Issue #80 – Line Moves: The Stuff of Stock Markets
Line moves are made at sportsbooks for much the same reason that share prices change in the stock market: to balance supply and demand. Brokers look
to put a buyer and a seller together and collect a fee for the transaction. Sometimes they need to adjust the selling price in shares to get more buyers or more sellers.
It’s a lot like that in the sportsbook world, except bookmakers never truly
have a buyer and seller in place at the same time, so they hold positions in order to provide liquidity for their players. Lines are moved to
attract bettors to the side where the house needs more money, and away from the side where the house already has lots of action. These line
moves are not free; they create risk to the house, as I will cover below.
Sometimes the house is better off holding a position, if only we could buy low and sell high…
How Lines Move…Really
The following is an excerpt from an article I published last year (Frontlines Issue #60), which explains more in detail how lines move from the House’s perspective:
Remember that sportsbooks make their money by withholding a small commission on winning wagers. If Player A bets on Atlanta –4, risking the
standard $110 to win $100 and Player B bets $110 to win $100 on Buffalo +4, then the sportsbook makes $10 regardless of the outcome, as long as the final score isn’t Atlanta by 4 points (in which case both
wagers would be pushed and nobody makes any money). Since the total wagered is $220, the house’s gross profit % in this simple scenario
is about 4.5%. This number is the Theoretical Hold Percentage (or THP for short) for a straight wager. Now let's discuss a couple of reasons
why this number is only theoretical.
First, in the real world, action is very rarely perfectly balanced and sportsbooks
almost always have a vested interest in the outcome of every game. When action isn’t balanced, and the outcome of an event could lead to a loss for the house, the sportsbook is exposed. Each sportsbook determines how exposed it can be on any given event. It is a combination
of this tolerance for risk and the sportsbook’s wagering action that drives line changes. If a sportsbook has $5,500 wagered by its
clients on Atlanta –4 and $2,200 wagered on Buffalo +4, then the sportsbook stands to lose $2,800 if Atlanta covers (collects $2,200 from players who bet on Buffalo but has to pay $5,000 to players who
bet on Atlanta) but stands to win $3,500 if Buffalo covers (collects $5,500 from players who bet on Atlanta but has to pay $2,000 to players who bet on Buffalo). This may not seem like much risk, but if you multiple these numbers by 10, 20, 50, 1000 or more, you can appreciate why sportsbooks move lines to balance action. One sportsbook might move to –4.5 when it is exposed by $5,000 on Atlanta where another sportsbook might
be comfortable at –4 until it is $250,000 offside. It depends on the anticipated total handle, the game, the sport and thebook’s
tolerance for risk.
Some sportsbooks handicap the games themselves and may shade the line a half point or more in a direction to generate more wagering on the team they think will not cover. If they like Atlanta to cover the –4, they may open the line at –4.5. If they like Buffalo, they may open the line at –3.5. Or, they may open the game at –4 and simply decide to allow more risk on one team then the other. For example if the house likes Atlanta and has a normal risk tolerance of $25,000 on
a given line, the house may then decide to move to –4.5 after only being $10,000 offside on Atlanta, but would wait to be $40,000 offside on B before moving to –3.5.
Right now, other than cursing me for too much math, you may be thinking: “why
don’t sportsbooks just keep moving the line until they are balanced?” The reason sportsbooks don’t balance action at any cost is because
there is also a risk involved every time a line is moved. Let’s use some very simple examples to demonstrate the risks.
Example #1
There is $110 on Atlanta –4 so the house moves the line to –4.5 to attract action on Buffalo (now at +4.5). Someone bets on Buffalo +4.5 for $110 so the house is happy. However, there is an unpleasant side effect if the final score is Atlanta –4. The player who bet on Atlanta has his wager pushed, but the player who bet on Buffalo wins
and collects $100, so the house loses $100. When the final score lands on one of the outer extremes of the range of pointspreads for a game the house is said to have been sided.
Example #2
There is $110 on Atlanta –3.5, so the house moves the line to –4 to attract action on Buffalo. At –4 it takes $110 more on Atlanta
and decides to move to –4.5. Someone bets on Buffalo +4.5 for $220 so the house is happy ($220 total on each team). In this case, there is a very unpleasant side effect if the final score is Atlanta
–4. The player who bet on Atlanta –3.5 wins $100, the player who bet at -4 has his wager pushed and the player who bet on Buffalo wins and collects $200 so the house loses $300. When the final score
lands between the outer extremes of the range of pointspreads for a game the house is said to have been middled.
It is the risk of getting sided or middled that keep books from moving lines, and it is the risk of having a position on a losing team that force them to move the line. Books that move lines too far can suffer
heavy losses with a bad outcome, as will books that don’t move lines enough. The difficulty in knowing when to move lines is what makes bookmaking an art and not a science. Just remember that every book moves lines a little differently and so every day there are differences in the lines between books for the exact same game.
What to Watch This Week
In last week’s column we talked about the college polls and interestingly enough the word I would use to describe last weekend, in college football
anyway, is favorites. While it is possible for top-ranked teams like LSU and USC to struggle against unranked teams, the reality is that the Top 25 teams went undefeated. Clearly it was a good weekend to be
betting the polls. But with something to prove and a whole lot of motivation, look for those unranked teams to increase the value of your entertainment dollar.
As the NFL regular season kicks off this week, the word I’m using to describe the week thus far is parity. The spreads are very close,
so keep an eye on those home dogs in San Francisco, New Orleans, Cleveland, and Miami and see if they have bite. They’ll want to prove that a little respect goes a long way…
rob@bodog.com
Rob Gillespie
President
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