Jun 28, 2022
Jun 28, 2022

Risk-Free Bet Strategies for New Bettors

How to convert a risk-free bet?

Optimal hedging betting strategy

Betting strategies compared

Betting stats

Risk-Free Bet Strategies for New Bettors

When recreational sportsbooks offer you risk-free bets, how do you best profit from them? Should you simply maximise your expected value? Read on to find out.

Many recreational sportsbooks offer new customer promotions that work like this: they offer you a “risk-free” bet of some large amount, such as $500, but in the fine print they tell you that the way they free you from risk is by issuing you a “free bet” equal to the amount you staked if your initial bet loses.

If you get the free bet, then you’re entitled to the winnings if you win, but they don’t give you back the face value of the free bet. They keep that part. So much for being truly “risk-free.” Still, your risk is greatly reduced, and they really are giving away free money. The trick is to figure out how to get the most free money out of the deal.

Maximising Expected Value: Is it worth the risk?

You may be tempted to think that the best way to maximise your free money is to maximise your expected value (EV). I mean, isn’t the definition of EV “the value of a gamble weighted over the probability of each possible outcome”? The strategy that maximises your EV is to bet on a longshot that will lose most of the time since if you win your initial bet, you get no value from the promotion.

Your EV may be the highest when you bet on extreme longshots (to have the greatest chance of getting the promotional free bet), but it comes at a cost. You’ll have to withstand a much larger risk to get it. For example, if you bet $500 on a longshot at odds of 4.600, then you’ll typically win about 20% of the time, but you get that big free bet if you don’t. If you place the free bet on a similar line, then you still have a chance to net $1,300.

This same strategy will roughly maximise the EV of your free bet because even if you win you don’t get your principal back and only get to keep the winnings. But just like with the risk-free bet, you risk losing quite often since about two-thirds of the time, you’ll lose both bets and your $500 along with them.

So maybe your best play is to bet on a big favourite, since you’re much more likely to win some money that way, even if it’s not as much. If you’re just starting out and your bankroll is pretty small, say $1,000, then this may seem like the right strategy to make sure you’ll only lose half of your hard-earned bankroll a very small percentage of the time. For example, if you bet on the favourite at odds of 1.500, then you will win $250 on your $500 risk-free bet about 63% of the time.

If you lose and get the free bet, then you have another 63% chance to win half your money back on another bet at odds of 1.500. You only lose your initial $500 about one time in eight. But, since the real value in these promotions comes from getting the free bet when you lose, you’re passing up a lot of value with that strategy.

Optimal Hedging: The Ideal Strategy

Is there any strategy that can meet in the middle between getting the most EV and enduring the least risk? Yes, there is, and it’s called optimal hedging. Hedging, of course, means betting on both sides of a market in order to partly or fully lock in a certain return. Usually, that comes at a cost in the form of the margin you have to pay when betting on odds that should be longer (if they truly reflected the chance of your side winning).

If Team A goes off at 4.600 to win, and the sportsbook applies a typical five per cent margin, then the odds on Team B would be about 1.204. The fair line would be somewhere in the middle (you can more accurately estimate it if you use my method shown in this article on the Favourite-Longshot Bias), so if you hedge at 1.204 you’re definitely not going to maximise the EV. If you make your hedge at a sharp sportsbook like Pinnacle, they could offer a price of 1.238 instead because of their lower margin. Even then, you have to give back a little of the EV that you gain by playing it straight.

On the other hand, if your goal is truly to maximise your profits, then you will need to consider how much you are willing to risk too. To do that, we must set aside the simple EV calculation and use my Theoretical Kelly Optimization (TKO) analysis method to find the optimal strategy – the one that maximises your percentage of expected growth (EG) for your bankroll. This optimal strategy is the goal of the Kelly Criterion, but since that well-known formula only applies to independent bets, you have to use more complex math when analysing situations like this when you bet on both sides of a market. So how do you take this +EV opportunity and use it to optimise your EG? That is what we will figure out here.

Below is a table of how much you can win or lose with each of our three different strategies, along with the percentage of the time you’ll win your initial bet, lose it and then win your free bet, or end up losing both of them. The last column shows the average amount of money you’ll win, which is your EV. Clearly, betting on the 1.500 favourites both times returns the worst EV (a paltry $34 on average), but it will have much less variance than betting on longshots.

