What can we learn from the sports betting market ?

A clearer view of what the future holds ?

As well as adding a new layer of context to our assessment of past events, betting markets can also help us project into the future. While it is interesting to use betting markets to assess the likelihood of success or failure of sports teams, they have the power to tell us much more than that. Things that are more important than who will win a championship.

Political betting markets have been around for some time, but as political betting becomes more popular, bookmakers are investing more in managing these types of markets. As the money flows in, these markets become more efficient, allowing them to more reliably predict how voters will vote.

Opinion polls are an essential part of elections. Once seen as a good predictor of voter choice, they are increasingly divorced from actual results. Although they remain volatile, the growing popularity of political betting markets could give rise to a new method of trying to predict the most likely outcome of an election: the use of political betting markets.

As we know, bookmakers and the majority of punters were pretty far off the mark at the start of the 2016 US presidential election. Indeed, Pinnacle initially estimated that Donald Trump had around a 12% chance of becoming the Republican candidate in the election. It was when the race reached its final stages that the betting market emerged as an unlikely source to tell the world what was going on.

Those following the election markets live on Pinnacle already knew that Donald Trump was on his way to victory before the media announced his victory in Florida (one of the six crucial states previously held by the Democrats). How could the betting markets have known before the media? This is where information is most valuable.

If you know something before anyone else, or at least before the majority, betting markets give you a platform to make money from that information. The bookmaker has a constant stream of people with this type of information and can therefore give us a more accurate idea of the likelihood of an event occurring, as well as when an event changes that likelihood.

What happens when we experience a single event ?

In general, betting markets help us to understand how people deal with uncertainty. Why do people bet on certain outcomes ? What biases influence our decision-making process ? Are people capable of learning from their mistakes ? These are all fascinating concepts that could be (or have been) dealt with in individual articles. However, betting markets also provide us with a means of substantiating our opinions on very unique events.

The famous Floyd Mayweather v Conor McGregor boxing match of 2017 will go down in history as one of the most intriguing sporting events the world has ever seen. It was the subject of hype, opinion and analysis, as well as a betting market teeming with money - indeed, it was one of the most bet events in the history of sports betting.

While the circus of press conferences and persistent promotion made the fight seem like the ultimate spectacle, the betting business was perhaps more interesting than the fight itself. Not only did the size of the bets highlight the interest in the fight, but the evolution of the odds also showed the extent to which opinions differed as to the competitiveness of a boxing rookie against arguably the greatest boxer to ever step into a ring.

McGregor, who has never boxed professionally in his life, opened as a 12.00 underdog for the fight (odds suggest this translates into an 8.3% chance of victory). However, during the week of the fight, McGregor was listed at 5.92, more than doubling his chances of victory to 16.9%. What caused this sudden change in belief in McGregor's boxing ability ? An injury to Mayweather ? A change in the rules of the fight ? The answer is much simpler: money.

To the surprise of former Pinnacle sales director Marco Blume, and despite the obvious skills gap between the two men, people were so determined to bet on McGregor that the money kept flowing in despite the drastic drop in odds. Of course, there were big bets on the other side, but no matter how McGregor's odds changed and (in retrospect) how wrong the line was, people were still happy to bet on the Irishman.

In this case, the betting market served as a clear indicator of public opinion. The number of large bets made by 'sharp' customers was dwarfed by the recreational bets made by punters who didn't understand Conor McGregor's chances of beating Floyd Mayweather (

the favourite-longshot bias

in action). It also showed us how difficult it can be for people to imagine what could happen in a completely unique event.

What can we learn from betting markets ?

Betting markets exist because people invest money to try and get more out of it. While it can be interesting to invest your time and money to try and make a profit, it can also be interesting to look at betting markets from a different angle. They help us to understand how people think and behave, as well as offering an insightful look into the past and a predictive view of the future.