About Elo Ratings

Originally an invention and improvement of a chess rating system, it was created by a Hungarian-born American citizen named Arpad Elo, who was also a very famous physics professor and a master level chess player. These ratings are a method of comparing skill levels of different players/teams via a competitor vs competitor gaming format.
Ever since its introduction, this method has been adapted in all kinds of sports and is widely used in performance assessment of football teams throughout the world. Following is how you can use Elo ratings, along with some relevant examples from Champions League fixtures.

Its backing theory
When you apply Elo system to the field of soccer, every team is given a rating for every point of time. The higher this rating is, the stronger the team is perceived to be. These ratings are calculated on a regular basis, in order to include all current matches happening between various rated teams.
The winner is awarded points from the corresponding loser. The total number of awarded points depend on the rating differences between the opposition teams.
So whenever a higher-rated team beats a lower-rated team, no more than a few rating points are deducted from the loser. On the other hand, if the lower rated team ends up scoring an upset, considerably larger number of points get transferred from the higher-rated team to the lower-rated one. The pot gets shared equally if it’s a draw.

The basic mathematics
Let’s understand this calculation better by looking at an example of a soccer match between Manchester United and Real Madrid, occurring in the semifinal phase of the UEFA Champions League. Both teams are among the top 10 and have 2074 and 1861 points respectively, as per the Club Elo rankings.
You can figure that Manchester United will be risking a total of 104 points, while Real Madrid 93 points, which is 5% of their corresponding ranking points. The pot comprises of 197 points in total. Hence, you may witness any of the following 3 outcomes:
– Manchester United winning, and their ratings increasing by 93 points, taking it to 2167, with Real Madrid’s rating decreasing to 1768.
– Real Madrid scoring a win, and it’s rating increasing by 104 points, rising to 1965, while Manchester United’s rating decreasing to 1970 points.
– The match ending in a draw, and the pot of 197 points getting divided equally between these 2 teams, resulting in a minor increase in the ranking points for Real Madrid, taking its total points to 1866.5, and a minor decrease in points for Manchester United, bringing it down to 2068.5.

Other factors at play
The calculations provided above clearly demonstrate the mechanics behind Elo ratings in the field of soccer betting. However, anyone having even basic understanding of the game of soccer would figure that there’s a significant problem here. Important factors like home advantage, injuries etc. have been completely neglected.
If the above mentioned match ends up in a 1 – 1 draw in England, it would be the ideal result for Real Madrid, compared to the Englishmen, if the first game between them had resulted in a goalless draw. It is for this reason that the Elo rating calculations in the field of soccer betting are slightly adjusted in order to include important factors like two-leg matches, goal differences, home advantage etc.

Application of Elo ratings in the field of soccer betting
An important limitation that all sports bettors must keep in mind while referring to Elo ratings of different teams is that Elo values are calculated exclusively based on the past performances of teams. None of the individual players are factored into the equation, implying that the system does lose a certain amount of predictive ability under certain circumstances, for instance, game tactics, new player/manager, injuries etc. Elo factors in these changes only with the passage of time.
Regardless of that, the system is extensively used by sharp sports bettors in the form of a reliable tool to locate value bets, that is bets with a considerable amount of positive expected value in them. This rating system becomes all the more important during the later stages of leagues, after weaker teams get eliminated from the tournament and it becomes much harder to guess the winners.
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