Betting Topic: MLB Closing Line Value
The efficient market theory states that asset prices fully reflect all available information. Sportsbooks set lines based on their probability of the outcome of the game and sports bettors biases (to balance exposure and profit), subsequently the market equalizes through betting action, creating Closing Line Value (“CLV”) in the prices of the games.
Closing Line Value
Linemakers open the next day’s MLB slate the day before and bettors can start making their initial wagers. The sportsbooks limit this early action and adjust their odds in an attempt to minimize downside exposure. If you are on the same side as the line move from the price you got in at to the closing price , then positive closing line value (CLV) was achieved. For example, if the book opens the Texas Rangers at -110 (52.4% implied odds) and closes the Rangers odds at -150 (60.0% implied odds), and you bet on them at -110, then the movement of 7.6% equates to 14.5% of CLV off your initial -110 wager.
CLV lowers the win rate a handicapper needs to achieve to be profitable. Let's take an extreme example that you were able to identify all 14,000+ games correctly from 2011 to 2016 and got each opening number that was superior to the closing number. You would have averaged a profit of +113 units per year. This is in contrast to the average -23 units you would have lost betting into the closing side of the number. Since 2011, over 63% of MLB games moved over 1% (from open to close) and getting positive CLV on wagers is a boost to any handicapper's success.
How Much Do Lines Move?
In general MLB games will move 2-3% per game (depending on where the odds open, roughly ~5-15 cents) and can move as much as 15%-20% from open to close. The delta has been trending up as books have adjusted more to the market moves. Numerous factors change the pricing of a game, including lineup swaps, injuries, weather forecasts or large positions taken from respected betting groups. Predicting where a line moves is as difficult as predicting the game itself (as the odds of a game generally move towards the true intrinsic odds).
Line movement is generally a signal of market efficiency and game odds shift to become more properly priced. Relating it to the stock market, if you bought Apple stock (AAPL) at $20 and now it is at $100, new information has entered the market and caused the repricing of the equity. This does NOT mean that AAPL will continue to rise and as an investor you now evaluate if it will continue to be a good investment at the current price of $100. Getting CLV does NOT mean that your betting ticket will cash, your betting ticket has simply moved into a more favorable position. Just like you can sell AAPL stock, you can scalp a favorable bet ticket by buying the opposite side of the game.
Chasing Large Line Movement (Steam)
Looking back at the past five MLB seasons, if you were on the same side as every positive line move but bet the closing line, you would have been down 4 out of those 5 seasons. Being on the same side as the line movement will NOT
Even tailing the big betting moves (movement of 5% or greater) yielded negative results for the past 5+ years, if you got the closing number instead of the opening number.
Benefits of Closing Line Value
The saying goes "Well Bought is Half Sold" and this concept applies to widget inventories, stocks, or sports tickets. Getting the best of the number is one of the keys to being a successful long-term sports investor. The closing line is a more predictive indicator than the opening line and you are getting more value than you would have vs. the worse closing number. If you consistently get line value in every bet you make, you will have a lower hurdle needed to beat the sportsbooks vs. their closing lines.
Take two MLB bettors: Bettor A hits 52% of his bets against the closing line at average odds of -105 flat betting $100 a game for 300 games. Bettor B bets the EXACT same games, but because he is tailing his friend at a later time, he gets in bets at average price of -115 on each of the 300 games. Even though they will have bet the same games, Bettor A will be up +$480 on the season and Bettor B will have lost -$960. The more CLV you get, the cheaper the price you pay for faves and the bigger payout you get for dogs.
Hope you all enjoyed this post. Looking to inform the sports betting community on topics that I find interesting. Let me know if there are any subjects you all want to discuss.
(1) Levitt, "Why are gambling markets organised so differently than financial markets?"