The Agony of Negative Variance & How to Keep a Long-Term Perspective on Sports Investing

Nov 22, 2010

While I have garnered a solid profit of 57 net stars in 2010 (thru November 21), which is an annual rate of return exceeding 50%, the last three weeks have been extremely frustrating due to negative variance.  Despite the recent downturn wherein we have dropped approximately 7 net stars to the bankroll, my handicapping has been sound as we have lost an inordinate number of games due to negative variance, which is an inherent part sports investing.  I have thoroughly analyzed the trading period from October 23, 2010 to November 21, 2010, and developed three categories under which the games would be designated to demonstrate how we have been on the right side of many of our recent losses: Negative Variance (i.e. bad beats/bad luck), Toss-Ups (i.e. could have gone either way) and Lucky Wins (i.e. we had no business cashing a ticket):

10/23/10: Northwestern (+6) over Michigan State
Analysis: Northwestern dominated the entire game and looked to have an easy ATS win before one of the most amazing events occurred in the final 1:45 of the 4th quarter.  Rather than taking a knee and running out the clock, Michigan State decided to run one last play from the line of scrimmage – a harmless run into a defense expecting just that – a run.  What happened next will stay with me for the rest of my life as the Michigan State running back proceeded to break five tackles and scored a meaningless 26-yard touchdown to blow our cover.  It was the last play Michigan State had to run as the Wildcats were out of timeouts and anything short of a 26-yard touchdown run would have effectively ended the game.         
11/7/10: Philadelphia Eagles (-3) over Indianapolis Colts
Analysis: Facing a 4th-and-15 late in the fourth quarter and trailing by 9 points, Peyton Manning was sacked (and fumbled) in what appeared to be the final play of the game (Philadelphia would have taken a knee on the ensuing possession).  However, a late flag was thrown for roughing the passer, which was one of the worst calls of the NFL season.  Replays confirmed the fact that the pass rusher’s fingertips merely brushed Manning’s helmet.  Of course, the penalty gave Indianapolis a first down and the Colts went on to score a meaningless touchdown in the final seconds of the game.     
11/13/10: Missouri (-13) over Kansas State
Analysis: Missouri maintained a 38-14 lead at home in the 4th quarter before giving up 14 unanswered points in the final 6 minutes of the game.  What made this game even more frustrating was that Missouri actually had the ball at the Kansas State 17-yard line with under 12 minutes left in the 4th quarter (leading 38-14) and failed to score points because of three consecutive penalties.  Of course, Kansas State marched 78 yards in the final minutes to get the backdoor cover.
11/14/10: Cleveland Browns (+3.5) over New York Jets
Analysis: With under two minutes remaining in overtime, the Browns had the ball 1st and 10.  What transpired next was truly shocking as the Jets scored a 36-yard touchdown with :16 seconds left in overtime to win by 6.  Getting more than a field goal in overtime in the NFL puts the odds heavily in the investor’s favor to win/cover the game.
11/20/10: Mississippi State (+3.5) over Arkansas
Analysis: Trailing 31-28 with under 2 minutes left in the game, Mississippi State recovered a fumble and had an opportunity to win the game outright (1 first down by Arkansas prior to the fumble would have delivered us the win).  The Bulldogs had the ball 1st and 10 at the Arkansas 14-yard line before having to settle for a field goal to send the game into overtime.  In the first overtime session, Mississippi State fumbled the ball in the end zone after what appeared to be a 14-yard touchdown run.  On the next possession, Arkansas missed a 38-yard field goal which would have given us the ATS win.  Of course, Arkansas scored a touchdown in the second overtime session to give us another heart-breaking loss.
11/21/10: St. Louis Rams (+3.5) over Atlanta Falcons
Analysis: Trailing 26-17 with under 4 minutes left in the 4th quarter, the Rams had the perfect opportunity to get the point spread cover.  Indeed, St. Louis had the ball 2nd-and-goal from the Atlanta 2-yard line.  Despite having one of the best running backs in the NFL (S. Jackson), the Rams’ offensive coordinator decided to call a ‘shuffle pass’ on 3rd down, which was inexplicably intercepted.  In essence, we had three plays to gain 2 yards, but we once again fell short due to pathetic play-calling.
10/23/10: Iowa (-5) over Wisconsin
Analysis: Iowa needed one strop in the final minutes of the game to secure a win.  Unfortunately, Wisconsin marched the length of the field and scored a touchdown in the final seconds of the game.  While I still believe Iowa was the right side, this game belongs in the toss-up category as negative variance did not play a role in its outcome.
10/25/10: Dallas Cowboys (-3) over New York Giants
Analysis: While maintaining an early lead in the first half, Dallas starting quarterback Tony Romo was injured and did not return.  Despite the random injury to the Cowboys’ best player, this game belongs in the toss-up category.
10/30/10: USC (+7) over Oregon
Analysis: Despite maintaining a 4th quarter lead and getting seven points at home, USC imploded in the final 10 minutes and failed to cover the spread.  This game also belongs in the toss-up category as it was apparent that Oregon was the significantly better team, especially after the Trojans began to tire late in the game.
11/20/10: Iowa (+3) over Ohio State
Analysis: Similar to the Wisconsin game above, Iowa maintained a 17-13 lead late in the 4th quarter and needed one stop to secure the win.  After converting a 4th-and-10, Ohio State ultimately scored a touchdown in the final minute of the game, thereby giving us the dreaded ‘push.’  This game belongs in the toss-up category as Ohio State had a legitimate chance of scoring in the final 2 minutes of the game, although the 4th-and-10 conversion was highly improbable.
11/21/10: New York Giants (+4) over Philadelphia Eagles
Analysis: New York maintained a 17-16 lead in the fourth quarter and had the ball near midfield with under 8 minutes remaining in the game.  After punting, the Eagles had a 4th-and-1 at the 50 yard line with under five minutes to play.  What happened next was remarkable as the Eagles scored a 50-yard touchdown run (on 4th-and-1) to get the front door cover.  The odds of getting a point spread cover prior to the 4th-and-1 play were approximately 81%; the odds of winning the game outright exceeded 55%.  Despite the shocking ending to this game, including Eli Manning’s unforced fumble late in the fourth quarter after getting a first down, I believe it belongs in the toss-up category.  However, some clients have already told me that it should be placed squarely in the negative variance/bad beat section. 
Unfortunately, I could not find one game that qualified for this section for the trading period from 10/23/10 to 11/21/10.
While I have had my fair share of lucky wins throughout my handicapping career, I have never experienced a three-week trading period as lopsided as this has been in the random department.  The good news is that negative variance is generally balanced out by good fortune (i.e. lucky wins) over the course of a season.  And, while negative variance in an integral part of sports gambling, it is important to remember that sports investing dictates a long-term investment strategy, much like the stock market.  And, based upon the foregoing analysis, my handicapping has been very sound despite the random results, and the overall picture looks very good: 57 net stars in 2010 for an annual rate of return exceeding 50%.
I sincerely appreciate your continued loyalty to my sports investment firm.  As always, I welcome your feedback and look forward to a profitable conclusion to 2010.
Best Regards,
Jeff Keim
Oskeim Sports Consulting, LLC