The Efficiency of Point Spreads

I’m enjoying a lazy Sunday watching football. I noticed something that might be of interest.

The New England Patriots are 16.5 favorites against the Miami Dolphins. That’s the widest spread for any team all year.

This is a reminder that point spreads are financial markets, just like what we see on weekdays. The oddsmakers don’t care who wins, they just want to make sure they have even money on both sides.

And like financial markets, the betting markets are pretty efficient. In the long run, the favorites and the underdogs are roughly even against the spread.

There is, however, a fairly minor exception and that’s games with very wide spreads, which brings us back to the Pats against the Dolphins.

I looked up the numbers, and since 1978, there have been 58 games where the spread is 16.5 or more points. The favorite has won 54 times and lost just four. (If you’re curious, in 54 games, the favorites were playing at home.)

However, against the spread, the favorite has only covered 20 times, while failing to cover 35 times. Three games were pushes. That’s an unusually wide margin. Bear in mind, of course, that these games don’t come up very often, a little more than once a year.

But it underscores an important point with markets and that’s that they have a tough time with extreme events. It seems that there’s a group of people, probably pretty small, that simply likes to take a side for the fun of it, and that slightly skews the results.

Update: Pats won by 18 (35-17).

Posted by on November 26th, 2017 at 2:35 pm


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