How Bookmakers Set Odds
How bookmakers “make” or calculate odds can be a little complicated for the new gambler. Here we explain the most basic way bookmakers calculate their odds. We all know that bookmakers make money by paying win bets and keeping the money from losing bets. However, this raises some simple questions:
- How does a bookmaker make money when the winnings and losses are the same?
- What happens when there are more winning bets than losing bets?
- Why don’t bookmakers go out of business when this happens?
Naturally the bookmaker is not going to set generous odds on the favourite team, or else every. Finding value and profit in the odds set by bookmakers. How Do Bookmakers Calculate Odds, Set Prices and Make Money? Successful bookmaking is about building margins into odds and balancing the book so no matter who wins the bookie makes a profit. Here we explain the difference between a bookmaker and a betting exchange, and outline why a betting exchange offers more value, more.
The “Margin”
The answer to these three questions is the “margin”.
The “margin” is the “difference” (+/-) in the “real” chance of a result happening and the “actual” odds the bookmaker gives for the result happening. It is measured as a percentage (%) and is set at 100%.
For example:
When a bookmaker makes odds – they ask a number of questions. The first question is:
In a typical baseball game there are two possible results:
Team A will win or Team B will win
So the “real” chance as a % are Team A has a 50% chance of winning and Team B has a 50% chance of winning. (This equals 100%)
If we change the “%” to standard “odds” by bookmakers then this looks like:
Team A @ EVE and Team B @ EVE [EVE = EVENS – that is a 50/50 chance]
Or in “European” odds (decimal)
Team A @ 2.00
Team B @ 2.00
At these “odds” the margin is 0% - 50% + 50% = 100% so there is 0% difference FROM 100%
So if:
Person 1 bets $1 on Team A @ EVE or 2.00 And Person B bets $1 on Team B @ EVE or 2.00
The bookmaker has now got $2.00. ($1 from person 1 and $1 from person 2)
Then:
Team A wins – so the bookmaker will pay winnings to Person 1 and keep the losing bet from Person 2.
A win bet of $1 @ 2.00 (Evens) is $2. So the bookmaker gives Person 1 $2.
How Do Bookmakers Set Live Odds
Put more simply:
Person A and Person B give $1 each to bookmaker. Bookmaker now has $2.
Team A wins.
Bookmaker pays $2 to Person A.
Bookmaker pays $0 to Person B.
Bookmaker has $0 balance.
The bookmaker has not made or lost any money. So the bookmaker asks a second question:
How can I make money from these two possible results?
Instead of giving “odds” of EVE or 2.00 for a 50/50% chance result, the bookmaker will “adjust” the odds a little (change the odds) to increase the % margin from 0% to say 10% (or 100% to 110%).
This reduces the possible payout for the same result – in this case from $2 to $1.91:
For example:
Team A to win @ 10/11 or 1.91
Team B to win @ 10/11 or 1.91
[EVE or 2.00 is reduced a little to 1.91 so they pay out is now 1.91 and not 2.00 for a $1 bet]
Again:
Person 1 bets $1 on Team A
Person 2 bets $1 on Team B
The bookmaker has now got $2.00. ($1 from person 1 and $1 from person 2)
Then:
Team A wins – A win bet of $1 @ 10/11 or 1.91 pays $1.91 so the bookmaker will pay $1.91 winnings to Person 1 and pay $0 to Person 2.
The bookmaker has now made $0.09. ($2 – $1.91) This is because the bookmaker’s “margin” had a +10% difference (110%). If Team B wins then the same thing happens, the bookmaker pays $1.91 to Person 2 and $0 to person 1 and “makes” $0.09.
What about when there are more than two possible results?
In a typical soccer game there are three possible results:
Team A wins or Team B wins or a Tie (Draw)
So the “real” chances are:
Team A has a 33.333 rec % chance of winning
Team B has a 33.333rec % chance of winning
A tie has a 33.333 rec % chance of happening.
So each result has a 1/3 (or “one in three”) chance of happening. If we change the chance % of 33.333rec to standard “odds” by bookmakers then this looks like:
Team A @ 33/100 Team B @ 33/100 A tie @ 33/100
Or in U.K. and decimal odds (European odds)
Team A @ 2/1 or 3.00
Team B @ 2/1 or 3.00
A tie @ 2/1 or 3.00
So if three people bet $1 each the bookmaker has $3 and will pay out $3 to the winner.
Again, with these odds the bookmaker won’t make any money so they “adjust” the odds as before so there is a % margin. The “adjusted” odds (might) become:
Team A @ 6/4 or 2.50
Team B @ 6/4 or 2.50
A tie @ 6/4 or 2.50
So the bookmaker has $3 [$1 from 3 people] but when they pay out they will only pay $2.50 to one person and so will keep $0.50. (This would be a 150% difference or a 50% margin).
So bookmakers adjust odds to make sure that whatever result happens they still keep some money after the bets have been paid to the winners.
The third question is:
But what if everyone bets on Team A to win, AND no-one bets on Team B to win, AND Team A wins?
