One of the Blog’s favorite people is Houston furniture maven, Mattress Mack whose reckless gambling to “hedge” his free furniture promotions provided some good content for me in the past. In fact, Mack is popular with more than just me. The Astros invited him to throw out the first pitch before one of their playoff games!
If you recall, Mack’s problems were twofold. First, he would wait to “hedge” his furniture promotion until the odds had gone against him. Second, he would then bet too aggressively and make his expected outcome worse than if he hadn’t bet at all. Clearly, Mack needs help with risk management.
I had suggested in the original post that Mack should have bought futures early in the season when the odds were better. Guess what? This year Mack listened!
Back in June, he made a series of bets on the Astros to win the World Series, all at 10-1 odds or better. He put down a total of $3.25M. After doing so, he launched this year’s furniture promotion: Spend at least $3,000 and it’s free if the Astros win the World Series.
Mack says he expects to have $20M of exposure if the Astros win (and perhaps more). Mack’s original bet was $2M at 10-1 which would be…a $20M payout if the Astros won, so he was perfectly hedged!
Of course, Mack didn’t stop there. He put down another $1.25M in bets as mentioned which could win him at least another $15M according to reports.
So yes, Mack hasn’t totally reformed. He still is outright gambling, but one can perhaps argue he was uncertain how much furniture he would sell and wanted the extra protection. And at least, he did it at reasonable odds this time so he is learning!
The Next Move
Normally, in this situation, as the Astros continue to win games, Mack gets tempted to make more net long bets and increase his exposure.
However, because, for the first time, he is overhedged and things are going his way, the smart move would be to make some new bets against the Astros and for their opponents.
If the Astros make the World Series (they are currently trailing the Red Sox 2 games to 1), it would make sense to bet between $2.5-5M on the National League team to win. This would get him his original principal back (depending on the odds on the National League winner which would probably be around 1-1) while still leaving him net ahead.
If the Astros were to win the World Series, he would reduce his payout from the mid $30s to the low $30s from the wasted bet, but still be well ahead of his furniture liability.
However, if the Astros made the World Series and lost, he would get paid on his National League winner enough to offset the $3.25M he bet on the Astros.
Thus, he can reduce his worst case to $0 and still have a gain if the Astros win. Mack would have truly learned his lesson.
The one problem here is, as mentioned, the Astros are trailing the Red Sox right now, so if they don’t win this round, there isn’t a chance to execute this strategy. Mack probably should have put $1M on the Sox.
Bonus: NBA Predictions
SInce it’s the start of the NBA season tonight, I thought I’d take a quick look at the preseason odds to win the title and try to find some good value. I focused on the ten teams with the shortest odds. We’ll go in order…
Brooklyn Nets 2.4-1
The Nets are the favorite to win the title. This would make sense if they had their whole team, but nobody knows if Kyrie Irving will ever show up and Durant has had prior injury problems. Too risky. Pass.
LA Lakers 4-1
The Lakers are always overbet cause of the LA factor and LeBron factor. They are a very old team with little depth beyond their three stars. Their style is not made for the playoffs and Westbrook has always been a better regular season than playoff player. Pass.
Golden State Warriors 9-1
The Warriors are always overbet cause of the Warriors factor and Steph factor (sense a pattern?). I have suggested in prior years to avoid the Warriors. It’s not as easy this year, but I’ll still pass.
This team struggled to make the play-in game last year and the major change is a wounded Klay Thompson returns. OTOH, Draymond and Steph are a year older and both struggle to stay healthy. They probably end up in the play-in game again.
Milwaukee Bucks 9-1
The defending champs are 9-1 because they’re not as exciting as the West Coast teams. It’s sort of like how the Spurs always used to be underpriced during the Duncan years.
They are no lock to win again, but it would be surprising if they didn’t make the Conference Finals. That would suggest they have a 1 in 4 chance to repeat which would imply 3-1 odds all else equal. I’d buy some Bucks share at 9-1 for sure.
Phoenix Suns 15-1
The Suns made the Finals last year so 15-1 may look appealing, especially if I’m down on the Lakers and Warriors. However, they were a bit of a fluke winner last year.
While it’s easy to say they are a young team on the rise, this ignores that their leader is ancient and brittle Chris Paul. He stayed healthy last year, but can you expect that to repeat at 36?
They’re certainly a contender and, at 15-1, they’re probably fairly priced to a little bit attractive, but I’m not feeling it.
Utah Jazz 16-1
If there were a line (which there probably is) for the best regular season record, I’d probably pick Utah. They are made for the regular season, but, as NBA fans know, not made for the playoffs. They’re not a bad flier at 16-1, but they will probably disappoint in the playoffs again.
LA Clippers 16-1
The Clippers might not make the playoffs this year given Kawhi Leonard probably won’t play due to his knee injury. If they do get in, they will be on the road throughout playing the top teams. Hard pass.
Philadelphia 76ers 16-1
The one reason to consider the Sixers as a longshot is they are clearly in the market to trade for a star like Damian Lillard or Bradley Beal. If that doesn’t happen, they are a pass, but you can make the case that the option value here is attractive.
A Lillard trade probably drops them under 10-1 and without it they’d probably fade to 25-1. If you’re seeking volatility (which is often the path to win these plays), Philly is an interesting spec.
Denver Nuggets 22-1
Now things are getting interesting! Denver has the reigning MVP (Nikola Jokic), one of the ascending stars in the league (Michael Porter), and an All Star PG in Jamal Murray. Murray is recovering from an ACL which is likely a big part of the long odds, but he’ll be back at some point this season.
They will struggle to get a high seed without him, but they could easily be the most dangerous team in the West come playoff time. I’m all in at 22-1!
Miami Heat 25-1
So the two teams I like the most as surprises have the 9th and 10th best odds. I’ll take that! Look, the Heat made the Finals two years ago and they have a better team now than then.
Sure, much like the Suns last year, it was a surprise Finals run, but this is a team built for the playoffs. If Kyrie doesn’t return, they can certainly take Brooklyn and they typically match up well with the Bucks. They should be half this price.
Spreading Your Bets
So, my two favorite picks are the Nuggets and Heat and I would run far away from the Lakers, Clippers, and especially Warriors.
Interestingly, the odds imply there is a 69% chance the Nets, Lakers, Clippers, or Warriors will win (~1/3 Nets, 1/5 Lakers, 1/10 Warriors, 1/17 Clippers). If I take the six remaining teams, there is an implied 36% chance they will win (10% Bucks + 6% Suns + 6% Jazz + 6% 76ers + 4% Nuggets + 4% Heat).
(Note, this adds up to over 100% – especially when the remaining 20 teams small chances are included – because this is how Vegas makes money!)
I think the 36% bucket has just as good a chance to win the title as the 69% bucket of the popular choices. Also, note, if you bet all six of those, and one of them win, your payout will be somewhere between 4-1 and 20-1 (subtract five from each of the above odds for the losses).
If you think it’s 50/50 that one of those six teams wins, your EV is exceedingly positive as the only way you have a negative EV is if the Bucks are your winning ticket (50% to win $400 vs. 50% chance to lose $600 whereas the other five all pay you at least $1000 the times when you’re right).
If you want to make a bit more of an active bet, you can combine the Bucks with the Nuggets and Heat and have your two long shots and the Bucks would still pay 7-1 after your losses on the Nuggets and Heat with the potential for making more than 20X if one of the two longshots comes through.
We’ll check back in on this next summer!