It is difficult for sportsbooks and oddsmakers to understand the NFL. Simon Trim, 10star’s launch consultant, writes that along with the headaches and complexity of the NFL comes a promise of great rewards for operators.
As the NFL returns to the US, the weekend following the first Monday of September is a major event for US bookmakers.
Major League Baseball’s regular season is 2,430 games long, while the NFL season is 272 games. The NFL’s impact on profit and turnover is huge.
It’s not just America’s sport either. The NFL is a sport that attracts high fees in the sports betting industry around the world. The NFL games in London over three weekends in October represent a huge source of revenue for UK sportsbooks.
The NFL is the most important event for US sportsbooks in terms of revenue and turnover, but the number of US bookmakers that have been able to translate this revenue into meaningful profits are as rare as a score of 0-0.
The right model for your business
Around the beginning of the season, the US sportsbooks’ marketing-driven business models are in overdrive. The ultimate goal is to increase the share of revenue.
To paraphrase “turnover is vanity, and profit is sanity”, a business model based on costly promotional and bonus campaigns has shown to have little impact on increasing market share or generating returns for shareholders.
Sportsbooks are struggling to find a way to make a significant profit from their high revenue figures, while ensuring that the volatility of the returns is in line with the risk profile of the company.
The process of converting NFL revenue into cash is, in theory, much more difficult than it is for other sports. It is because it’s difficult to produce accurate prices for the entire market.
It is important to have a model which is both logistically sound as well as properly correlated, since team strategy is dependent on such factors as score differential, position in the field, remaining time, and timeouts. It will be able to accurately capture the irregular distributions.
The model framework is complex, and the problem of utilizing the data that drives it is equally as complicated. Close season, for example, is often characterized by rule changes which reduce the effectiveness of the historical data used in developing the algorithms.
The changes to the NFL in this season’s game are unlikely to be as dramatic as in previous years. The changes are also new to both bettors and bookmakers. Recent changes to the National Collegiate Athletics Association show that the market underestimated the impact of the change, and how quickly the teams would adapt.
The customers who were able to iterate quickly took advantage of the overestimation.
It is important that sportsbooks have a fast-paced process for model iteration. Customers will be more likely to “pick them off” if they become aware of the incorrect prices. Trading expertise is crucial in shaping these changes. It helps to understand trends and make positive adjustments before they become significant in a sample of data.
Change the Game
When data samples are small or non-existent, it is possible to extract a valuable signal from the sportsbook risk. This becomes more critical as the NFL approaches.
In real-time, this information is ignored almost universally, despite its benefits for all sportsbooks. Virtually all sportsbooks rely on third-party providers to produce NFL prices, which they “sell” on to their customers. These suppliers do not have the capability to train their models through customer analytics and integrated bet flows.
Expert modelling, specialist trading, and automated risk adjustments are more important for the NFL than any other sport. This is especially true when you consider the potential profit on offer.
Unfortunately, all of these skills are lacking in the current supply chain. Sportsbooks will struggle to improve their hold without a change in the way they operate.
Third-party providers of odds are generally charged as an “add on” to the official data. This lower-cost method of treating odds generation as basic content in order to drive a marketing-driven business model has become a false economy for sportsbooks.
Our belief is that the only way operators can properly monetise NFL is to embed risk into the framework of the model. The feedback loop is rapid and iterative between traders and modelers.
By increasing sales through better prices, you can make the money spent on acquiring customers more efficient.