# Basic risk management in sports betting

Risk management is a fundamental component of proper gambling. A player must consider some key factors to diminish his risk, such as emotional control, expected value, bankroll management, and financial discipline. Understanding these factors allows him to make informed choices, improve his chances of success, and safeguard his money.

## Emotional Control

Emotional control is perhaps the most important aspect of risk management. It involves serenely dealing with the difficult situations that a player might experience when gambling, by understanding, for example, the inevitability of bad days and good days, and how to cope with mistakes.

Emotions often lead players to make irrational decisions that are not based on objective data or analysis. During a losing streak, a player's natural inclination is to quickly recoup losses, leading to imprudent betting decisions. These emotionally driven decisions often exacerbate losses and can quickly deplete his resources.

There will always be good days and bad days when gambling, due to the inherent complexity of sporting events. That is why it is important not to take a single good or bad day as confirmation or disconfirmation of a particular betting strategy. Evaluating the effectiveness of a strategy requires statistical and probabilistic reasoning and examination, through the analysis of historical results, long term results, and simulations.

Mistakes can be diminished, but they might still happen anyway, and it is important to recognize that mistakes. A player should learn to accept and learn from them, and use them to make more informed decisions in the future. This approach is ultimately more effective than reacting impulsively or emotionally.

## Understanding Expected Value

The concept of expected value (sometimes called EV) is a critical component of risk management in sports betting. It is a statistical measure that indicates the long-term profitability of a betting opportunity. A player uses it to determine whether a bet is potentially profitable, a process that involves rigorous research and analysis.

The expected value of a bet is the average amount a player can expect to win or lose per bet if the same bet is placed an infinite number of times. It is calculated by multiplying each potential outcome by the probability of that outcome and adding these results together. A positive expected value indicates a potentially profitable bet in the long run, while a negative one signals a potentially loss-making bet.

This is the formula of expected value as percentage of the money gambled:

e: expected value

w: actual probability of winning

p: potential prize (not the total return)

l: actual probability of losing

e = wp - l

Let's imagine that a bookmaker has set the decimal odd of x happening at 2.05, which implies a probability of ≈48.78% (1/2.05). The bookmaker is basically stating there that it believes the chances of x happening are less than ≈48.78%, and therefore it is offering a reward that would in the long term produce, for the player, no return if the chances are actually ≈48.78%.

e₁ = (1/2.05) · (2.05-1) - (1 - 1/2.05) = (1/2.05) · (1.05) - (2.05 - 1)/2.05 = 1.05/2.05 - 1.05/2.05 = 0 = 0%

And a loss if the chances are even lower than ≈48.78%, like, for example, 47%:

e₂ = .47 · (2.05-1) - .53 = .47 · 1.05 - .53 = .4935 - .53 = -.0365 = -3.65%

The bookmaker must indeed have calculated lower probabilities than the even ones. However, the bookmaker is not perfect, and that is precisely the hope of a player for long term profit: being better than the bookmaker at calculating the actual chances of an event. Let's suppose that after making a thorough analysis, a player has strong statistically justified reasons to believe an event x has ≈50% chances of happening; given these chances, he can calculate that the actual expected value of his bet would be positive, and therefore a good betting opportunity:

e₃ ≈ .5 · (2.05-1) - .5 ≈ .5 · 1.05 - .5 ≈ .525 - .5 ≈ .025 ≈ 2.5%

That percentage might seem small, but even a smaller advantage would be enough to generate long term profits, as long as proper risk management and bankroll administration be applied.

The relevance of expected value lies in its application to betting decisions. It helps a player make informed choices based on extensive research, analysis of teams, comparison of bookmaker odds, and evaluation of the event's circumstances. Only bets with a positive expected value should be considered, as they signify potentially profitable opportunities over the long term. Any bet without positive expected value may lead to long term loss of money and even bankruptcy. Gambling without any idea about the expected value is almost like betting blindly, without knowing whether it is a good or bad bet, and that is extremely risky.

## Bankroll management

The player's bankroll is his gambling budget. A well-managed bankroll acts as a bulwark against the inherent unpredictability of sports outcomes, helping him to survive losing streaks without risking losing all of his money. Thus, bankroll management is the strategy used by the player to manage his wagering funds efficiently, balancing the risk of bankruptcy with the potential for profit.

