Anchoring, affect, and efficiency of sports gaming markets around playoff positioning

Abstract

We consider the wagering market of National Football League (NFL) and National Basketball Association (NBA) games when participating teams have secured playoff positions. We use both the opening and closing lines (analogous to asset prices) of spread bets to examine if potential “letdown” effects, either psychologically or strategically, are priced. Results demonstrate that the initial opening line consistently provides a profitable strategy for those betting against teams that have clinched positions in the post-season. By the close of the betting cycle, closing lines move in the expected direction as the market partially prices the letdown. Many closing lines tighten to the extent that, after paying commissions, the naïve strategy of betting against clinched teams is less profitable. However, certain wagers, for example betting against NFL teams that have clinched top seeds, are statistically significantly economically profitable after paying commissions. These results support the behavioral finance concepts of anchoring, affect, in addition to lines moving towards efficiency.