On a podcast back in April, the sports betting entrepreneur Capt. Jack Andrews (a pseudonym) interviewed one of Jim “Mattress Mack” McIngvale’s betting handlers, who explained how the Houston-based furniture mogul became perhaps the country’s best-known (and most polarizing) high roller.
Back when he started giving away free mattresses if, say, the Astros won the World Series, McIngvale would take out an insurance policy to cover the potential cost of such promotions. But it wasn’t long before he and his advisors came to the conclusion that there had to be a better way.
“He was basically giving up half of his EV (expected value) by taking this lousy insurance,” Andrews told Sports Handle after the podcast first aired. “It covered his ass, but it wasn’t as good as he could do just laying it off in the sports betting market.”
So, rather than purchasing insurance from a heavyweight provider like Lloyd’s of London, McIngvale began hedging his mattress promotions with sports bets. If the Astros won it all, he cashed a big ticket and his customers walked off with free mattresses. If the Astros lost, he and his customers lost their wagers — but McIngvale reaped the profits from all those mattresses that became purchases rather than giveaways.
“Cases where [hedging] is optimal is arbitrage, where both sides have value,” said Andrews. “Mattress Mack could be considered arbitrage — he gets promotion, he gets [volume] deals with vendors. Then he has an edge with his sports bet where he negotiates deals with these companies” — like, say, a generous amount of free play to account for the promotional value received by the sportsbook that takes his big bet.
With sports betting replacing insurance as his safety net, McIngvale always wins — and gets a ton of free press out of his gambling largesse. But for his customers, it’s a riskier proposition, albeit one that is not without benefits.
“It’s a good deal for his customers” if they’re already in the market for a high-end mattress, said professional sports bettor Bill Krackomberger. “If I had a chance to buy a $5,000 mattress and had a 47% chance of getting my money back, I’d go to Mattress Mack.”
“With the Super Bowl, his advisors told him to take the Bengals +3.5 while saying customers got free mattresses if the Bengals won,” Andrews added. “He took Bengals moneyline instead and the Rams won by 3. Mack would have won both bets and like $32 million, but he decided to not let the customers feel like they took the worst of it.”
Saying yes/no to hedging
Caesars Sportsbook, which takes McIngvale’s action as often as any other operator, told Sports Handle that it doesn’t hedge his bets. As for Circa, yes/no wagers act as a type of de facto insurance in markets where it has considerable exposure.
“If we have the [Phoenix] Suns at 2/1 to win the title, people can also lay -240, for example, on them not to win the title,” said Jeffrey Benson, Circa’s sportsbook operations manager. “It allows us to sell off some of our position if we need to instead of just lowering the Suns to an unbettable number.”
Somewhat surprisingly, Benson added, “We don’t insure our guarantees at all” — including Circa’s lucrative pro football contest. Same goes for the SuperBook when it comes to its annual SuperContest, said John Murray, the sportsbook’s executive director of operations.
Sportsbooks do sometimes engage, however, in layoff wagers, where they reduce liability by taking the other side of a given bet at another sportsbook.
“I do know of other operators that have hedged their bets at our sportsbook, but we have never done it ourselves,” Murray said. “The Tim Tebow Broncos team [in 2011], they beat Pittsburgh in the wild card game. The operator had massive exposure on Broncos futures and sent one of their people over here to bet on them to win the Super Bowl, and the Broncos got obliterated by the Patriots in the next game. It worked out well for us.”
10 years ago today, Tim Tebow and Demaryius Thomas connected on this iconic play in overtime to give the Broncos a playoff victory over the Steelers 💙🧡
— SportsCenter (@SportsCenter) January 8, 2022
It remains to be seen whether a broader, more formal commingling of sports betting, insurance, and the stock market is in the offing, but smart money’s on that happening.
“Over the next few years, there will be a number of creative attempts to build sports wagers into insurance products and institutional investment vehicles,” said Lloyd Danzig, managing partner at Sharp Alpha Advisors. “At the same time, centralized and decentralized exchanges will compete to amass liquidity. A combination of regulatory factors, consumer demand, and timing will ultimately enable the market to decide which of these mechanisms will have significant durability.”
Krack and Jack
Specific to sports wagering, neither Andrews nor Krackomberger are fond of hedging, but they allow that it can make sense in certain instances.
“If you have a positive expectation, hedging it with a negative expectation is sub-optimal,” explained Andrews. “The only benefit you get is reducing variance at a cost of some of your expected profit. If you have that situation, don’t hedge — just ride it out, as long as you’re not betting too much money.
After saying, “I really don’t hedge,” Krackomberger recalled that it was “middling and scalping” that enabled him to build his bankroll to a point where he didn’t have to hedge anymore.
“Back in the ’90s, when I started, I 100 percent scalped,” he said. “I remember middling first quarters in the NBA when a sportsbook would take a game that’s 200 and divide it by four. That is absolutely wrong: The first quarter should be 51.5. So I’d go over 50 and the sharper sportsbook that would come in at 52 or 53, I’d be the middle and hit a lot of middles. On baseball, I literally was just talking to one of the sharps who built his bankroll middling.”
Nowadays, Krackomberger says he won’t hedge “unless something happens —- weather situations, injuries — during the flow of the game.” But he did concede that there was a recent situation involving the forecasted draft position of linebacker Quay Walker where he “probably should have scalped.”
With Walker’s draft projection set at 41.5, Krackomberger locked in a price of +175 on the under — meaning he bet on Walker to be selected before the 42nd pick. By the time the draft rolled around, that number had moved to 20.5, with -600 on the under.
Walker wound up being chosen 22nd by the Green Bay Packers. Had Krackomberger reverted to his middling ways, he’d have added handsomely to his profit.
Andrews’ Unabated co-founder, Rufus Peabody, recently made headlines in the sports betting community when he declined to hedge a $500 wager on 300/1 shot Mito Pereira to win the PGA Championship. The Chilean likely would have won had he not melted down on the tournament’s final hole.
Well, that hurt. pic.twitter.com/6QGCefS9SJ
— Rufus (@RufusPeabody) May 22, 2022
It would be logical to think that, given the benefit of hindsight, Peabody might regret his decision. But for a guy with that much skin in the game, there are multiple considerations at play.
“Hedge betting is very difficult for some people, because of regret,” he wrote. “If you don’t hedge a potential big payday, and the bet ends up losing, you kick yourself for not hedging. If you hedge and the original bet won, you kick yourself for hedging.
“I have no regret for not hedging my Mito Pereira outrights, because I knew hedging was not the optimal decision. Were my bankroll smaller, I 100 percent would have tried to hedge (and definitely not regretted it), because it would have been the optimal decision. ‘Professionals don’t hedge so I shouldn’t’ is a huge load of bull. Every situation is different. You can’t paint this decision in broad strokes.
“It’s about having a process that you stick to. Whether to hedge isn’t a decision you have to make – the decision has already been made for you. You know what the optimal decision is. You just need to not f**k it up. Whether or not it works out in one instance is immaterial. Your process was good, and in the long run you are putting yourself in the best position to succeed.”