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LPHASPORTS
Money & Risk Management
Strategies for Optimal Sports Betting Performance
May 2012

Alpha Sports Seattle, WA | Las Vegas, NV

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Alpha Sports Report on Money & Risk Management Many are called, but few are chosen Matthew 22:14 Successful sports betting is no exception to this quote. Few bettors consistently prosper over the long run; its no surprise that sports books generate such significant revenue for their casinos. However, its easy to understand why people are naturally attracted to an opportunity where they can transform a small bankroll into genuine wealth. This human desire for rapid wealth has been seen throughout history from explorers to miners during the gold rush. Today, it is the traders, entrepreneurs and bettors who share this natural desire. Its important to realize though, that just like investing or launching a startup, one really can create sustainable wealth through wagering on sports. The caveat is simple; it requires discipline, consistency and a thoroughly researched system to win. Alpha Sports provides the researched, back-tested and profitable system. You, our client, must provide the discipline and consistency. Success requires one to have the discipline and consistency to win. Discipline is needed to only bet the proper amount on each wager and for the day, as a whole, every time. It also requires one to take every signal, every time, even if you might disagree with that particular bet. The consistency is even more important. History is littered with people that lost money even though their betting system may have been decent. They lost because they werent consistent and they didnt have the wherewithal to stay with the system during a routine losing period. Successful bettors realize that excellent systems have losing periods; nobody can win every game or every week. The bettors that have made millions know there will be losing weeks and losing days, but they stick with it. They know their systems will get them out and on to future wins. Most of the inconsistent bettors that have lost through the years jumped ship after a series of losses, missing the subsequent run up. Then they became disheartened and quit, or they got back in just in time for another losing streak, compounding their losses. This phenomenon is common and easily explainable by human emotions: greed and fear. They get scared during a losing period and quite or they get greedy after a winning period and bet too much. Operating a winning system with discipline and consistency removes the excitement and the allure of the unknown from the equation. Our clients know each and every time what the wagers will be and how much to bet, there is no guessing. To some, this is boring-but it is also very lucrative. Billy Walters is one of the most well known and successful sports bettors alive. Do you think he gets a rush of adrenaline every time he calls in a wager? Or, does he instead operate his system in a calm and methodical manner, treating it as just another source of cash flow? Long-term success requires treating your betting as a business; operate cautiously, with a plan and with purpose.

Bet Sizing Bet sizing (aka money management), is the single most important component to any betting system or methodology. This vital component directs a bettor on how much to bet, directing how quickly money is made or lost. There are six main bet sizing strategies: fixed, fixed fractional, martingale, anti-martingale, progress on loss (POL) and progress on win (POW). Below is a brief explanation of each: Fixed Bet Sizing: In a fixed bet sizing strategy, a bettor will use a standardized amount per wager, such as $100. This bet size of $100 is never adjusted or changed regardless of any losing or winning streak. Using a fixed bet size is the simplest method of determining the size of a bet and it is also the least sophisticated. Bettors that use this method will accelerate losses during a losing streak (draw down) and negatively accelerate their bankroll

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during any winning streak. The reason for these two negative aspects is simple: as a draw down continues, a fixed bet size becomes a larger and larger percentage of the total bankroll which makes subsequent losses even larger and more damaging than previous ones and during a winning streak, the bet size becomes a smaller and smaller percentage of the bankroll which dampens the positive impact of any winning period.

Fixed Fractional: Fixed Fractional bet sizing is a very common method for sports bettors. This strategy requires the bettor to decide on a fixed percentage of their bankroll for which to allocate to each bet. By utilizing a percentage their exposure remains proportional to their total bankroll as they win or lose. Common fixed fraction amounts are in the low single digits (1-3%). Martingale: The Martingale strategy is one of the favorite and most well known betting strategies among casino and sports book participants. A bettor begins with a single unit and double their bet after each loss. After any win, they return to betting a single unit. The appeal of the Martingale strategy is simple; due to the fact that the bettor has doubled up after each loss, after only a single win they will win back all of their losses. There is a major downside to this betting strategy, the bet size increases geometrically during any string of losses, and one can be bankrupt before being pulled out of a draw down from a single winning bet. Casinos have easily rendered this strategy useless by simply preventing bettors with a large bankroll from betting too much, via table and game limits. Anti-Martingale: A bettor can also utilize a betting strategy that is the complete opposite of the Martingale strategy, logically named the Anti-Martingale strategy. Again, its simple to implement: the bettor begins with one betting unit and doubles their bet after each win but returns to one betting unit after each loss. Utilizing an AntiMartingale strategy is less risky than using the original Martingale strategy. This is because the increased bet size is generated from the winnings from previous winning bets; it also doesnt eat into original principal as quickly during a losing streak. The downside is easy to see though; a bettors largest bets will be on the inevitable losing game after a winning streak ends. Progress on Loss (POL): Progress-on-Win and Progress-on-Loss strategies are similar to the Martingale and Anti-Martingale betting strategies, but are less extreme. Their results tend to be more gradual as the bet size adjusts arithmetically instead of geometrically. Similarly to the Martingale betting strategy, the Progress-on-Loss strategy systematically adjusts the bet size after a win or loss. In this strategy, a bettor begins with a multi-unit bet size and increases their bet size by one unit after a loss and decreases it by one unit after a win. Progress on Win (POW): Progress-on-Win is the opposite of the Progress-on-Loss strategy. A bettor begins with several betting units and increasing their bet size by one unit after a win and decreases their bet size by one unit after a loss. Again, the results are similar to an Anti-Martingale strategy but with less volatile results. The Fixed fractional bet sizing method proves to be one of, if not the most desirable technique available to bettors. Fortunately, it is also one of the simplest to use. From the beginning, a bettor can decide the

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percentage risk that is right for them and continue using proportional exposure as their account grows or contracts. Obviously, the larger percentage one uses per bet on a profitable system, the faster one will generate returns. However, this must be viewed in the context of the size of draw-downs. Below are charts showing a solid system for the 2011 NHL season utilizing 1%, 2%, 4% and 8% bet sizes. It averages two bets per day, approximately 58% wins and an average winning line of -110. On average, this system has a 10% edge (expectancy).

