March Madness — Using futures to identify opportunity
How do you choose to fill out your bracket? Do you give yourself the best probability to win? Do you select underdogs with the intent of “being the one who called it?” Picking underdogs is fun, but maximizing your probability of winning is best done by playing the odds.
Vegas posts futures that price the odds of the national champion. The odds provide insight on the path to the Final Four. The South Region has my attention. Three of the tournament favorites live here. UNC 13/2, Kentucky 17/2 and UCLA 12/1 (all odds as of March 13th).
It is my opinion Kentucky’s risk is too great at 17/2. When considering these odds it is important to keep in mind the path to victory, or permutation. Wichita State, or Kentucky’s possible second round opponent, is highly ranked by the computer models. (Kenpom/Sagarin). At 17/2, or 10.5% to win the national title, this inputs at least a 90% probability Kentucky defeats Wichita State.
In short, the favorites must have early games they are almost assured to win. A favorite cannot face a 60% win percent early in the tournament because it skews their odds down.
If Kentucky defeats Wichita State, then they likely play UCLA (12/1 or 7.7% to win the national title). Based on Kentucky’s future price, Kentucky is at least a 65% chance to win this game. If Kentucky wins and faces North Carolina in the Elite 8, Kentucky is likely to be an underdog. With the probabilities in early games closer to 70% than 100%, Kentucky odds to win the national title are too high. To be sure, this does not mean Kentucky will not win, rather you are paying a steep price at 17/2 betting they will win.
Meanwhile, North Carolina’s path is different. Of all the regions, the 4 seed (Butler) and 5 seed (Minnesota) are the highest odds (least probable) and worst ranked. Revisiting the permutation, North Carolina’s odds to win the Sweet 16 should be a lot better than opponents. Thus making their futures price a better bet (more probable outcome).
While you are making assumptions on future games, understanding the permutation can help price the futures risk. Give consideration to the paths teams need to take for the best chance of surviving. Play the probabilities, not your gut. Good luck!
