As my friends cruelly continue to remind me, my country sadly didn’t qualify for the Russia edition of the FIFA World Cup. But who said that a World Cup without Italy can’t be fun?
I don’t like gambling as in most cases the expected returns are negative. But last Thursday, armed with a $100 budget and the promise of some free bets, I decided to place a few wagers on some of the cup matches to alleviate the pain of not being able to support my team.
One week has now passed. Here’s how it went.
Introducing the VAR system
Opening an online account was easy. Probably too easy. And the number of ‘markets’ (events you can bet on) was mesmerising. Any football match has at least 120 events. While I was patiently reviewing all these options, one stood out.
The broker was offering $15 for each dollar bet on Australia scoring a penalty against Denmark.
Yes, I know Australia doesn’t have a great football pedigree and Denmark isn’t a weak team, but an implied probability of less than 7% (one divided by 15) felt too low. Especially considering that in this World Cup, referees are allowed to use the Video Assistant Referee system (VAR) for the first time. This enables them to review a video replay before taking important decisions, such as giving a penalty kick.
The VAR had already increased the likelihood of a penalty being awarded in a match. Before the Australia-Denmark game, after just 20 games, ten penalties had been awarded in the tournament compared to only 13 during the last 64-game edition. And so I bet.
As you probably know by now, Australian captain Mile Jedinak scored a great penalty in that game. My bet paid out nicely.
The day after I decided to investigate how big of a role luck played. After all, bookmakers are experts in setting odds and, as Italians know well, penalties can be missed (and saved).
What history shows
Excluding the current tournament, in the history of the World Cup, there have been 836 matches and about 210 penalties of which 170 resulted in goals. So, on average, there have been about 0.25 penalties per game with an 81% conversion rate.
This implies average ‘fair’ odds of $4 for a penalty kick and $5 for a penalty goal (or implied probabilities of 25% and 20% respectively).
These odds, after adjusting for a commission spread and some variability around the quality of each team, have been roughly matching my broker’s over the past week. This surprised me.
After my first bet, as the Russian World Cup progressed, statistics have continued to support a 50% probability of a penalty in any given game and a 40% for a penalty goal. Suggesting ‘fair’ odds closer to $2 and $2.50 respectively for the two outcomes. In this light the broker’s odds continued to look good value and I have been betting more and more.
So far this has proved quite successful. Perhaps this World Cup’s statistics will soon revert to the long term average and so it’s too early to claim that this has been a low risk way to make money. But an email this morning from my broker implying that my account is ‘under review’ suggests maybe the strategy has some merit.
Nevertheless this experience reminded me of a few investing lessons worth rehashing.
Investing lessons
Making investing decisions based solely on past information is dangerous. Investors need to focus on the future profitability of companies as it’s this that determines their values.
Markets are mostly efficient, but from time to time mispricing can occur. Opportunities tend to exist around times of significant change. Like, for example, the introduction of the VAR system in the current World Cup.
Stock prices often move up or down too much when new important information becomes available. As Philip Tetlock points out, frequent small changes to forecasts can help investors profit from mispricing.
Low risk profit opportunities are rare. And when they come around, investors need to act swiftly as they don’t last long. My broker’s odds have already tightened. For example, odds on Australia scoring a penalty kick against Peru fell to $4 (a 25% implied probability).
While this week was fun, my betting spree has come to an end. Trying to beat the stock market is already a hard job. Consistently winning against the bookies is even tougher.
Hahah good work Alvise!! This reminds me of the baseball hedge fund manager, Joe Peta, who was featured on the Bloomberg Odd Lots podcast. He applied his stock risk analysis skills to baseball bets on the MLB and made a hefty profit. I believe that, like Forager, he had to keep the size of his ‘hedge fund’ small enough so as not to distort the pricing of odds. Food for thought.
https://www.goodreads.com/book/show/15808294-trading-bases
Thank you YY I will read that book it sounds interesting
HI YY
It’s me, your brother
So at what point will bookies have to disclaim “past results are not an indicator of future outcomes”?!
Haha, they’ve pulled their offer from you because you were actually winning? These guys are criminals. Imagine what Kenneth Hayne and Rowena Orr would have to say!
… provides extra value offers to existing customers in the hope they will develop a habit that will be very profitable for us, even if it might ruin their lives as well as having really bad impacts on their friend/family.
Well done Alvise for extracting a win there! Just my opinion, but obviously I have a personal distaste for this industry. And have pretty well lost interest in watching sport these days too, on account of it.
Very interesting article Alvise.
To get a better feeling of the impact of VAR it makes sense to look at the Bundesliga which was the first national league to introduce the VAR last season. This is a larger sample (306 games per season) and after introducing VAR 16% more penalties (0.31 per game) were awarded compared to the previous 3y and 5y average.
Therefore, I think in future we will see more around 0.3-0.35 penalties per game at World Cups instead of 0.5.
Hi Sebi,
You raised an excellent point. I have looked at the Serie A (the Italian league) instead which introduced the VAR in the season 2017/18 (I didn’t know the VAR system was introduced in Germany too!).
The Serie A has 380 games per year. In the 2017/18 season (the first ever with the VAR) there have been 126 penalties of which 90 were converted. So 0.33 penalties per game and 71% conversion rate. In the 2016/17 season these ratios were 0.36 and 72% respectively and in the 2015/16 season 0.32 and 77%.
So it doesn’t look like the introduction of the VAR made much of an impact (actually the number of penalties decreased about 10% over the past season). But, I think it would be best to compare the first part of the 2017/18 seasons (when the VAR system was new to both players and referees) to the first part of the previous one. I suspect that as the last season progressed the industry learned to deal with it better. Unfortunately I didn’t have the time to test this as the stats aren’t readily available. Apart from the stats from the early matches of this World Cup I felt confident enough to bet also based on the fact that the World Cup is an event where teams have to take more risks as settling for a draw isn’t generally an optimal strategy. These could have been mistakes though and I might have just been lucky that it went my way.
I agree with you. The World Cup’s stats should trend lower towards the long term average as the VAR becomes a normal part of the game.
Serie A statistics are available here: https://www.fantagazzetta.com/statistiche-serie-a/2017-18/fantagazzetta/rigori
Australia’s A-League also had VAR in the 2017-18 season. Of course it did fail to function for a couple of minutes in the final between Newcastle Jets and Melbourne Victory.
Thanks for the article,
It is arguable that ex ante one might have assumed VAR would reduce the number of penalties rather than increased them. Given that a penalty amounts to an 80% chance of a goal, there is every incentive to take a dive and try to fool the ref. I for one am surprised the penalty rate has risen post VAR implementation.
50% probability of a penalty award, @ 80% conversion, implies 5-to-1 odds for each individual team to score (50% chance each team scores). However, this implies that all teams are equally skilled and have the same % of offensive possession. The probability of a penalty award rises with the % of time spend in possession around the goal mouth.
Would probably require a wasteful allocation of resources to run the numbers, but you’d probably need to add some sort of offensive/possession statistic to refine the probability model. Hazarding a guess, given Australia is not exactly the world’s greatest footballing nation, 7.5-to-1 odds was probably about right (assuming 1/3rd dangerously offensive possession).
Given that the probability of a penalty kick has approximately doubled under VAR, this implies that the ex anti probability of 15-to-1 was about right prior to evidence emerging that VAR would materially increase penalty kick incidence.
Cheers,
Lyall