If you take the two baseball teams – Team A and Team B it is very unlikely that they are both exactly the same level. Although they both have a 50/50% chance of winning the game, common sense says that one team will be better than the other. This means that the bookmakers will “adjust” the odds a lot more.
For example:
New York Yankees vs Boston Red Sox
Real chances are 50/50% or Eve or 2.00
They are then adjusted for the bookmaker to make a little money:
New York Yankees to win @ 10/11 or 1.91
Boston Red Sox to win @ 10/11 or 1.91
But for this game ten people think New York Yankees will win so all ten people put $1 each on the New York Yankees.
So now the bookmaker has a problem:
If the New York Yankees win they must pay 10 people 1.91 each and they only have $10 ($1 x 10 people) so they would lose $9.10 (they pay $1.91 x 10 people = $19.10).
So they need to “cover” that $9.10 margin.
So how do they “cover” that $9.10 margin?
If the New York Yankees win then that means (of course logically) that the Boston Red Sox will lose. So the bookmaker needs to get people to bet on Boston Red Sox so they can “cover” the result.
So to “cover” the “margin” they adjust the odds again…
They adjust the odds so that if New York Yankees win they will pay out LESS than $1.91:
So if the Yankees win then the bookmaker will pay out $1.33 instead of $1.91.
They have now reduced their (potential) losses from $9.10 to $3.30 ($1.33 x 10 people is $13.30)
But they still don’t have any bets on Boston Red Sox because people don’t think they will win, (or people think the odds are not very good even if they think Boston might win) so the bookmakers “adjust” the odds again….
They “adjust” the odds so if Boston Red Sox wins then they will pay out MORE than $1.91:
For example:Boston Red Sox @ 9/5 or 2.80
So if the Boston Red Sox win then the bookmaker will pay out $2.80 instead of $1.91.
Now they only need four people to bet on the Red Sox and their “margin” will be covered:
10 x people bet $1 on New York = $10
4 x people bet $1 on Boston = $4
The bookmaker now has $14
If New York Yankees win @ 1.33 x 10 (people) = $13.30 [The bookmaker keeps $0.70]
If Boston Red Sox win @ 2.80 x 4 (people) = $11.20 [The bookmaker keeps $2.80]
How do bookmakers calculate odds for Win only markets?
Of course there are markets such as “Which team will win the League?” or “Which player will win the tennis or golf tournament?”
In these markets there is only one possible result – someone will win the tournament! But the bookmakers offer many teams or players odds to win that league or tournament.
But unlike “match” result betting where the possible results are usually 2 or 3 [Win / Lose / Tie] in “Win” only markets there is only one result (Win) with many possible winners:
If we take the Premier League win market as an example:
There are 20 teams in the league so there are 20 possible teams that have a chance to win the Premier League. So the “real” chances are 20/1 or 21.00. But when you look at the odds the lowest odds might be 6/4 or 2.50 for Manchester City and the highest odds 5000/1 or 5001.00 for Swansea for example.
To calculate the odds in these markets the bookmakers use one, two or all three of the methods listed below (not in order):
- Statistics [Most people say “Stats”] known as the “Statistical Favorites”
- Opinion known as the “General Consensus”
- The amount of money placed on the teams known as the “Money Favorites” or simply “The Favorites”
Manchester City, Chelsea and Manchester United have won the league the most times in recent years so they will be the statistical favorites.
Manchester City, Chelsea and Manchester United will also be opinion favorites – most people in the media and people who like football think that one of those three teams will win the league.
Most people betting will bet that one of Manchester City, Chelsea and Manchester United will win the league or / and individuals will gamble large amounts of money on those teams to win the league which makes them money favorites.
So the bookmakers will “adjust” their odds to dramatically reduce how much they pay for the favorites e.g. Manchester City - and dramatically increase how much they will pay out for teams that most people believe will never win the league e.g. Swansea.
What are “fixed” odds?
These are often found on “coupons” for soccer and the odds are prepared days or weeks in advance, for calculating the odds for these fixtures the bookmakers use years and years of statistical data of both results and general overall betting patterns to choose their “odds”.
Coupons also encourage gamblers to bet on more than one fixture so the “chances” of two results happening increase dramatically.
For example two soccer games can have NINE (Fixture 1 has 3 possible results x Fixture 2 has 3 possible results) so the chances increase with the odds still low which means an increased margin – so it is easier for the bookmaker to cover margins in fixed odds betting.
What if the bookmaker cannot cover the (potential) losses?
There are a number of ways they may try to “cover” potential losses:
They may place bets with other bookmakers so they receive “winnings” which they can pay out to winners who bet with them. [This often happens in horse racing]
They may stop taking bets on a possible result and / or increase odds on other possible results.
They may set a bet limit of the amount people can bet on a result.
They simply take a “hit” and use profits from other events to cover the “loss”.
Final word
Online bookmakers make and calculate betting odds based on a lot of statstical data and customers habitual bets. And in order to earn profits regardless of the match result and league result without customers noticed, they adjust their odds and set margins. So to be good punter and get profits from bookies, you have to understand what they do, what they think about you. It's the first step to win constantly against bookmakers.
