Expected Value, Closing Line and Variance

Variance means you will experience both downswings and amazing profits when value betting. Here we explain variance and the importance of thinking long-term.

Profit and closing line value (CLV)

Profit (green) and the closing line value (CLV, in grey). CLV is your expected value, over time.

Expected Value (EV) is a measure of what you can expect to win or lose per bet placed in the long run. Expected value shows no variance because it’s showing the average over time.

We calculate expected value from the closing line.

Closing Line Value (CLV) is based on the sharp bookmakers odds just before match start. We call this the true odds. This is proven to be the best predictor of the outcome of a match.

If you regularly bet on odds higher than the closing line, you will be profitable. This is called beating the closing line. ValueBetting customers beat the closing line over 80% of the time. Detailed explanation of the closing line.

Note that your actual profit will can still sometimes differ a lot from this value. This is because of variance.

Variance measures the difference between your profit and the CLV. (How far a set of numbers are spread out from their average value.)

Profit, ROI and Yield measures your actual results, which depends on the outcome of the matches. Read more about the difference between ROI and Yield.

Flat profit or unit profit is used when comparing users, betting systems or tipsters against each other, without taking bankroll size and betting strategy into account. It’s the profit you would have achieved if you used a flat staking strategy (also called fixed staking). This means betting one “unit” (1% of your bankroll) at each bet. A unit is different for every user, it can be €10 or €100 – since it’s a relative number you can easily compare the results. Note that betting using the Kelly criterion (a proportional staking strategy) will improve your profits compared to flat staking.

To view your ValueBetting profit and CLV, they are shown at the top of the BetTracker, and also in your detailed reports.

Coin toss example

The probability of a coin to land on Heads is 50%. But assume you get the odds 2.10 on Heads and bet €10.

  • If you win you profit €11
  • If you lose you lose €10

To calculate the expected value of the bet you can use this formula:
(profit per bet * probability of winning in decimals) – (loss per bet * probability of losing in decimals).
In this case: (€11 * 0.5) – (€10 * 0.5) = €0.5
Therefore you would expect to make an average profit of €0.5 (or 5%) for each €10 bet, because the odds offered are better than the implied odds of the coin toss.

However, after only one toss you would have either lost €10 or earned €11, not won €0.5. So if you only place 1 bet, the variance will be huge.

Variance will be higher in the beginning

Variance is particularly high when the sample size is small, for instance at the start of your value betting career.

The more bets you place, the variance will have far less effect and your results will over time move closer and align with your expected value. Note that we’re not talking about a few hundred bets, it may require a couple of thousand bets. Read more about statistical significance in sports betting.

The importance of thinking long-term

It’s important to see value betting as a long-term way to profit. The number of bets, as well as using a staking and max bet strategy, play an important role to reduce variance. Here are some tips on how to reduce variance when value betting.

Downswings are unavoidable, but temporary

Downswings can feel disheartening and unfair. But it’s something you will have to handle, because they are unavoidable. But if you don’t give up, you will also overcome them all.

Handle downswings

It’s easy to get stuck focusing on the downswings. This is because we all suffer from loss aversion – the pain of losing is psychologically about twice as powerful as the pleasure of gaining.

  • Take note and celebrate of your upswings – your lucky winning streaks when you’re clearly over expected value.
  • Understand why downswings happen. Let’s take the coin toss example again.

If you toss a coin 1500 times, there is a 52% chance you will get a streak of 10 heads or tails. This means if you place 1500 bets with an average true odds of 2.0 you have to expect 10 losses in a row. Or 10 wins. See this calculator.

You will overcome all downswings

If you’re having a downswing, there’s no need to panic. Your results will over time get closer to the expected value. This is because of two statistical tendencies: the law of large numbers and regression to the mean.

The law of large numbers explains that the average of the results obtained from a large number of trials should be close to the expected value, and will tend to become closer as more trials are performed.

This explains why your results tend to, over time, move closer and align with your expected value.

Regression to the mean is all about how data evens out. It basically states that if a variable is extreme the first time you measure it, it will be closer to the average the next time you measure it.

Large downswings from the expected value (a losing streak) is an extreme outcome and will tend to revert back to EV.

So if you have an expected value of 3%, your actual results will, over time, even out to 3% yield (profit per dollar spent). Once again, have patience and think long-term.

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