Return on Capital

Today we have a guest article from Football Bets which details an alternative way to assess which tipping service or system will be most profitable for you.

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In this short article I want to explain to you the concept of Return On Capital as applied to betting or betting tipsters.

If you want to be a successful punter you will benefit from an ability to assess different tipsters or perhaps betting strategies of your own.

You only have a limited pot of betting bank funds available.
You need to decide where is the best home for it and how it is best used.

Let's say you are pondering the choice of joining Tipster Service A or Tipster Service B.

Tipster Service A made 50 points profit last year,
Tipster Service B only made 25 pts profit.

If I asked you which service you should join would your answer be:

#1 – Tipster A of course you muppet
#2 – Tipster B
#3 – I do not know

The correct answer is #3

Looking only at level stakes profit you do not have sufficient information upon which to base a good decision.

Imagine for example that Service A focussed on long shots.

It could be perhaps a service seeking long odds horses or a golf service targeting long odds tournament winners.

Aiming for big odds selections long losing runs and periods of significant bank draw down would be the norm.

As such one would need a big bank of points or a low percentage of bank bet per tip to follow them.

For the sake of argument lets say a sensible bank for this service was 250 points.

Service B on the other hand is a high strike rate service with shorter losing runs and lesser points draw down.

As such one can actually be more aggressive with staking.
A sensible staking approach may be 50 points for arguments sake.

In light of this extra knowledge let us re-evaluate the two services again.

You start with a £5000 betting bank.

Tipster A made 50 points profit with each point equating to 1/250 th of the bank or £20

Thus 50 points by £20 = a total profit of £1000 from an initial £5000 investment.

With Tipster B on the other hand we were staking 1/50 th of the bank ie £100 per tip.

25 points profit at £100 per tip is a total profit of £2500

That is 2.5 times better than Tipster A !

What Is Return On Capital?

It is a term originally applied to stock market or company evaluations.
There it seeks to measure the amount of profit a company made divided by the original cash invested.

Applied to betting it would be the total profit made divided by the amount of your original bank.

In short it is a measure of the profitability of a service.
Profitability in this sense referring to the ability to grow a bank.

Example Calculations

Let us use the examples above and work out return on capital ratios for Tipster A and Tipster B

Tipster A – £1000 profit from £5000 original investment.
ROC = 1000/5000 = 0.2

This would normally be expressed as a percentage ie ROC = 20%

Tipster B – £2500 profit from £5000 original investment.
ROC = 2500/5000 = 0.5 or 50%

Points Worth Noting

1- ROC ratios make most sense when they are annualised.
By that I mean if you want to compare record A to record B they should be based on the same length of time.

A simple basis for this is to try and work out average annual performance for each Tipster.

2 – Choice of betting bank management approach will have a big impact.

Here I would suggest you go a step beyond blindly trusting what a tipster may suggest as some may sway towards being over aggressive with advised staking plan suggestions. Why might a tipster do this?

Because it can increase the perception of faster profits which is good for their marketing.

Do you own due diligence via examination of detailed historic results records.

You want a staking approach set to give you as a punter a decent blend of protection and growth NOT one set to max a £ figure for tipster marketing purposes.

When setting a suitable points bank for use in a return on investment calculation there is no exact science unfortunately.

A key metric to bear in mind however is maximum historic draw down.

This is the maximum ever drop in points a service has had over it's history.

Note how this differs from maximum losing run.

A service for example may tip ten losers followed by an even money winner then another ten losers. The maximum losing run there is ten but such a sequence will draw down your bank by 19 points.

One simple method of setting a suitable bank of points may be to take maximum historic draw down and factor it by a fudge factor.

Lets say your fudge factor was two.

If the service had a 20 point maximum draw down you may estimate a suitable bank of points as 40.

The fudge factor as per above is in many ways setting your own personal level of staking aggression.

Use a very low fudge factor and you will be staking aggressively.
A higher fudge factor will provide increased protection against total blow out but at the expense of growth rate if good performance is maintained.

The fudge factor will in many ways be a very personal thing as every punter will have different outlooks towards risk and reward.

It is also worth highlighting that time or record sample size should also have some impact on your fudge factor.

A service with a max drawdown of 20 points over four years of records I would deem much less likely to have a 30 pt drawdown over the year to come that an alternate service with a 20 pts max draw down over only a six month record.

Alternate Staking Plan Analysis

Using a simple bank of points to be staked level stakes is of course only one of many possible ways to stake.

Go ask a mathematician how to maximise bank growth and he may come back to your with ideas about continually compounding using Kelly Theorem to calculate stakes.

Upsides would be compounding up winnings if performance is maintained and also protection against blow out during a poor run.

A fair rough and ready estimate of such an approach is to try and determine the optimum value of percentage of bank one should bet per selection.
It would be assumed that actual stakes will change in £ value as your bank rises and falls but will always be X % of your bank.

Spreadsheet analysis may indicate an absolute optimum value of X to use.
That could be deemed a very rough and ready measure of a Kelly Theorem suggested figure.

Again introducing the concept of a fudge factor you could take that absolute optimum value and this time divide it by say two.

As per before your fudge factor will to a degree reflect your personal make up as a human being as to staking aggression.

Also as per before you may fine tune it depending on confidence.
Confidence being impacted by how long records go back or number of past bets.

Anyhow I hope you found this useful.

As a wise man once said ” You don't need eyes to see .. you need vision”

If the general concepts of Return On Capital are understood by you they should provide you with extra ability to assess a tipster service or even assess strategic betting methods of your own design.

It may also help protect you against slanted tipster marketing.

Say for example you say a long odds golf or horse tipping service shouting about 100 pts profit last year.

You should now know enough to make a fair judgement about how that figure may translate to what is more important to you ie Bank Growth Ability.

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This article appears courtesy of www.Football-Bets.co.uk.
At Football Bets you will receive excellent soccer betting advice
with a long term record of net profit from Ex Bookmaker Phil Brown.
Also available is a FREE course by a major bookmaker odds compiler
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