You get the most EV ($271) by betting on the longshots without hedging, but you only give up about $45 in value by hedging – and only $17 if you make your hedge on Pinnacle. How would you even go about that? You’d put your remaining $500 into Pinnacle and bet it on Team B, and then if Team B wins, you’d use that whole payout to hedge against another 4.600 underdog when you use your free bet. That way, even though you lose money 63% of the time, you only lose $233 instead of $500 if you can get a line as good as Pinnacles. Does that really make a big difference? If you only have $1,000 to start out, then the difference is actually huge.

Risk-Free Bet Odds

Free Bet Odds

%

Win

Win in $

% Lose/Win

Win in $

% Lose/Lose

Win in $

EV

1.500

1.500

63.5%

$250

23.2%

-$250

13.3%

-$500

$34

4.600

4.600

20.7%

$1800

16.4%

$1300

62.9%

-$500

$271

4.600/hedge

4.600/hedge

20.7%

$1300

16.4%

$800

62.9%

-$275

$227

Pinnacle hedge

Pinnacle hedge

20.7%

$1300

16.4%

$800

62.9%

-$233

$254

Testing risk-free betting strategies

How can we tell which strategy will produce the biggest median bankroll in the long run? Well, if the sportsbooks would let us hit the same promotion over and over again instead of just once, then we could bet with each strategy many times (or run a Monte Carlo simulation of bets) and see which produces the biggest profit.

You get the most EV ($271) by betting on the longshots without hedging

So, I ran a simulation just like that but with one difference. Since the initial bet represents half of your bankroll, all you’d have to do is lose that much for each of the first two trials and you’d be broke. And I’m sure none of you would be foolish enough to do that. But, if we change the rules of the promotion to be that you can bet 50% of your current bankroll, regardless of how big or small it is, then you never really go broke and can always make a comeback if a certain strategy really is the best.

I ran the simulation many times, and here’s a graph of one of the runs for the first 100 trials. The Y-axis is shown on a logarithmic scale, meaning each line is 10 times higher than the one below it, because otherwise, you’d never see the lines for the 1.500/1.500 and 4.600/4.600 strategies. By betting on the favourites each time, you’d turn your $1,000 bankroll into about $4,000 and never dip into the loss column. Not bad! But this run is lucky for those employing that strategy because in truth, the benefit of each bet is so small that it has -EG.

By betting on the longshots without hedging, your bankroll bounces around like a ball during a Steph Curry dribbling drill and you end up with less than $10. Over-betting your huge edge has caused you to go practically broke. You could simply bet less in this situation to reduce your risk of ruin, but that will ruin your EV since you only get that theoretical $271 if you bet $500 upfront. On the other hand, with the exact same outcomes for each game, if you give up a little EV each time by hedging on Pinnacle, then you lose much less during each downswing and end up making a tidy profit by the end. And by tidy, I mean over $100 million.

Graph-Risk-Free.jpg

With a bankroll of $10,000, betting on the 4.600 lines both times without hedging will get you essentially the maximum amount of EG that you can from this position (i.e., 2.25% of your entire bankroll). This makes a lot of sense if you think about it the right way. That’s because, with a bankroll that large, you’re only betting 5% of it in a position with a huge mathematical edge. In that case, the risk to your riches is small enough to take full advantage of the greater +EV you can get without hedging.

Still, if you can get a price of 1.238 on Pinnacle for your hedge, then you can get the same EG as you get without hedging by using the following strategy. Stake $1,575 on the favourite at Pinnacle, and if that bet wins (meaning you’re awarded a $500 free bet from the other site), then stake $1,450 as a hedge at odds of 1.238 against your free bet.

With Pinnacle’s high limits and policy of welcoming all bettors, you should have no trouble getting those bets down in most markets. With this play, it works out that you’ll profit about $225 (or 2.25% of your bankroll) however the games turn out, allowing you to realise all that EV with no sweat. When your bankroll is this size, then the best play is truly up to your personal preference.

Read more insightful articles from Dan Abrams. Check out our latest odds and sign up with Pinnacle!

Betting Resources - Empowering your betting

Pinnacle’s Betting Resources is one of the most comprehensive collections of expert betting advice anywhere online. Catering to all experience levels our aim is simply to empower bettors to become more knowledgeable.