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Calculating ROI

How to calculate Return on Investment in Sports Picks
 

This article addresses the Return on Investment (ROI) a player can expect at various winning percentages. Ever wonder how to calculate your return on investment? What can you realistically expect at various winning percentages? Read on...

This article assumes the “investment” we are speaking of is the money you set aside to risk with sports picks (i.e. you bankroll). For example, you might start the year with a bankroll of $10,000. This is money you have set aside to invest during the year (or the season) on sports picks.

The “return” is the net winnings or losses based on that investment. We can look at historical average returns for common stocks as a reasonable benchmark. Over the past 75 years, stocks have returned around 10% per year. 

Now what about sports picks? ROI is calculated simply by taking the net winnings (or losses) and dividing by the amount set aside to invest for the period. So, if were to turn a $10,000 bankroll into $11,000 by making sports picks over the course of a year, then we would match the historic stock market return of 10%. In this case, our ROI would be 10%.

Our ending net winnings or losses will be based on all of the picks placed over the course the season (or year). A realistic expected win rate over the course of an entire year is probably in the 50%-55% range. With a 10% vigorish (i.e. risking $11 to win $10), you need to hit 52.38% to break exactly even – an ROI of 0%. Let's assume 3,500 picks over the course of a year. Here’s the ROI at various win rates assuming a 10% vigorish, risking 1.5% of our bankroll per pick:
 
51.40%: -100% (lose entire bankroll)
52.38%: 0% (breakeven)
52.50%: 12% (beats the stock market)
53.00%: 62%
53.50%: 112%
54.00%: 162%
54.50%: 212%
55.00%: 263%
 
The numbers above may really surprise you. Hitting 51.4% will result in loss of your entire bankroll (an ROI of -100%). Hitting 52.5% results in an ROI of 12% Remember that the stock market has historically provided an average return of 10% per year. As you can see, hitting just 53.0% over the course of 3,500 picks returns 62% - over 6 times as much! This is the power of sports picks. You can achieve much higher returns that many other investments, including the stock market. Now before you rush off and invest your entire 401k in sports picks, there is a tradeoff. While the potential returns are higher, the variance (and thus risk) are also higher. Please read this article for more on variance in sports picks.
 
The Effect of Purchasing Picks on ROI
Now, as one of my subscribers (A. Gordon) astutely pointed out, most analyses of ROI don’t ever calculate in the cost of a service. The above analysis assumes you invest $110 to win $100. What if you pay for a service as a way to increase your winning percentage? You need to add the cost of the service into the “investment” portion of the ROI calculation. Here’s an example:

Let’s assume you play $100 games and invest $750 for a season subscription to a sports service. Let’s also assume you play about 200 games over the course of a season. Your investment per game has now increased $3.75 per game ($750/200 games). So you are now investing $113.75 to win $100 on each game. Instead of needing to hit 52.38% to break even, you must now hit 53.25%. So, you must be convinced that the service will increase your win rate by enough to cover the cost.

These calculations vary depending on the amount risked, number of games, and amount of the service. But as you can see, in the example above, if you believe a sports service can increase your winning percentage by about 1%, it makes financial sense to invest in the service. Here's more on the range of winning/losing possibilities with my service.

I hope this helps shed some light on what you can expect to net at various winning percentages with and without a sports service.
 
To get free picks from Wunderdog Sports, click here: Wunderdog Sports Picks