Thursday, July 31, 2008

It's That Time of Year...

I feel like the guy in that Office Max commercial, dancing through the aisles as happily buying "going back to school" gear.

Football season fast approaches, and the box and I have spent some very quality time together. Hot hot quality time. I thought I'd get a jump start, though I won't be ready for much commentary until closer to prime time in late August. Here are some changes to expect:

1.) No more "pure" financial measures.

The BOX is now BOX 3.0, a total upgraded version. I am currently starting a green hedge fund (see here for the gist, and here for more details) with a model I've worked on for 2 years, and I have a bunch of new tricks up my sleeves. I may revisit the Financials (alpha, beta, sharpe ratio) later this summer, but for now, they are a thing of the past. They have been replaced by new metrics, most importantly: Game Value, Performance Volatility, and Expected Performance. I'm combining a lot of the hedge fund volatility metrics and applying them here to performance (ie, point performance, performance vs. the spread, statistical field performance, performance against an average, etc.). Let's just say the database got much thicker.

Game Value - the statistically based game value based team performance and record.

Performance Volatility - the volatility of a teams week to week performance statistically on multiple levels.

Expected Performance - a sort of futures derivative for football performance, looks at a combination of Vegas and statistical expected performance.

I'll go over it all in more detail as the season gets closer, suffice to say, I'm pretty stoked.

2.) I cracked the Holy Grail: 60% historical win rate.

It's legitimate. Whether it will hold up is another question, but back to back years of 60% performance using the new metrics. You might be asking, "How did you accomplish such a feat Mr. Genius?" It's a good question, but a key component was something obvious that I overlooked last season. I spent a good deal of time reviewing how many games to bet to maximize my win percentage, but I ignored the simple fact: all weeks are not created equal. GVal (Game Value) assigns realistic, statistically based value to upcoming games, similarly to Mark Myers' TIMP system but using a totally different data set. In fact, I based values on over 15 years of data (it's been a busy summer) to come up with real game values that are organic. I initially resisted what GVal seemed to suggest; don't bet on games that don't have value, even if it means betting on NO GAMES in a particular week! While this isn't much fun, espeically if it's more than one week of no betting in spread games in a row, it's definitely profitable. Limiting myself to the highest probability games as values shift means some weeks I could make 16 bets, others 2 bets, but only bets that have real value.

I haven't expanded the notion to moneyline, teasers, and parlays yet, but I still have many modifications to go before the season starts.

3.) No more wondering how much to bet.

While I still haven't devised a way to have the BOX suggest a minimum bet, I have figured out how to enter a minimum (ie, $5 at my online "broker"), and the BOX does the rest. I plan on adding the "Doubler" again in a few test cases, but the allocations now act more like stock portfolios than football betting. Box 2.0 devised allocations as well, but needed multiple variables each week, like how much to bet and how much the minimum is every week. Now, the BOX says "Bet this much assuming a minimum of X".

4.) The spread/juice stock ticker.

One of the last things Vegas wants, in sharp contrast to equity markets, is real time data. Betting arbitrage would be a disaster. Imagine a system where Vegas sets the line of NE v. KC at NE -10, -125. Money comes pouring in for NE - bettors think the spread is too low, for whatever reason. Suddenly, in order to compensate for this, Vegas needs to a.) raise the spread, b.) raise the vig, or c.) both so they don't end up on the tremendous losing end of this game. So within a day, the new line is NE -15.5, -115. Imagine if, along the way, you had a ticker giving you the line. As you saw the line pump up, you realized - hey, I should get in on the ground floor here - and you place a bet at NE -12, -120. When the line jumps above 14, you think maybe KC has a chance here, and because it's happening in real time, you can lock in a bet at KC +14.5, +110, hedging yourself on the upside. But real time markets mean real time money and real time hedging, all of which are bad for Vegas.

So in lieu of Vegas, the BOX now takes multiple ticks in the "market". I haven't tested this yet, as I lack the back data (it's impossible to get in usable form), it's a step forward in actual betting arbitrage. So watch for this later this season, it could prove awesome.

So that's the scoop. I don't imagine I'll be posting much again until preseason in mid/late August, but it's fast approaching! Get psyched!

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