Todd McFall
Articles
This article is about how well markets react to rule changes adopted by sports leagues. In this case, we study how well betting markets reacted to the introduction of the tennis serve clock in 2020. The Efficient Market Hypothesis suggests that there might be a period of time during which market participants recalibrate prices as they determine how much new information impacts the market. We believe our paper to be important to this journal because we find evidence that suggests sportsbooks were somewhat slow to respond to the on-court implications of the rule change, which exposed the sportsbooks to downside risk. In an age of increased opportunities to wager on sports crossed with leagues' willingness to alter the rules that govern play, we see the evidence we present as a cautionary tale for sportsbooks, many of which cannot afford short periods of lower-than-expected returns.
In 2020, men’s professional tennis players began facing a 25 second limit between the end of a point and the start of a new one. This rule change constrained players’ behavior, as previously they were allowed unlimited time between points, and is exactly the kind of idiosyncratic shock the Efficient Market Hypothesis predicts could lead to inefficiencies in tennis betting markets. We use easily obtained data from about 11000 men’s professional tennis matches and a straightforward algorithm to show it was possible to experience a 30-percent increase on returns to betting in the time period following the implementation of the rule change. However, as is consistent with the idea of efficient markets, the opportunity to exploit inefficiencies closed, as betting markets wised up to the implications of the rule change. We show markets were slow to understand that returns to younger and taller players increased with the serve clock.
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