Strategy & Theory: Parlay Analysis

Sports bettors have been lured for years by the high payouts of parlays.  These enticing types of wagers can make for a lot of excitement and a lot of money.  But their risk is substantially higher due to needing to win every “leg” of the bet.  The sportsbooks have made a fortune of these types of bets over the years due to their low win rate.  And the higher the number of teams in the parlay, the lower the probability your ticket is a winner.

Is there a place for this type of action in your betting arsenal?  We think so, but before we get into that, lets have a quick review of a 2-team and 3-team parlay and how they compares to similar flat bets:

First, a 2-team parlay: if you win a 2-team parlay, the standard payout is 2.6x of the bet.  So a $100 bettor would win $260.  But what if you placed flat bets instead?  Assuming standard -110, you would need to win 3 consecutive flat bets (total return of $273) to roughly equal what your 2-team parlay would payout.  In this case, you’d be risking $300 for the same approximate payout as $100 of risk on your 2-team parlay.

Now, a 3-team parlay: If you win a 3-team parlay, the standard payout is 6x of the bet.  So a $100 bettor would win $600.  If you placed flat bets, you would need to win 7 consecutive bets (total return of $637) to roughly equal what your 3-team parlay would pay out, but you’d be risking $700 compared to risking $100 on the parlay.

With this analysis, why don’t sports bettors play more parlays?  The answer comes back to the gold standard in sports betting.  Remember that roughly 53% is the target win percentage to break even, 55% is considered good, and 60% will land you in the sports betting hall of fame.  If you multiply the win probability (50%) across multiple bets in a parlay, you see the odds of winning go down considerably.  For a 2-team it is 50% x 50% = 25% chance of winning.  For a 3-team parlay, it is 50% x 50% x 50% = 12.5% chance.  This is why the sportsbooks entice bettors with the large payouts... because the probability of holding a winning ticket is low.

But we said there was a place for these types of bets in your plays, right?  The way to best utilize these types of bets is as a hedge.  Let’s assume you are looking to place a standard bet size of $100 on 2 different games.  With these flat bets, you can A) win both and net $182, B) lose both and lose $200, or C) split and lose $9.  

However, if you use a 2-team parlay as a hedge, betting against both of your flat bets for $80, the outcome options are as follows: A) win both flats, lose the hedge, and net $102, B) lose both flats, win the hedge, and net $8, or C) split the flats, lose the hedge, and lose $89.

Not using a parlay hedge has 2/3 outcomes as losses.  Using the parlay hedge has 2/3 outcomes as wins.  And, the expected probability average for not hedging is a $27 loss.  The expected probability average for using the hedge is plus $21.  Parlays can be helpful as a hedge, but not as a sole strategy.

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