Betting on the NCAA basketball tournament is big business—an estimated $9 billion might be spent gambling on March Madness this year. With that kind of money at stake, it's a safe bet that professional gamblers will be out in force trying to take advantage of the regular Joes putting down cash. It's the sports world version of "smart money" versus "dumb money"—and before you fill out your bracket, be aware of these basic tips.
Ed Feng spoke with CNBC about what to watch out for during bracket time. Feng runs The Power Rank, a sports data and prediction subscription service. Feng's "quant" background—parlance for data analysis—includes a Ph.D. from Stanford. In time for the tournament, he wrote a new book helping amateurs compete in against pros like himself.
Don't overrate underdogs
"The higher seeded team has won 71 percent of 810 tournament games since 2002," (Tweet This) Feng said, pointing out that while the upsets are more memorable, they are rare. "In the big picture, the favorite usually wins, which makes it worth trying to predict the outcome of the tourney."
Don't obsess on the early rounds
"The most important choice in your bracket is the champion," Feng said, because "early round games are inconsequential compared with the championship game." As a result, it might be more efficient to pick a final champion and then work your way backwards, rather than getting caught up with all the low-point games in the first weekend.
The team with the highest chance of winning tends to get overpicked in pools. Usually the top favorite is a bad-value trade. "You need the right strategy" to win your pool, Feng said. If tourney betters pick the likely favorite, like Kentucky in this year's tournament, they could get the champion right but lose out because of the early-round games. "With so many others in contention, it's quite likely that someone gets lucky and beats you," because both of you have picked the right champion, but you lose out because of early-round randomness.
Instead of picking the public favorite, look for an undervalued team that still has a strong chance of winning it all, Feng said. In 2012, that team was Ohio State: It had a 19 percent chance to win it all, but only 5 percent of contestants picked the Buckeyes. If a team like that wins, "you have a great chance to win your pool."
Live by the 3, die by the 3
Teams that rely on 3-point shooting tend to have a wider variance in their point outcomes. Those teams are "susceptible to upsets." Only two champions since 2002 had a 3-point-shooting rate higher than the collegiate average. But when it comes to finding a low-seeded underdog that may make it through, 3-point-happy teams are the place to look. VCU in 2011 made the Final Four despite being a 12-seed that barely made the tournament in the first place.
Playing the brackets "is much like counting cards in blackjack," said Feng, reflecting on Jeff Ma, the MIT card counter who inspired the movie "21." He didn't win every hand and didn't win every time the chances were in his favor, but over time he made a lot of money. Of course, the NCAA tourney isn't blackjack. "The tournament is particularly frustrating because it only happens once a year, but that doesn't mean you should pick upsets at random in your bracket."
Your absolute best advice
"Find a small pool," Feng said. The larger pools have simply too many people—betters can do everything right and still lose to some lucky, uninformed non-fan. Smaller pools give better odds to those who do the right things. "By picking all favorites," Feng said, "you have a 43 percent chance to win a five-person pool. You'll win about every other year."
And by "favorites," Feng means picking the higher-ranked team according to his Power Rank—it's not always the higher seed.
For a medium-sized pool of greater than 10 or 20, "you need to pick a value team as champion that has a high win probability" but doesn't get picked by the other people in your pool.
"Don't get in a large pool of over 100 people," Feng said.