Closing Line Value
For those of you who are new to sports betting, the “Closing Line” is the line/odds of a game when the market for a game closes (i.e. just prior to kickoff/first pitch/tip off, etc.). Closing Line Value (CLV) is simply a comparison between 1) the line/odds that your bet was placed at and 2) the Closing Line.
We’ve talked in length about the importance of line shopping and getting the best number. The theory behind CLV is that if you’re getting a line better than what is offered at the close of the market, that’s generally a good thing.
Simple example: you bet the Yankees at -125 and they closed at -150. You got positive CLV. Congrats!
Unfortunately, there is no standard approach to measuring CLV.
The Casual Approach: Casually, folks would say you got “25 cents” of CLV. Clearly this is a good thing, as a $100 bet at -125 would win $80, while a $100 bet at -150 would only win $67.
The Win Probability Approach: To get slightly more technical, we can compare the breakeven win probability of your bet at -125 vs. the closing line of -150. The breakeven win probability of -150 is 60.0% while the breakeven win probability of -125 is 55.6%. The difference of 4.4% in breakeven win probability is another way to quote your CLV.
The Expected Value Approach: A third approach is to measure CLV based on the expected value of the bet. If you made a bet at a breakeven probability of 55.6% and the closing breakeven probability is 60.0%, you could say that “price” of your bet increased from 55.6% to 60.0% (increase of 4.4%). Therefore your “return” (increase in value) was 4.4% / 55.6% = 8.0%.
Some people prefer to review their CLV absent the book’s vig. Do make this adjustment, we simply compare our line with the implied no-vig line.
Assuming a standard 10-cent baseball line (+140/-150) we would have a closing vig of 1.6%. Our no-vig CLV measurements would be as follows:
The Casual Approach: With a closing line of +140/-150,we estimate that the “fair” price (no-vig line) of the favorite is -145. Thus, a comparison of your bet at -125 and the fair price of -145 would only yield “20 cents” of CLV.
The Win Probability Approach: With a no-vig closing line of -145, we compute the implied win probability to be 59.2%. Comparing the no-vig win probability of 59.2% with your breakeven win probability of 55.6% yields 3.6% of CLV.
The Expected Value Approach: The closing breakeven probability of -145 is 59.2% so the “price” of your bet increased from 55.6% to 59.2% (increase of 3.6%). Therefore your “return” (increase in value) was 3.6%/ 55.6% = 6.5%.
CLV for Point Spread and Totals
To measure CLV for points spreads or totals using the Win Probability Approach or the Expected Value Approach, you need to estimate the push probabilities of the numbers that were crossed (i.e. if you bet -2.5/-110 and the market closed at -3.5/-110, you crossed the 3). You can then compare your bet with the implied “fair” moneyline of your bet based on the closing line. Referencing our NCAAB half point price of 9 cents on the 3, we estimate -2.5/-128 to be the equivalent of -3.5/-110.You can then calculate your CLV just as you had before.
Purpose of CLV
The primary purpose of CLV is an alternative measure of performance. The theory is that if you’re getting enough CLV to cover the vig, you should be a winner in the long term. Many “pros” claim that its best to benchmark performance based on CLV rather than actual outcomes. This assertion relies heavily on the efficient market hypothesis.
Efficient Market Hypothesis
Without giving you a financial theory history lesson, very simply the efficient market hypothesis (EMH) states that the price of an asset reflects all known information and that consistent alpha generation is impossible. Sports betting translation: the only way to bet profitably is to generate CLV and it’s impossible to generate +EV if you only bet right before the game starts. If you bet the Closing Line you should expect to lose an amount equal to the vig in the long-term.
Quite simply – this is bullshit.
Various forms of EMH may apply to liquid financial markets,but I’m going to make the argument that while CLV is useful, the Closing Line is far from efficient.
Is the Market Efficient?
Market efficiency is often characterized as having the following attributes:
1. Immediate absorption of new information
2. Important information is freely available to all participants
3. A large number of rational, profit maximizing market participants
Let’s review these assertions one-by-one.
1. Immediate Absorption of New Information
In an efficient market, the only thing that moves the price of an asset is new information. If this were true, we should be able to identify long periods of static lines, as no new information has been revealed.
Let’s check out a recent example of how reactive the markets are to new information:
On January 11, 2020 the OKC Thunder hosted the LA Lakers. Around 1:30pm ET, news broke that LeBron would miss the game. Naturally,that injury announcement had a large impact on the odds for both teams. A time series plot of the Thunder’s breakeven win probability is shown below.