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Contributing Soccer and US Sport Editor
Contributing Soccer and US Sport Editor
Ever wondered how betting odds work, or asked ‘How are betting odds calculated?’. To be successful, bookmakers need to know how to calculate betting odds.
Canada bookmakers must reflect the probability of an outcome occurring in the odds they set, but also need to ensure that they don’t expose themselves to too much risk. The idea is that the bookmaker should always make profit from the bet, no matter who wins, and this entails pricing up the market. In this guide, we’ll walk you through how to work out odds in betting.
So how are betting odds calculated? How sports odds work is that all the No.1 bookies try and make the prices they offer roughly equate to the probability of a real event occurring. We’ll use the coin toss example here as it’s the easiest to understand. The likelihood of landing on heads when tossing a coin is 50%. In fractional terms this is 1/1, and in decimal odds this is displayed as 2.00. However, assuming an equal amount is wagered on heads and tails, it would be impossible for a bookmaker to make money if they offered these true odds. Instead, how sports odds work is that bookmakers set a margin and then incorporate this commission, known as a vig or an overround, into what they offer to punters. Assuming that the overround is 5%, the odds now offered on heads in the above bet would be 1.91, or 10/11.
So let’s have a look at how betting odds work with an example. Let’s say that, taking the above example and applying it to a sporting market, the bookmaker is offering odds of 10/11 for either side to kick off a football match. While the true odds of this bet would be 1/1 or 2.00, the bookmaker has built their margin into the odds that they are offering. They’ve done this so that they are guaranteed to make money whatever happens. If $50 were placed on each team before the match, the maximum return the bookmaker would have to pay out would be $95.50. The bookie is therefore guaranteed to make a profit of $4.50 for every $100 placed on this market with the current margin applied. Of course, the question of how do odds work in sport is more complicated than this in most sporting events, as probability changes and there are often more than two competing teams or athletes. There will also usually be different amounts of money placed on each outcome, making it necessary for the bookmaker to find a balance between the different outcomes.
Bookmakers use a wealth of information to calculate the real probabilities of outcomes occurring in any given bet. So how are betting odds calculated for a game of soccer? In a football match, for example, they might analyse current form, historical form, player data in terms of injuries and suspensions and so on and so forth.
Let’s look at how betting odds work for horse racing. Odds for horse races such as the Grand National or golf tournaments where there are lots of competitors, such as the Open Championship, will be more cautious – there are far more possibilities in terms of outcomes. While, on the face of it, this may seem to offer better odds for the punter, the bookmaker will build higher margins into the prices that they are offering. This is the basic answer to the question of ‘How are betting odds calculated?’.
As we’ve established in the previous paragraphs outlining how sports odds work, the vig or overround is how bookmakers balance the books and ensure they make a profit regardless of what outcome occurs. In reality, it’s almost impossible to balance a book perfectly and bookmakers will often have greater liability on one outcome than another. Technically vig and overround are two different things. The first is the percentage profit a bookmaker makes from wagers, while the overround is the percentage the book makes over 100% for a whole event or market. Bookmakers, therefore, need to know how betting odds work in relation to the vigorish and the overround.
Bookmakers use an easy mathematical formula to work out their margin in a market where there are multiple outcomes and the odds are unequal i.e. there is a favourite or favourites and multiple outsiders. In this example let’s say that there are seven outcomes. These are represented by the following equation:
((1/A) + (1/B) + (1/C) + (1/D) + (1/E) + (1/F) + (1/G)) x 100
Here, to calculate betting odds, Canada bookmakers will convert their odds to decimal. Let’s use an example from a horse race.
If we add these into the equation, we get:
((1/4.33) + (1/15) + (1/6.5) + (1/10) + (1/3.5) + (1/21.00) + (1/4.50) x 100)) = 110.70. If you take 100 away from this, the overall margin for the race will be 10.70%.
In order to make this margin work, the bookmaker will ideally want to keep an equal proportion of bets across each line. So almost a quarter of the bets to go on Horse 1, another quarter on Horse 5 etc. right down to Horse 6. This horse would only have a relatively small percentage as it’s the outsider and the bookie doesn’t want to have to pay out too much if this horse wins and lots of people have wagered money on it. This is just one example of how betting odds work, but it should be useful for your sports bets.
To calculate betting odds, Canada bookmakers will also bear in mind how punters are placing their money on the market after it has opened. If, for example, everyone opted to place their money on Horse 1 in the above example, the bookmaker would be looking at a huge loss if that horse won the race. To mitigate against this, how betting odds work is that the bookie will increase their margin by reducing the odds on the most popular line to prevent more people betting on it.They will also, at the same time, reduce their margins by increasing the odds on the less popular lines to encourage punters to wager on those and therefore balance their books. The more outcomes there are on a market, the more difficult it is for the bookmaker to balance. These markets tend to have higher margins than markets such as 1X2 and Asian handicap.
