In recent years, sports bettors have been given the option of Cashing Out their bets in the middle of a game. This has grown to be a very lucrative revenue source for bookmakers. In this article we will explain:
Cashing out in Sports Betting is something that is considered to be the safe option, a middle-way between partially winning the bet and risking to lose it all. This option makes sure that the bettor can receive payment at any given point in time during the game, as the bettor withdraws from the bet when in the lead.
Let us say that we have a soccer match between “Team A” and “Team B”. If you bet $100 on Team A, with decimal odds of 3.20, your full payment from the bet would be $320.
If Team A is ahead at half-time, but not in impressive fashion, you have the opportunity to cash out, and immediately receive a portion of the full payment. This will cancel the rest of the bet, and you might only receive $160 instead of $320.
This is due to the elimination of risk throughout the second-half, where Team A might not be able to keep their lead till the very end of the game.
The formula behind Cashing Out is compiled from real-time odds and the full payment of your current bet.
In the example previously stated, the Cash Out option at half-time was at $160 instead of $320. The Cash Out option is obviously lower than the full amount, but if we look closer, it is actually lower than what the correct, or “fair” amount is as well.
The fair amount of a Cash Out option is found by the following formula;
Full payment of bet / Real-time odds
If we use the formula on the example given, we have;
$320 / 1.60 = $200
This means that by Cashing Out during half-time, you would lose $40 compared to what the real and fair value of the bet is at this point in time.
This is more than likely to be the case in any given game, as the bookmakers are looking to take advantage of every opportunity to make money of the bets, or in this case make sure that they do not lose additional money from the bet.
The bookmakers are likely to have a margin on the odds, and have a margin on the offered opportunity of the Cash Out as well. This is largely why the Cash Out is an option that will harm your profitability in the long run, and should not be included in your betting strategy.
But, are there situations in which the Cash Out option is an attractive option?The short answer is: Yes (see examples below).
In some rare cases, the Cash Out option will have a higher value than what the odds from other bookmakers are. This is an indication that the offered Cash Out option is listed at a value above what the actual fair price is, and is definitely a favourable option for the bettor to take.
As previously mentioned, the long-term strategy of a bettor should be to maximise profits through seeing out all bets to the very end. Despite this being the case in most situations, acting rationally should also play a part in your betting strategy. This means that you should be observant of your bets as they are happening, and always look for the best options for yourself.
Cashing Out might be relevant when discussing bets that are of very high sums of money or if a bet with very high odds has almost been fulfilled. In these situations, the bettor can choose to act in a rational way and Cash Out with the guaranteed payment.
For example, a bet on a team considered to be on the lower side of the table to win the league, with a $2,000 stake and 200.00 in odds is nearing the end of the season. However, their competition has improved their play lately and is very close to re-gaining the lead.
In this situation, the sensible thing to do might be to Cash Out, and receive some payment as a guarantee, rather than risking being left with nothing.
The full payment of the bet would have been $400,000, and the Cash Out option might be $205,000. The fair price however, would be the full payment / the real-time odds of 1.80.
This would have given a correct value of $222,222. In this scenario, it might be wise to explore the option of Cashing Out, even though you might feel like it is a loss. So if you find yourself with a big bet on Leicester to win the Premier League again at 200 in odds and they are in the lead with 3 points and 3 games to go. You should consider cashing out the bet. (Really you should not place these bets in the first place, as they have sky high variance. In addition the bookies take very high margins on futures markets, which diminishes the value to be had).
When operating with bets that are connected to a long timeframe, the opportunity costs will increase. The opposite is the case for bets connected to a shorter time frame, as the opportunity costs will decrease.
Therefore, to lower the opportunity costs, it might be useful to Cash Out on some of the bets with the longest time frames, if the right opportunity presents itself.
There is, however, an alternative to Cashing Out;
Hedging a bet will contribute to a reduced level of risk, but will also decrease the return on your investment. This alternative to Cashing Out will also put the bettor at greater risk of having your bet voided. However, if you place the hedge side of your bet at a sharp bookie or betting exchange you should be fine in 99.9% of the cases.
Hedging, in short, means to exploit the differences and changes in odds between the different bookmakers, to create a guaranteed profit from a certain game. This is a rarity, and does not happen a lot, but there are certain situations in which this can happen (see great example from an article we wrote on How to Hedge Your Sports Bets here.
If Team A has very high odds long before kickoff, and this suddenly changes into Team B´s favour, it would potentially be possible to exploit this. As long as the profit from the bets on each side covers the risk on the other, the total profit from the bet will be guaranteed. Typically you will get better odds on hedging the bet than you will on cashing out. So it is the recommended option of the two.
In addition to losing on the margins the bookmakers take from the bets and from the offered Cash Outs, the Expected Value of the bet will decrease compared to seeing out the bet. Read more on Expected Value here. The bettor also runs the risk of getting limited or even banned from certain bookmakers.
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