ROI, or return on investment, is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. ROI measures the amount of return on an investment relative to the investments’ cost. The formula for calculating ROI is:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
In this article, we’ll take a look at ROI as it relates to sports betting.
Why Is ROI Important?
The need to calculate ROI is important when making any significant financial deal. In a non-sports betting example, let’s take a look at the purchase of a house. While purchasing a house will provide you and your family with a place to live, it’s also considered a financial investment since you stand to make or lose money over time. By taking care of your house and purchasing a house in an area with good features in terms of safety and ample public transportation, the value of your house stands to increase in the future. Selling your house for more than the price that you paid for represents your ROI. If you paid $500,000 for your house and sell it for $750,000, your ROI is $250,000 or 50%.
Sports Betting And The Stock Market
ROI is one of the most popular measures of financial performance within the stock market. A stock market investor purchases a specific amount of stock in a company at a specific price while hoping to achieve a specific financial gain. Taking this analogy to sports betting, a sports bettor risks a certain amount of capital (bankroll) by wagering on teams, as opposed to purchasing a financial product. A good performance on the sports bettor’s wagers will lead to profits. However, while many stock market investors may tend to profit over the long-run, this trend isn’t as common when it comes to sports betting. This may be due to the fact that sports bettors tend to place their bets based on factors such as emotions, intuitions, and gut feelings as opposed to research, discipline, and a long-term view of their financial investment.
Calculating ROI For Sports Betting
In this section, we’ll take a look at how to calculate ROI for sports betting. Referring to the ROI formula above, the cost of your investment will be the amount of your bankroll that you’re willing to risk. As a simple example, assume your bankroll is $10,000 – this the amount of your capital that you’re willing to lose and that you’re willing to set aside for sports betting. After a year, if your $10,000 bankroll turns into $12,500, you’ve made a ROI of 25%, which is calculated as:
ROI = ($12,500 – $10,000) / $10,000
Typically, in sports betting, because the house charges something called the vig or juice on every single wager, it’s not enough to win at a 50% clip just to break even. Instead, you’ll need to win at least 52.38% of your wagers simply to break even. If you’re able to win at a rate of 55% on your straight bets (odds of -110 or 1.91), you’ll be able to profit at a ROI of roughly 5%. If you’re able to increase your winning percentage to 60%, you’ll be looking at roughly a 15% ROI. Tracking your ROI will provide you with a clear quantitative measure of how you’re performing.