The Fallacy of Russia's World Cup Pricing
We're heading into World Cup season, and before the world turns it's attention to the betting markets, it's worth looking into what value can be found. We'll shortly launch our 2018 World Cup portal on Stats Insider, which will include an interactive tournament simulator, match-by-match predictions and a predicted ladder including predicted probabilities for both the groups and the knockout stage.
While we've been testing it though, we've noticed one price that doesn't make a lot of sense. And that's the price of the hosts, Russia.
Let's take a look at the odds offered by our good friends at TAB (as of 22 May):
These prices are pretty universal, with other bookmakers offering +/- 20 cents on each.
Allowing for the overround (bookmakers juice) on the markets, we can thus estimate the following probabilities:
To qualify from Group: $1.33 = 1 / 1.33 = 75.2%
To reach the Quarter Finals: $2.50 = 1/ 2.50 = 40%
Given the only difference between the two prices is winning the second round match, we can conclude that - if the market were driven on projected outcomes - TAB's estimated probability for Russia winning whatever 2nd round match they play is 40%/75.2% = 53.2%.
Russia's path to the Quarter Finals
The problem with that is who they play in the second round:
We actually more or less agree with the bookmakers on Russia's price to get out of the group stage. We make them $1.31, which reflected value against the $1.50 on offer a couple of weeks ago but not so much anymore. However, whether they win or come 2nd in their group, they're likely to come up against Spain or Portugal. When they come second in the group (33%), they play Spain or Portugal 89% of the time, and when they come first (43%) they still play Spain or Portugal 72% of the time, so overall they play one of those teams in 79.4% of second rounds.
The Bet, and Bet Again Approach
An alternative to betting Russia to reach the QF would be to bet them to qualify from the group, and then to place the full return on them in their second-round match. By our estimates, they would be $5.37 vs Spain, $3.58 vs Portugal, and $1.77 vs either Morocco or Iran (their other potential opponents). If we used this strategy, your net return assuming $1.31 to qualify from the group would be $7.04 on Spain, $5.46 on Portugal and $2.31 on Morocco or Iran.
If we combine those with the probabilities above, then 79.4% of the time you'd get an average price of around $6.25 (combined Portugal/Spain probabilities), and 20.6% of the time you'd get an average price of $2.31 (combined Iran/Morocco probabilities), for a true combined price of $5.44. That is, we think Russia's chance of reaching the quarter-finals should be closer to 18% than 40%.
There are three ways to capitalise on this. Firstly, if you can get $1.37 or better on Russia to qualify from Group A, that has some value. Secondly, if you can lay $3 or less on an exchange for Russia to make the Quarter Finals, that's also a decent bet (and the two combined would be a great portfolio!).
Thirdly, with the mis-pricings, somebody has to be value in the 'to reach the quarter-finals' market, and they are. But, we'll save that for the next article (hint: look north)...