How do bookmakers determine their odds and what follows?

How do bookmakers determine their odds and what follows?

Sports event betting is an ongoing fierce battle between bookmakers and bookmakers. For players as participants in it, it is extremely important to know exactly how bookmakers work, how they form their odds and how they make a profit for themselves. This is the only way bettors can increase their chances of success and take the upper hand over the bookie in the long run.

Each bookmaker has teams of people, most commonly referred to as traders or risk analysts. Their job is to work out the odds for each sports event offered by the bookmaker, calculating the likelihood that a particular event will occur based on a number of factors.

What are sports betting odds?

The essence of sports betting odds is to reflect how likely each outcome of the match is. Outside of betting, odds are most often expressed in percentages.

Let's take the coin toss as an example. In this case the probability of falling tongues is 50% and the probability of falling round is also 50%. In sportsbooks, instead of percentages, bookmakers use odds to represent these odds. Here's how it works...

Let's go back to the example of throwing a coin. Heresies and tours are equally likely, each at 50%. To turn the percentage probability into a coefficient, we need to apply the following formula:

We take 100 as the sum of the two probabilities and divide it by the number representing the corresponding probability. In this case, the odds ratio is: 100 divided by 50, or 2 (usually represented by bookmakers as 2.00). Logically, the coefficient for the tour is the same - 2.00.

Let's say that before the coin is thrown, one person has bet $ 100 on tongues and another - $ 100 on tours. No matter what happens, at odds of 2.00 for both odds, the bookmaker must pay $ 200 ($ 100 on bet and $ 100 on winnings) to one of the players. So there is nothing left for the bookmaker. That sounds like a bad business plan for a bookmaker who still does not want to be a charity but is looking for a profit.

This is why bookmakers lower the odds and thus pay less profit to the players, keeping some difference for themselves (called margin). For example, the bookmaker lowers the odds for both probabilities (tongues and turns) by 1.90. In this case, he will pay $ 190 to the winning player instead of $ 200, keeping the difference of $ 10 to himself. In this way, the bookmaker guarantees a profit regardless of whether the tongue or the ball falls.

How are sports betting odds formed?

By the same logic, the odds for the outcomes of football matches are formed. Let's take the Leicester-Everton meeting as an example. Taking into account all the circumstances (momentary form, home factor, rivalry history, missing competitors, etc.), the bookmaker determines the following probabilities for the final outcome of the match:

Victory for Leicester - 50% Draw - 30% Victory for Everton - 20%

Using the formula we described above, with a full one percent payout, the odds should look like this:

Victory for Leicester - 2.00 Draw - 3.33 Victory for Everton - 5.00

Unfortunately, you will not find such odds with any of the traditional bookmakers, as this would mean that they would pay all the bets and would be left without any profit for themselves.

To avoid this, they retain a certain percentage of the proceeds (margin) by modifying the odds for each potential outcome of the meeting and lowering some of them.

So, in the end, the odds might look like this:

  • Winning Leicester - 1.75 (57% probability)
  • Tie - 3.20 (representing a probability of 31.25%)
  • Everton Victory - 4.60 (21.73% probability)

Thus, the total sum of the percentages of each probability exceeds 100 and reaches 109.98 (57 + 31.25 + 21.73). The upper limit of 9.98% remains for the bookmaker and in fact represents his profit (margin). Thus, in an ideal situation, if the bookmaker accepts bets for a total of 109.98 , distributed in proportion to the three exits, he or she will pay out a profit of 100 and hold a profit of 9.98 .

In general, the margin is different for each bookmaker and the market available, and can vary between 2 and 20%. Logically, it is best for every bettor to play in a bookmaker and in markets where the margin is lowest in order to get the highest possible return on their bet.

Bridging the bookmaker margin

Knowing how bookmakers form their odds and determine their margin, we need to turn to the main question - how to make a long-term bet on profits. Because apart from making the right predictions, we have to make them with such frequency that we can overcome the bookmaker's margin. This is where the biggest challenge in sports betting lies.

In other words, if we exclude the bookmaker's margin from the accounts, betting on odds of 2.00, we need 5 winning forecasts out of 10 in order to bet and be down. But when we add a 10% bookmaker margin and bet odds of 1.90 instead of 2.00, then 5 winning predictions will not be enough: 5 winning bets x 1.90 = 9.50 return on 10 units. Ie we will be at a loss and in practice we need at least 6 profitable predictions to make a profit.

So we come to the conclusion that in order to overcome the bookmaker's margin, we need to make more accurate predictions.