Everyone who invests in stocks, bets on sports, plays Fantasy or whatever, has to deal with one crucial thing: measuring the process, or return on investment. No matter what you invest in, you spend time and money, and your goal is to get a profitable performance in the long run. In the sports betting community, e.g., Gambling Twitter or betting forums, sports bettors mostly measure success. That’s the first step. Bettors generally measure success by win/loss records and the resulting winning percentage. Some more add the number of units they won or lost. Those can be good indicators of how good or bad someone is betting. But those are also absolute numbers and can be misleading. A high win percentage over 60% or “+600 units this year” don’t necessarily mean a lot without context. You also cannot compare two different handicappers by those numbers.
The problem with “units”
Winning percentage and units won/lost don’t tell you anything about efficiency. In this context, efficiency means the profit relative to what you are investing in. It depends on how many bets you make, what prices you play on and how much you spend per bet. You might have a high winning percentage when betting big MLB favorites, but you could still end up on the losing side despite hitting 60% or more. Someone who risks 5,000 units per season and is up 500 units, achieves the same return relative to the risk as someone who risks 500 units and is up 50. It just depends on how much you are investing and what the odds are. Here is a table about winning percentages required to break even depending on the average odds:
When you play only spreads (NFL, e.g.) and your average odds are -110, you need to win 52.38% of the time to break even. That means your record over 100 games needs to be 53-47 to generate a profit. Someone who bets on an average of -120, will create a loss off a 53-47 record. Applying one unit per play, the -110 guy ends up with +1.3 units whereas the -120 guy ends up with -3.4 units. That’s a difference of 4.7 units just because the average line is ten cents lower. That also shows you how essential odds/price management is when it comes to sports betting. It even doesn’t matter whether one guy bets ten units per game or just one. The profit relative to the risk is the same.
An easy solution for everyone
What is the solution? Calculating Return on Risk (RoR). It measures the efficiency of your betting process. You divide your profit by the amount you have risked:
Return on Risk = profit / total risk
By measuring Return on Risk, or Return on Investment, you can effectively measure the efficiency of your betting process. RoR is independent of the number of units risked, the winning percentage and the average odds. Profit and total risk already process the average odds, so that the result is just the profit relative to what you are risking. Coming back to the examples above, the -110 guy achieves an RoR of +1.18% (1.3 / 110), the -120 guy ends up with an RoR of -2.83% (-3.4 / 120). Both have the same winning percentage, but the results are different just because one guy had lower odds on average.
Winning percentage and units won/lost are fine, but they are success-based and not efficiency-based. I don’t condemn anyone who quotes winning percentage and units – I do it myself. It looks good for advertising purposes, it gives you a good feeling, and most of the people are familiar with winning percentage and units. But in the end, both are just a measurement system for tracking success. Adding Return on Risk gives everyone a clue about true efficiency.