Today’s guest columnist is Zach Doctor, co-founder and CEO of WagerWire.
This month marked the anniversary of the 2018 Supreme Court decision barring the federal government ban on sports betting, and as we reach five years of legalized online wagers, bettors are starting to demand more. They are looking for better odds and more optionality, delivered in an intuitive product, and supported by an engaged community and relevant content.
To meet this demand, sportsbooks have developed or partnered with third parties to add various features such as in-play microbetting and same-game parlays. However, one of the least discussed and scrutinized features in sports betting is the cash-out option. This is when the sportsbook will offer to buy back a bet before the outcome is determined, thus “cashing out” the bettor.
At first glance, cash-out functions seem to benefit the sports bettor. The feature is often described as a way to “lock in some winnings” or “get out before all goes south.” That’s all well and good, but it’s important to understand the stake sportsbooks have in the cash-out feature—they will only make this offer when they have incentive to do so. This leads to steeply discounted prices and spotty availability, as cashing out is only offered when the sportsbook is confident in its expected value because they are on the hook for the risk.
The cash-out product is ripe for change. Sports bettors have been stuck with deciding between taking a predatory cash-out price (if one is even offered), hedging or letting it ride. However, as bettors have become more educated, they have started to understand that the cash-out option might not offer commensurate value to the fair price of their bet.
A few months ago, a sharp friend of mine put together a three-leg parlay on Argentina to win the World Cup, the Chiefs to win the Super Bowl, and the Celtics to win the NBA championship (meaning all three bets must win, and the odds multiply). He put $100 on the bet with a potential payout north of $23,000.
Following Argentina’s victory and the Chiefs dramatic win in the Super Bowl, the first two legs of his bet have now hit, and all that stands between him and $23k is for the Celtics to win the NBA Finals. Earlier this season, his cash-out offer from the sportsbook peaked at just under $8k—ultimately he didn’t accept the offer given the chance for $23k if the third leg of the bet hit.
With the Celtics on the brink of elimination in the conference finals, the sportsbook is offering him a chance to cash out for $2,846.02. On the surface this might look enticing, since the bet was only $100 to start with. But apart from “bettor intuition,” it is difficult for most to determine what their bet is truly worth.
To solve this problem, WagerWire has developed a Bet Value Calculator. To calculate this bet’s value, a customer enters the bet details, including the risk amount and original odds, plus the current odds for the same market today (e.g., the Celtics to win the NBA Finals is down to +470 at FanDuel at the time of publication).
This bet’s value is currently calculated at $4,105, meaning the cash-out offer captures just 69% of the full value. Bettors using our calculator routinely report cash out offers in the 50-70% range of market value.
Sportsbooks are naturally going to tilt the odds in their favor. The bigger issue is that bettors currently have no way to access fair prices. If my friend instead had an opportunity to sell out of that bet, or a fraction of it, at a fair market value via a secondary market, taking the money becomes a no-brainer. Transparent marketplaces are a fundamental economic principle that drive liquidity and fair pricing as industries evolve. This inevitable force is now reaching the once insulated sports betting industry, as free market dynamics begins to proliferate.
Americans are well-versed in secondary marketplaces thanks to the ubiquity of resale platforms like StubHub and StockX, and financial markets like Robinhood and Coinbase. Empowering bettors to apply that mentality and inherent skill set to their sports wagers will add rocket fuel to the exploding U.S. handle. The addition of digital secondary markets to event ticketing, for example, boosted primary ticketing market sales by 20%.
As the sports betting industry continues to mature, it’s important to provide bettors with other, more dynamic options than what’s currently available to foster a fairer and healthier market. Secondary markets are the best way to empower individual bettors while growing the overall pie.
Zach Doctor is the co-founder and CEO of WagerWire. He founded his first company before his bar mitzvah, flipping high end bicycle tires on eBay with his brother as his business partner. That business is now a family of e-commerce sites led by BikeTiresDirect.com. After graduating from UCLA he cut his teeth financing M&A deals at PNC Business Credit, where he reached vice president at just age 26. WagerWire is his latest venture.