have the wrong incentives. Instead of being patient and finding profitable low risk, high reward bets, they are incentivized to come up with bets on each and every UFC card.

The final contributor to issue of betting too often is gambling theory. Gambling theory, when used correctly, is a very profitable approach to all types of gambling. It works in poker and in sports betting. But it can also be used incorrectly and give MMA bettors an excuse to act like imbeciles. Gambling theory has to do with mathematical expectation, also called expected value. Say Anderson Silva is fighting Georges St. Pierre and the moneyline odds have Anderson as a -200 favorite to win. The -200 odds compute to a 67% chance to win. Say your own handicap puts Silva as an 80% favorite to win the fight. In this fight you have a positive expectation. Assume you wager $1,000 on Silva at -200. By your own handicap Silva will win 80% of the time. So 80% of the time you will win $500, and 20% of the time you will lose $1,000. Your positive expectation is $200. This is computed by taking the $400 ($500 x .8) you win on average less the $200 ($1,000 x .2) you will lose on average. So over the long run, if you made this bet over and over, you would win an average of $200 each time.

Theoretically what all this means is that you will be making a positive EV gamble every time that you bet on a fight in which your odds are at least one percent different than the moneyline odds. Following the above example, if you had Silva winning the fight 68% of the time then you could justify a bet since theoretically you would be making $20 in positive EV each time you placed the bet. Betting with such small margins of safety (anything less than a 20% difference) is just silly and excessive, unnecessary risk taking. But since it is positive EV, it must be a profitable move to bet with one, five, ten, and fifteen percent margins of safety, right? Wrong. If we were computers and did not have our human emotions and biases then betting with small margins of safety would be good moves. But we are human and we need to take into account our natural inclination to be overconfident in our own abilities. We also need to take into account what a prolonged losing streak would do to our emotions and how it would negatively affect our betting and decision making abilities. To be a profitable MMA bettor you need to have a large margin of safety when you bet. But having a large margin of safety is not a common occurrence. This results in MMA bettors and advice givers misusing gambling theory to justify making bad bets. Phil Galfond, who is one of the best poker players in the world, has written a great article on the failings of strictly following EV and chasing every little edge.

Betting on too many fights is by far the number one MMA betting mistake. Low risk, high reward bets do not come around often in MMA, and as a result, the best thing you can do as an MMA bettor is to be patient and avoid betting on too many fights. There are several contributing factors as to why MMA fans make the mistake of betting on too many fights, and I covered them in the above article. I hope this post was informative, convincing, and improves your MMA betting skills. Thanks and good luck!

Jason Rothman

Author of “Betting on MMA: Easy Money From the Toughest Sport,” and an all around good guy.

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