Cash Out: Why you shouldn’t ever cash out!
The latest feature being marketed by bookmakers is called Cash Out. This tool allows bettors to secure their profits early or minimise losses before the final siren. While this sounds great on the surface for the bettor, every time you utilise the cash out feature you are making your bookmaker richer.
How does Cash Out work?
The Cash out feature is very simple to understand on the surface – even though many aren’t sure how the cash out value is determined. If you have bet on a football game and it is going in your favour. During the match you are able to take your profits early by using the Cash Out tool. Of course if you have ever used this feature you know that the value of your payout is generally a fair bit lower than the payout from the original bet would have been.
Let us pretend that you have bet $100 on a $3.00 underdog. Now 2 things can happen as the game progresses, either (a) the underdog looks like they are in with a chance and the odds shorten; or (b) the underdog never looks in it and the odds blow out.
From your initial bet you stand to return $300 if the $3.00 underdog salutes for you. Say that the underdog is looking very competitive and the in-play live odds for the dog come into $2.00. In this scenario you might be offered the chance to cash out your bet for $150 – securing you a $50 profit and no more stress if things swing back the way of the favourite. On the other hand, if your bet gets off to a really bad start and the in-play odds drift to $5.00. In this situation you might be offered the opportunity to abandon your bet and cash out $60. By doing this you seem to have saved $60 because even though you have made a $40 loss, it was likely you would have lost the entire $100.
Betting agencies know that as punters we are easily tempted by cash out. We are known for our impatience, pessimistic outlook during matches and our eagerness to take profits as soon as possible. We are always scared of losing and would generally rather a small win than a big loss. All of these factors make Cash Out a tempting product and I know many people who rarely let a bet settle anymore and choose to cash out almost 100% of their bets early!
So what is the downside?……..
You’re paying the Vig twice
If you don’t know what the Vig (Vigorish, Juice, overround, bookmaker margin) is then head over here and get up to speed. You’ll need to understand it to follow along. Basically it is the margin that bookmakers build into the pricing of markets to ensure they always make money – think of the house edge at the casino.
FAIR ODDS EXAMPLE
To show you why Cash Out is a bad play, I will show you a betting example at Fair Odds (a market priced at 100% with no Vig).
Team A @ $1.25 || Team B @ $5.00
In this example Team A is priced at $1.25 and Team B is priced at $5.00. This market has a 0% vig. You can ensure a break even scenario by laying 4 units on Team A and 1 unit on Team B.
Let us pretend that you have decided to bet $100 on the $5 underdog. As the game progresses, the underdog shows some fight and the live odds have moved to Team A @ $1.50 || Team B @ $3.00. This is still a fairly priced market, by laying 2 units on Team A and 1 unit on Team B you will break even regardless of the outcome. Now if the Cash Out tool offered you a fair price to get out of your bet, you should in theory be getting offered $167.00 to get out of your $100 wager based on the current live odds. There is a simple formula for calculating the fair profit based on a movement in live odds below.
Example: [$100*($5.00 – 1) – $100*($3.00 -1) ] / $3.00 = [$400 – $200]/$3 = $200/$3 = $67 profit
If you don’t beleive this equation works we can look at the scenario where you place a 2nd bet on the match, this time on Team A at the new odds of $1.50. We already have $100 on Team B at $5.00 odds (potential return: $500), now that Team A is out to $1.50 odds we can place a secondary bet of $333 on Team A at $1.50 ($333*1.50 = $500). Now regardless of which team wins we will return $500. Our total outlay is only our initial $100, plus the new $333. That means we have outlayed $433 to win $500 guaranteed. As you can see this is the same profit ($67) as we would expect to receive in a fair cash out.
REAL WORLD EXAMPLE
In the real world you pay a vig every time you bet. Its the transactional cost for doing business with a bookmaker. We will use the same example as before but this time we will apply a 5% vig. Now our initial pre game odds would be something like the following.
Team A @ $1.20 || Team B @ $4.60
Vig = [(1/1.2)+(1/4.6)]*100 = 105% (5% vig)
Again we will place $100 on Team B, this time @ $4.60. Our potential return is now $460. Again we will consider the case where the underdog has started strong and resulted in a shortening of price to $3. Remember the vig is always applied so in reality we will have another 5% vig on live odds. The new live odds will be Team A @ $1.43 || Team B @ $2.85
What is the cash out value on offer to us here?
Lets use our fair price formula and check. [$100*($4.60-1) – $100*($2.85-1)] / $2.85 = [$360 – $185] / $2.85 = $61.40 profit
So if cash out was a fair price (only charging the Vig on the initial bet) we would expect to be offered $161.40 as cash out price. ($100 + $61.40 profit). We can double check this by dividing the return from a 5% vig market by the return on the fair priced market.
$460/$500 = 92%
$61.40/$67 = 92%
So IF we were given FAIR ODDS on our Cash Out option (after already paying the initial Vig) we would expect to be offered $161.40. In reality we are offered even less. What we are offerd is the amount we would be able to secure by placing a secondary bet on Team A at their current live odds.
We already have $100 on Team B at $4.60 odds (potential return: $460), now that Team A is out to $1.42 odds we can place a secondary bet of $324 on Team A at $1.42 ($324*1.42 = $460). Now regardless of which team wins we will return $460. Our total outlay is now our initial $100, plus the new $324. That means we have outlayed $424 to win $460 guaranteed. This is a measly $38 profit!
It is this $38 profit that you will be offered through the Cash Out feature – $138 total value once you include the original $100 bet. In a fairly priced market you should have received $167, In a single Vig market you should have received $161.40, in reality you have received $138! You’ve been fleeced $29 of winnings! More importantly you are only receiving 83% of the fair winnings!
EVERY TIME YOU CASH OUT YOU ARE DOUBLING THE PROFITS OF THE SPORTS BETTING COMPANY
The #1 goal of any bookmaker is to balance their books. When you cash out you do their job for them and instead of making a 5% margin from you, they are now making that margin twice. Bookmakers LOVE bettors that hedge bets and cash out.
My philosophy to hedging / cash out is very simple. If you couldn’t afford to lose the bet when you placed it, you should never have made the bet in the first place. There is room for cash out when the truly unexpected happens (sudden change in weather, player/team injuries or fitness etc) but in these cases you’ll likely find the bookmaker has cheekily suspended the feature. The other reason to use Cash Out is for future bets. Perhaps you had money to bet with at some stage in the past so decided to place it on a long range future bet such as next years SuperBowl winner. If in the time you have placed the bet, your present financial situation has you tight on money, then it may be wise to secure those profits to make payments on bills etc. Otherwise my motto is
Let it ride, trust your decision and become a more confident bettor.