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Gaming Guru

 

Money Management Theories Don't Work

4 September 2002

Last week I promised that this week's column would be the most important one ever and as a bettor, I think it is. Money management theories abound but I have yet to see any proof that any of them really work. What I do know is there are a lot of bad money management strategies to avoid and that is what I will cover today. Consider this my Christmas present to you because if you follow the advice I am about to give, you will have more money for the holidays. That is why our book managers asked me not to write this column.

First though, I want to follow up on my column last week on shopping for lines and Monday night's USC-Auburn game provided a perfect example. The line opened USC -7 and moved to -7.5 over the weekend. The line even closed with USC -8 at some books. However, there were two books that still had -7 as late as yesterday afternoon out of the two dozen or so I checked. So, if you liked USC you had two choices for getting the best line. First you could have bet early when the first books were moving to -7.5 and all indications were the money was coming in on USC. Second, you could have still shopped late and got -7 at one of a couple of solid books. Making your play on USC -7 instead of -7.5 meant the difference between a loss and a push yesterday and this is a perfect reminder to do your homework and check for the best available line on each game.

OK, back to money management and let me get the key point out of the way - Poor money management generates more losses for players than bad handicapping or not shopping for lines. Even the worst bettors seldom lose more than 55% of straight wagers. The easiest way to explain is to show a few examples. Take a look at the following four scenarios and hopefully you won't recognize any of these habits as yours.

Scenario A - Raising your bet amounts. Alan is a $100 player. He typically plays half a dozen or so games a week and is a dedicated handicapper. The first week he makes 5 wagers of $110 to win $100 and goes 4-1. For the week, he has made a profit of $290 (4 wins of $100 and 1 loss of $110), a great week by any standard. He now thinks his handicapping skills are so sharp that he can beat the house on any week and now raises his plays to $200. In the second week he makes 6 bets of $220 to win $200 and goes 2-4. For the week he has lost $480 (2 wins of $200 and 4 losses of $220). So overall, Alan has lost $190 despite going 6-5 overall (54.5%). If he had simply played $110 on all 11 games he would have made $50 in profit. Raising the size of your plays after a short-term winning period will benefit the House greatly if and when things even out.

Scenario B - Lowering your bet amounts. Bill is also a $100 player but has a slightly smaller bankroll than Alan. He makes 6 plays of $110 and goes 2-4 for a loss of $240 (2 wins of $100 and 4 losses of $110). His bankroll is now too small to be able to play $100 a game so in the second week he only makes 5 plays of $55 to win $50 each. This week he wins 4 of the 5 and makes $145 (4 wins of $50 and 1 loss of $55). He now has the same overall winning record as Alan (6-5) but is down $95 anyway. Lowering the size of your plays after a short-term losing period or not having enough funds to make your plays will also benefit the books when your turn to win comes.

Scenario C - Risking your balance. Charlie likes to take big risks for big rewards. He posts up $110 and risks it all on a single game Saturday night, which he wins. His balance is now $210 and he risks it all on a Sunday 1pm game, which he also wins to bring his balance to just over $400. Feeling lucky, he puts the whole amount on a 4pm game and wins again to get his balance to an incredible $765 (and change) in less than a day. Then, he decides to go for the big win and risks the whole amount again on the Sunday night game, which he loses. Charlie has now lost $110 despite going 3-1. Wagering $110 for each of the four games would have yielded a profit of $190. Remember books have a 50/50 chance of wiping you out when you put all your action on any one game and those odds will catch up with you eventually.

Scenario D - Chasing your losses. David has a bankroll of $1000. He wagers $110 on a game and loses. He is frustrated at losing the money and wants to win it so he wagers $121 (to win $110) on a second game and loses as well. He is now down $231 and is really frustrated. Thinking he can't lose 3 in a row, he wagers $254.10 (to win $231) and loses yet again. He has now lost $485.10 and even a win with his remaining balance of $514.90 won't get him back to even but he puts it all in play on another game hoping to get it close (it would be a win of $468.09). He loses the fourth game and has busted out. Losing streaks will happen to every player every year no matter how good they are and players that chase losses will not last for long.

Many books/sites that discuss money management will tell you to only wager 2-5% of your bankroll on any one play. I cannot say what the magic number is and I certainly do not have any magic formulas for picking winners or telling you how much to bet. However, it is very clear to me after years and years of watching some players win consistently and others lose consistently that these are the four worst traps to avoid. Keep your bets to reasonable, affordable and consistent amounts and your bankroll will last a long time. Even more importantly, if you can pick more than 52.4% winners, you will come out ahead of the book in the long run and that is the only time frame that matters!

Next week I will be back with a detailed look at the first week of the NFL season and the first full two weeks of college football.