What’s a fair bet? To me, a fair bet is one is which the payoff accounts for the odds of the outcome. Say I’m flipping a coin with you. Each of us puts a dollar on the table. If it comes up heads I get both bucks. If it comes up tails then you get ’em. That’s fair. The outcome—heads or tails—is a fifty-fifty chance. My risk (one dollar) is equal to my reward (one dollar).

Casinos don’t work that way, of course. If they paid “true odds” they’d go out of business. A casino has a lot of overhead so they have to get a cut of all the transactions (the bets) in order to keep the lights on. Take roulette, for example. There are 38 numbers on the table (1-36 plus 0 and 00). If I bet on “red” I’m betting on 18 of those 38 numbers. The odds of getting red are 18/38 or about 47%. That means the house wins 53% of the time.

The house pays 2-to-1 on a red bet. But I have 38/18 chance (53%) of losing that bet! That is, I have about 2.11-to-1 odds against me (38÷18 ≈ 2.11) but I only get 2-to-1 if I win. So the house makes a little bit (0.11) on every bet.

“The house always wins.” This is a truism. All gamblers know this. Yet they continue to gamble. And interestingly, gambling is becoming more and more acceptable as a form of recreation. Once confined to Nevada and New Jersey legal gambling now exists in thirty states due to the emergence of tribal casinos. Not only that, on-line betting has exploded and America’s professional sports organizations have endorsed and embraced fans betting on games. This was unthinkable only a few years ago.

I have to say that this new-found, relaxed attitude about gambling is a bad thing. People are going to be stupid and throw away money that should be used to feed and clothe their children. And the sports industry, already engorged with TV and merchandising money, will only grow fatter and uglier, and the juvenile, anti-social attitudes it celebrates will only become more normalized. That being said, regulating behavior like gambling by making it illegal certainly does not stop people from throwing away their money (and their lives). I can live with gambling being legal. What I don’t like is making gambling seem like harmless fun. It’s not. It’s a gigantic money pit that people throw themselves into and then get chewed up and spit out, much worse for wear than if they hadn’t.

I’m obviously not talking about a Super Bowl pool. Or a handshake bet on a ballgame in a bar. I’m talking about apps on your phone that allow you to monetize every sports opinion your feeble brain can hold. It’s too easy, and there’s too much money involved, and when those two conditions are met bad shit will follow.

The problem with professional gambling houses is that they don’t play fair. I gave you an example of how the house wins on every bet in roulette even if they have to pay out. OK, fine, they have to make a living. As long as the odds and payouts are transparent the gambler can at least see what’s coming. If a gambler gets really lucky and the house starts paying out big money, the pit bosses make every effort to stop the run. They change the dealers, for example, and try to “break the momentum” of the win streak while they ply the players with free drinks delivered by pretty girls, anything to throw them off their game. All of that is perfectly legal. They have betting rules like pot limits, too. In the end, houses can simply close the tables if bettors win too much. A casino can just stop doing business if they see a winning run they don’t like. It’s bad for business and your reputation to do that but going out of business is worse.

Sports betting oddsmakers are really good at what they do. They “pick ’em” with winning regularity. If the big books agree on a result it is almost always a good bet to play the favorite. The average individual bettor really doesn’t have access to better or timelier information and thus cannot come to a consensus about the odds on a game. The pros can do this and so the part-time player, amateur, or wannabe-pro has no chance. They will lose more often than win over the long run if they bet against the odds.

I came across a paper by Lisandro Kaunitz, Shenjun Zhong, and Javier Kreiner titled Beating the bookies with their own numbers—and how the online sports betting market is rigged. (I was directed there by Tyler Cowen’s blog.) These three people figured that most bets were priced correctly. But they also figured that meant some small but significant number of bets were not priced correctly. These bets inadvertently favored the bettor. In order to attract betting on an underdog oddsmakers give enticing payout possibilities. They “sweeten the deal” for the riskier bets. And oddsmakers have to hedge, too. So they have mispriced bets out there to move money around and balance their risks. The writers of the paper figured out how to identify these opportunities. When they tried out their model with hypothetical bets they were successful and made money. They switched to real money and starting winning consistently.

Then the other shoe dropped. The on-line betting places simply starting restricting them from betting. The bookmakers placed limits on the bet amounts and what contests could be bet on, ultimately rendering the strategy impossible to implement. The authors describe it as “discrimination against successful clients.” That’s certainly true. The game is rigged.

The paper concludes:

If we are going to allow and even encourage betting then we should certainly require the industry to “play fair.” The SEC regulates much of the securities market. When I buy a stock or an ETF I have access to all kinds of information about the investments, the costs, and the nature of the risks. This is required by law. Investing is gambling and amateurs get hosed all the time by the big boys but at least there is some oversight by the authorities and some remedies available to the retail customer. Not so with sports betting.

In the end, gambling is stupid. Leave it to the pros. Have fun at work with lottery pools and NCAA bracket-ology. Slap a twenty on the bar now and then to spice up a TV contest and when you win buy the loser a beer. Like I said, have fun. But stay away from the betting apps. Serious betting isn’t fun—that’s why they call it serious.

And if you think of yourself as a serious bettor, then I suggest you read Kaunitz, Zhong, and Kreiner’s paper. And if you can’t do the relatively straightforward math they discuss then change to another field or go back to school because that’s way better than getting schooled!