What is Cash Out?
Cash Out is an opportunity to settle your bet before the event has ended. The bookmaker may offer you a settlement figure at 80 minutes which will be less than the amount you would win if you let the bet run to the end of the match. However if your team is winning by 1 goal then cashout allows someone to mitigate the risk of a late equaliser. In a 5 team accumulator our first 4 teams may have won. The bookmaker will offer us a lower cashout value that eliminates the reliance on a result from the 5th team.
Why is it an option?
Bookmakers offer Cash Out for one reason – it maximises their profits. It is always bad for the punter and it is always good for the bookmaker.
Cash out is tempting because it plays on the psychological notion of “Loss Aversion”. Loss aversion is a cognitive bias that describes the notion that the “pain of losing” is psychologically twice as powerful as the “pleasure of winning”.
Bettors have bias towards loss aversion, leading to a fear that a bet that is winning late on may lose – and the pain experienced from that switch is greater than the benefit gained from winning. The average bettor therefore goes through a net-painful experience and there is a temptation to mitigate the risk of pain. That temptation will result in sub-optimal decision making when the mathematics of Cash Outs are broken down.
The mathematics of cashing out
Pre match we place £10 on Liverpool to beat Manchester United at 3/1.
Liverpool lead 1-0 with 10 minutes to go. The cashout value is £30. The odds of Liverpool to win are 1.2 on the exchange. To work out the value of the cashout we need to divide the “cashout out offer” by the “full payment” divided by the “in play fair odds”:
- Cash out offer = £30
- Original Odds x Stake = £40
- In Play Fair Odds = 1.2
What if the bookmaker offered us £35 to cash out? The EV of this bet would be 105%. This would be a good bet and we should take it. The problem is we will never, ever be offered a bet with an EV of 105%. The bookmaker knows the EV of a cashout offer and it will always be stacked on their side. The bookmaker has already applied some margin to us with the original bet and is now doubling down with even more margin on the Cash Out Offer.
Imagine the EV of the original bet was 90% (as professional bettors we shouldn’t be taking this, but for arguments sake lets imagine we have). We have already lost equity on the bet. Now the bookmaker offers us a cash out which has another margin applied to it. We cash out and we have money in the bank and this feels like a success. In reality we have given the bookmaker equity not once – but twice. Win-win for the Mr Bookmaker.
Should you ever use Cash Out?
No.
Alternatives to Cashing Out
Hedging is for gardeners. The only time we should cash out is if we know that the other side of the bet is +EV – in which case we should be taking it regardless of whether we have backed the other side.