Sports Bets and Financial Disasters Share Some Traits

What does a November 2023 hockey bet have to do with the 2008 financial crisis and the Chunnel connecting England to France? A lot, and the relation is key to understanding financial disasters — not to mention getting paid for longshot sports bets and getting from London to Paris safely.

It’s all about correlations, rare events and how bookies and bankers try to avoid paying.

I ran across the hockey bet in a Washington Post article by Danny Funt, “He Hit Three Monster Bets — And Then the Sportsbook Wouldn’t Pay,” about well-known quantitative sports bettor Christopher Kozak. Kozak bet that in a Nov. 17 hockey game between the Florida Panthers and the Anaheim Ducks, eight specific players would not score goals, and the home team (Anaheim) would score fewer than three goals. He bet $300, and the casino promised him $60,000 if all nine of the events came to pass. Kozak told Funt he thought he had about a 1% chance of winning, so an expected $600 return for his $300 investment.

How would you evaluate this bet either as a bettor or bookmaker?

One starting point is to look at the historical frequencies of the individual events. Using all data from the 2022-2023 NHL season, a player who is one of the top four goal scorers for his team fails to score in 66% of games. The home team fails to score three or more goals 57% of the time. For Kozak’s actual bet, you would look at the probabilities for the specific teams and players — especially which skaters are healthy and expected to play — and other factors that might influence the outcomes, but for our purposes it’s enough to use aggregate figures.

When people try to estimate the probability of a chain of events using intuition, they often wildly overestimate it. In this case a thoughtless person might assume that since each of the nine events is more likely than not, there’s a pretty good chance that all nine will happen.