The need for a rationally valid bankroll management strategy stems from the inherent volatility and unpredictability of sports betting. Even if the expected value of each of his bets is positive, the player can still lose his entire gambling capital if he does not carefully administer it. Effective bankroll control involves dispersing risk by spreading the money across multiple bets, thus avoiding the pitfall of putting all the eggs in one basket.

There are several bankroll management strategies, each with varying degrees of risk and reward, and not all of them are rationally justified by probabilistic reasoning.

These are some examples of rationally valid strategies, ordered from the least risky one but with the lowest potential profit, to the riskiest but most profitable one:

**Fixed betting**: play the same fixed tiny amount of money (for example, ¤1) in all bets. This is perhaps the safest, because the risk diminishes with every win, however, the potential profit is small compared to other strategies where the money gambled increases along the growth of the bankroll, or is proportional to the expected value.**Flat betting**: play the same small fixed percentage of the bankroll on each bet.**Unit betting**: determining a tiny fixed percentage as an unit and varying the quantity of units to bet depending on the expected value.**Kelly criterion**: gambling through a formula called Kelly criterion, which indicates the percentage of the bankroll that must be played in a particular bet, to obtain the highest profit in the long term. This formula is the expected value (as percentage), divided by the prize:- k: Kelly criterion
- k = e / p = (wp - l) / p
- The kelly criterion, nevertheless, is very risky, and usually only a fraction of it is wagered, to diminish the overall risk.

Examples of rationally invalid strategies, that must be avoided by any serious player, are:

**Martingale, and its variations (fibonacci, double up, antimartingale, D'Alembert, Labouchère...)**: multiplying the quantity of money to wager by some factor (by 2 in the original Martingale) with every loss, so that the first eventual win recover all previous losses plus a profit. The variations may change the factor, or make the multiplication happen only when winning, or make an addition instead of a multiplication, etc. Yet all of them suffer from the same problem: the money required to apply them with each new play grows exponentially, and after a few losses they deplete the whole capital of the player. They could only work if the player had infinite money. However, there is a limit on the amount of money a player can play on a single bet, so even with unlimited funds these strategies could fail.**All-In**: Perhaps the riskiest of all, in sports betting, this strategy involves wagering the entirety of the bankroll on each bet. The idea is to either win big or lose everything. Needless to say, this strategy disregards all principles of proper risk management and can lead to the loss of the entire bankroll in a single bet. Ironically, in casino games, like the European roulette, where the expected value is always negative, this strategy is actually somewhat acceptable, as long as the player bets only once and then retires, as it is more probable to win one time, for example, betting to a color (≈48.65%) than winning many times; however, it is not so intuitive and easy to accept, as it is more tempting to think one can somehow beat the roulette, even though it is not possible.

These strategies may seem tempting due to the allure of a large payoff, but they are ultimately flawed because they ignore the fundamental realities of betting. Namely, betting outcomes are uncertain, and losing streaks can and do happen. A robust bankroll management strategy acknowledges these truths and plans for them, rather than trying to exploit an illusory pattern in the outcomes.

## Financial Discipline

Financial discipline ensures that a player's betting activities do not have detrimental effects on his overall financial health. A player must only gamble with money they can afford to lose and protect his lifestyle from the potential adverse impacts of betting.

Betting is inherently unpredictable, and there's always a risk of loss, regardless of how certain a bet might seem. As such, the golden rule of betting is to only gamble with money the player is willing to lose.

Moreover, gambling should not become a source of financial stress or worry. It should remain enjoyable, and not disrupt his lifestyle. By adhering to principles of financial discipline, a player can ensure that a losing streak doesn't result in undue hardship.

## Conclusion

Risk management in sports betting involves a coherent interplay of several elements - emotional control, understanding of expected value, bankroll management, and financial discipline. Emotional control allows clear thinking and rational decision-making. Understanding expected value guides players towards potentially profitable bets. Effective bankroll management techniques ensure the longevity of a player's betting activities. Lastly, financial discipline safeguards a player's overall financial well-being and lifestyle. Integrating these factors into a comprehensive approach enhances a player's chances of enjoying sports betting and achieving long-term success.