When you ask how are betting odds calculated, you should know that there is always a favourite – which is the outcome with the shortest odds. Generally, the bookmaker does not want the favourite to win because:
This is why favourites are often offered at poor, or ‘odds-on’ prices. The outsider winning is usually a case for the bookie to celebrate, but when Leicester City won the English Premier League at odds of 5,000/1 in 2016 in one of the biggest sporting shocks of all time, the industry lost out on tens of millions of dollars.
When figuring how to work out odds in betting, bookmakers will consider the type of market first and foremost. Simple markets, such as sure bets, head to head, or 1X2 betting where there are only three outcomes, have the lowest margins because the lines have less risk and it’s easier for the bookmaker to balance the books. This means that the odds are more reflective of their probabilities, which offers greater value to punters.Higher margin markets, such as horse racing or, in football, first goalscorer and correct score, tend to have lots of different outcomes, so the bookmaker will build more of a margin into the odds that they offer so that they can control their book. In such an instance, punters might find it useful to compare odds between bookmakers, as they are more likely to fluctuate in higher margin markets than they are in lower.
Accumulator betting is popular with punters and bookmakers tend to do promotional offers on these types of bets: for example accumulator insurance, where if four of your five selections win, you get your stake back. But accumulator bets have very high margins – odds which are nowhere near their probability – which is why the bookmaker can afford to put these promotional offers on in the first place.
Let’s show how betting odds work for accas with an example. Say you want to place a double on two tennis matches: Andy Murray v Novak Djokovic and Rafael Nadal v Roger Federer. There are four possible outcomes from the two matches, and in a theoretical world where all four competitors are at their strongest, all have an equal chance of winning.
If no margin is applied, a $50 bet on any of the above could leave you with a $200 win. This won’t happen at a bookmakers because of how sports odds are calculated in Canada, but let’s say each outcome is priced at 10/11, or 1.91, to win. This equates to a margin of 4.7%, meaning a total margin for the bet of 9.4%. So, a $50 bet would actually only net the punter $182.41. Accumulator odds can give you a great return, but how do odds work in sports? They give the bookmaker a margin, and the more selections you pick the more margin the bookmaker has.
There are hundreds, perhaps even thousands, of online bookmakers out there and the competition between them also helps to answer the question of ‘How are betting odds calculated?’. Canada bookies are listed on odds comparison sites and punters use these regularly to decide which offers the best value on certain markets. This will often force bookies to lower their margins to as low as they can possibly get away with.
How are betting odds calculated? While attempting to find the best value odds on a particular sporting market, you may have come across enhanced odds or price boost offers run by bookmakers. While these may often sound like a great deal, there are two major reasons bookmakers do this. The first is if they are running a line which has a very low margin and they want you to wager more money and the second is if they are trying to balance a line by providing increased, seemingly better value, odds for one outcome. Bookmakers may also offer enhanced odds on accumulator and multiple bets, but as we’ve already discovered these types of bets have a high margin so it’s important not to be fooled by what seems to be a great value price.
It’s important to know how betting odds work for live bets. In-play odds are usually set by computer algorithms in order for the bookmaker to work as efficiently as possible. Even so, odds displayed while a match or event is underway tend to offer worse value than pre-event markets. This means that it’s usually better for the punter to place a bet before the game kicks off, unless you have a strong feeling that the market will move, such as if the favourites to win concede an early goal and their odds move out. Cash out odds are also calculated by a computer programme, taking into account the odds you were initially given as well as the odds of the outcome occurring when the cash out has been offered. For this reason, they are of poor value, as you are effectively paying a double margin on your bet.
Bookmakers are private businesses and they will know how betting odds work. So they can do whatever they want when it comes to setting and changing their odds. Once you have placed a bet, your odds are locked in at that price, but in the meantime, the bookie is able to lower odds and suspend markets however they see fit to protect themselves. There’s nothing that you can do to fight against this, it’s simply their prerogative. Generally, though, odds will be set roughly in line with the probability of each outcome in mind. The bookie’s margin, and then their ability to balance their books in the case of an outcome coming true, will also then be factored in, leaving you with the odds quoted in the sportsbook.
At Wetten.com, we aim to provide our customers with recommendations for betting sites with the best value odds on a wide range of sports. Whether you wish to place a bet on a football match, a wager on a horse race or you’d like to choose from a whole host of other markets, including basketball, cricket, american football, baseball, golf, tennis, ice hockey, rugby and athletics, these sites will have you covered! As one of the premier bookmakers in Canada, each of these sites will like to provide their punters with regular offers and all you need to do to take advantage of these offers is to sign up with them for a free account. After that, just deposit your funds and you can start betting with these sites right away! Hopefully, you’ve found this guide on how betting odds work very helpful, but if you have any further questions about betting then just let us know and we will be more than happy to get back to you with an answer.