Lots of people that are betting on football underestimate the importance of the odds they’re getting. They understand the main concept of how much will they win with their wagers, but don’t go deep enough and it is one of the main reasons they are losing money in the long run with their football betting. This guide in or series of how to bet on football covers finding value in football bets.
You have to learn to look at the odds as possibilities and pick your bets based on a complex approach that includes a variety of factors. In order to do that, you need to learn how the bookmakers work first. That’s the purpose of this article – to show you the whole process behind football betting odds and give you some tips how to take advantage of the positive value that sometimes occurs.
Of course, the process is not exactly the same with each and every bookmaker out there, but the main principles remain similar.
First Step: Data Analysis
It all starts with analyzing all the possible information out there. The sportsbooks have a bunch of odds compilers and traders who are getting paid to do that. They have the best possible tools and formulas as well which allows them to evaluate the probabilities for each game from a statistical point of view.
Previous results, recent shape, injuries and suspensions, pretty much every significant factor is included to reach the initial evaluation of each game. It’s safe to say that the bookmakers are really good at it, especially when it comes to the most popular football leagues such as the English Premier League, the Spanish La Liga, the German Bundesliga, the Italian Serie A, the Champions League. They attract so much money, that the operators don’t hesitate to invest lots of money and effort to be as close as perfect as possible.
Cash Projections
After the probabilities of each outcome of the football match are determined, it’s time to get to the next step: changing the odds to include the cash projections. The sportsbooks have algorithms based on previous experience that help them predict with a decent success how much money will be placed on each outcome.
This is extremely important since they need to keep a certain balance on each football match. If the money isn’t spread in the correct proportions, they risk losing a fortune and depend on luck way too much. As you could expect, the sportsbooks don’t like losing and don’t like risks.
This is why including the cash flow projections helps them attract money to certain outcomes that usually would see fewer bets if the initial probabilities are the only factor behind the odds. The best examples are the home games of widely popular teams. Let’s take Barcelona or Real Madrid for example. Most people usually bet on them winning and this is one of the main reasons the odds are extremely low and almost never contain value.
The Margin/Juice
How Do Bookmakers Set Odds
At this point, the bookmakers already have a precise idea what to expect from the game and they also know approximately how much money to expect. This allowed them to compile the odds for each market, but they still need to ensure they will be winning in the long run. If they give fair odds, they will be around the break-even point and we all know that’s not the case.
This is where the so-called margin or juice comes in. Simply put, the bookmakers gain an advantage by giving overall odds that are a bit lower that they should. If we take a look at a random two-way football betting market like Over/Under 2.5 goals, for example, we could see that placing proportionate wagers won’t bring your money back in full.
Let’s say both outcomes are with the same probability and there is a 50% chance for each. Fair odds would be 2.00 for both and if you bet 10$ on over and the same on under, you will get 20$ back, no matter what happens. In reality, the prices would probably be about 1.93 and the difference is the bookmaker’s margin.
The percentage varies in each operator and depends on lots of factors. Brick-and-mortar sportsbooks usually have a higher one since they pay bigger taxes, while it’s rather low online. The best bookies on the web have about 3-5% margin on most of their football markets.
Why Do the Odds Change?
The process is now finished and the bookmakers have the odds ready and launch them on their platform. But that’s not the end, as we’ve all seen the prices change before the match starts and the driving factors behind it are usually similar:
- Objective change in circumstances: this could be an injury, a suspension, any other change that might affect the performance of both times and influence the possible outcome of the game;
- Cash flows: the initial cash projections are accurate, but to an extent. Sometimes the expectations differ from reality and the bookmakers have to adjust.
Where Does Value Come from?
We’ve explained how the system works and now it is time to take a look how could we take advantage of this knowledge. There are two main ways that value can occur:
Wrong Initial Evaluation
The bookmakers are sometimes wrong in their initial evaluation of the game. That happens rarely, but it happens nonetheless. Despite all of their data and tools available, the sportsbooks are not always perfect. Especially when it comes to minor leagues that don’t attract so many customers. Using all of their powers would mean lots of costs and this is where you can take advantage.
If you know a minor league really well and have some good sources of information, you could beat the bookies. The best examples are fixed games, earlier knowledge of injuries, connections in a certain club and so on.
There’s another way to beat the bookies, but it’s much harder. You have to be very good with numbers and find a way to process data better than them. To be honest, this one’s really hard and most people would fail. Unless you are a math magician, you’ll hardly succeed with such an approach.
Beat the Crowd
Since we know how important cash flow is and how it affects the odds, this is the other way to find value. In popular leagues, the money placed could sometimes skew the prices to a point where there is money to be made. When millions go in one direction, the bookies adjust and you could find some good betting options.
This is the much easier and much more efficient way to find bets with positive expectations. Most punters are not well-prepared and you can get the better of them in the long run.
Conclusion
As you can see, the whole process behind the odds is complicated and finding good bets is not easy. It requires a lot of effort, experience and a complex skill set. We encourage you to not limit yourself and try combining different approaches for the best results, especially when you’ve got a sign up bonus to use. Even the slightest edge might be the difference between a winner and a loser at the end of the day.