1% Bet Sizing Return = +61% Max DD = -18% MAR = 3.50

2% Bet Sizing Return = +143% Max DD = -32%

MAR = 4.40

4% Bet Sizing Return = +348% Max DD = -56% MAR = 6.23

8% Bet Sizing Return = +556% Max DD = -83%

MAR = 6.71

A convenient and simple way to measure both a systems performance and different bet sizing strategies is through the use of the MAR ratio. The MAR ratio is the annual rate of return divided by the maximum drawdown. For example, a system that returns +50% and has a maximum drawdown of -10% has a MAR ratio of 5 (50/10=5). In simplest terms, the higher the MAR ratio, the better the system. For simplicity, we use a modified Mar ratio, using the total season return in place of a long-term average annual rate of return. Above, the MAR ratios are provided for each bet size example. The larger the bet size, the larger the returns and the larger the draw-downs. Even if one can stomach massive draw-downs in favor of the higher rate of return, the efficiency slips (as measured by MAR) and for this system, the optimal bet size with tolerable draw downs is about 3.7%. Few people can stomach an 80% loss of their bankroll, this fact eliminates the use of high bet size systems. Advanced Technique Here at Alpha Sports, we are big advocates of an advanced portfolio management technique that helps performance as well as a bettors ability to follow a system during a losing streak. It involves reducing the bet

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size based on the size of the drawdown. Ultimately, this technique ensures that you are betting the smallest at the lowest point in your systems performance. Here is how it works; when the betting bankroll drops by 10%, reduce new position sizes by 20% and if the bankroll drops by 15%, reduce new bet sizes by 30%. You should cut down your bet size at a faster rate than your portfolio declines during a losing streak. This means if one uses a fixed fractional bet size at 2% and 10% drawdown occurs, every new bet will now be 1.6% (2% * .8) until you get to a new performance high, when the bet size reverts back to the standard 2%. If the bankroll drops 15%, begin betting 1.4% (2% * .7) until the bankroll is only down 10%, then begin betting 1.6% until a new high in performance, at which time betting returns to the full 2%. This advanced strategy ensures that as performance drops, your exposure becomes smaller and smaller and that a full position size (2%) is mostly used when the system is performing at its peak and making new highs. Below is a table showing how to systematically reduce bet size during a drawdown.

Bankroll Draw Down % 0% 5% 10% 15% 20% 25%

Bet Size Reduction % 0% 10% 20% 30% 40% 50%

Bet Size 1% 1% 0.90% 0.80% 0.70% 0.60% 0.50% 2% 2% 1.80% 1.60% 1.40% 1.20% 1.00% 3% 3% 2.70% 2.40% 2.10% 1.80% 1.50% 4% 4% 3.60% 3.20% 2.80% 2.40% 2.00%

Using multiple Uncorrelated Systems Just like with investing, it pays in sports betting to be diversified. If you have the ability, best results should be experienced by betting on multiple sports at a time and even using a couple different systems for each sport. Operating a single betting system on one individual sport will ensure that you experience any losing streaks inherent in that system. By adding more systems or more sports, the odds increase that one will have a losing streak while the others dont, decreasing the volatility of your results. In this case, your portfolio will either experience a less severe losing streak or even generate small gains. Basically, when one system zigs the other should zag, resulting in smoother overall results.

Total Return = +162% Max DD = -32.75% MAR = 4.94

Total Return = +188.43% Max DD = -60.01% MAR = 3.14

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Total Return = +175.26% Max DD = -19.48% MAR = 9.00

Above are two sample betting systems on the 2011 NHL season. Each system has approximately 58.7% winners and 41.3% losers with an average line of -110. Each system has an approximate positive expectancy of 12.06% ((58.7% * .909) 41.3%). Each system has distinct losing periods lasting about a week. Each system is solid and profitable, but improvement is possible by operating both systems simultaneously. The result is evident in the third chart A+B. As you can see, overall performance improves dramatically through the combination of two separate systems. The gains are roughly an average of system A and system B, but the maximum drawdown is 30% less than system As and a massive 66% less than system Bs largest draw down. The MAR ratio highlights the improvement most dramatically, boosting to 9.00 from As 4.94 and Bs 3.14. The gift of diversification is important and not something a bettor should ignore. One can create uncorrelated equity curves by either creating completely different systems or by betting the same system on different sports. The performance of a system used on NHL is going to win and lose and a different rate than the same system used simultaneously during the NFL season. There is no logical reason why the San Francisco 49ers will be driven to win or lose by the same factors that cause the Dallas Stars to win or lose. If betting on different sports is too much work, then one must develop different systems for the same sport. This means each system must use different parameters and different data entirely. For example, one could create a system based on home field advantage, weather and coaching while simultaneously using a system based on field goals, QB rating and turnovers. It is difficult to create even one profitable sports betting system and creating two is that much more difficult, but it can be done. Caution: Do not think that a side system (picking a games outright winner) and a totals system (over/under) which utilize the same data will be uncorrelated. Although side systems and over/under systems are different, by using the same data they will tend to experience winning and losing streaks similarly.

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