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How Do Bookmakers Set Odds And Make Profit

How Do Bookmakers Set Odds And Make Profit?

betting oddsHaving a profitable bookmaker is all about building odds with the right margin and also balance the book so that whatever the outcome the bookie will come out with a profit.

You need to know that odds are not set by operators based on what is the real probability of an event to happen but also depending on the exposure that the betting site has at a particular time. The main aim of any fixed odds bookmaker is to make sure that every outcome will be backed in the same way so that the operator will make a profit regardless of the final result. This is why sometimes you can find very valuable odds if you are betting against the flow.

How To Make Odds

In this article, we will look at everything you need to know about the criteria that go into odds making. You will learn how you can calculate bookies’ margins and also show what it is the business model of betting sites and bookmakers in general. We have also analysed how odds are moving in response to the number of bets accepted and how to see where there is more or less margin built on a given price. By looking at our guide, you will be able to spot overpriced odds before the betting site will realise and how you can try to be a bookie yourself by using exchanges.

How Are Markets Prices and Odds Are Calculated?

Different betting sites have no interest in competing with each other in odds value. The primary rationale to set odds is to reduce variance with other operators and reflect what the probabilities that an outcome will occur are. Betting sites have to balance the need of making a profit and the one of being an attractive proposition to punters.

Let’s say that betting sites are setting their initial margin at 5%: they, therefore, build in that margin in the odds. This margin that has been built in it is usually called the Vig or Overround: don’t worry will explain this in more details below.

Probability

The betting site firstly calculates what they believe is the probability of an event to occur, and they then deduct the margin. So, if the real probability of a game is 2/1, then the bookmaker will subtract their 5% margin so that the odds published will be 19/10. In decimal odds it will be 3.00 and then 2.90.

But how bookmakers and traders calculate the real probability of an event? Well, they base their view on statistic, history, form and ultimately they use human opinions (which could be their opinions, other bookies opinions and people opinions).

The more information the traders have, the more appropriate will be the odds to reflect the real probability of an event. If something has never happened before the traders will have less information available and the operators will take a more cautious position when setting the price.

In sports like football odds tend to have good value as the data in possess of the trading team is significant. On the other hand, odds on the winner of X-Factor will be more difficult to guess so betting sites will build higher margins and value will be lower for punters.

To understand the odds, you can refer to an event that has just two possible results. So if for example, we are betting on which team is going to kick off a match, the chances will be 50/50 as it is based on the flip of a coin. So odds should be in reality evens for every outcome but in fact, you will never see this as bookies will build the margin on it.

Example

Generally, in this case, you will get odds of 10/11 (1.90 in decimal) on every teal to kick off. So if you bet £50 on every team, it would cost you £100, but the maximum return will be £95.50. This is because the book is getting £4.50 and it is a balanced (exact amount wagered on every team before the kickoff). If you want to know more about this, you can take a look at our section on how odds move in response to betting.

Usually, head to heat betting markets on top sports have the lowest in-house margin which is in the range of 2 to 5%. Some obscure markets though can have margin up to 20%. To find the margin on events that have multiple outcomes, there are a bit more complex calculations to make and you can look further down in this page to find some details.

Vig, Edge, Juice & Overround

The vig (also called Overround) is the process that bookmakers are following to ensure wagers are placed on every possible outcome and the betting site can, therefore, get a profit regardless of what will be the outcome. This is also what is called making a book.

In reality, though it is almost impossible to make a perfectly balanced book and this is why betting sites have liability on specific outcomes. The bookmaker, however, will try to limit this liability by amending the odds lines as the event get closer so to attract bets on those outcomes that have been backed the least. Odds on bets where they are overexposed will drop as a result.

Commission

Another way of defining the Vig is that is the commission charged by the bookmaker for taking the bet from the punter. In theory, tough Vigorish and Overround are two separate things:

It is called Vig or Vigorish the percentage of profit that a bookmaker will make from all the bets that have been placed on a market.
It is called Overround the percentage that is above 100% a book for a betting market.

How Can You Calculate A Bookmakers Profit Margin?

moneyIt is straightforward to calculate a bookmaker margin and can be done through a mathematical formula. Let’s imagine there are a total of five different outcomes with odds A to E:

( (1/A) + (1/B) + (1/C) + (1/D) + (1/E) ) x 100

To make this calculation, you will need to have odds in decimal. If you not sure how to do it, just take a look at our betting odds guide article.

Let’s do a real example to understand better what we are talking about here:

( (1/4.33) + (1/15) + (1/6.5) + (1/10) + (1/3.5) + (1/21) + (1/4.5) ) x 100)

( 0.2326 + 0.0667 + 0.1538 + 0.1 + 0.2857 + 0.0476 + 0.2222 ) x 100)

( 1.1070 x 100) = 110.70

So in this situation, the margin will be 110.70 – 100 = 10.7%

Now if the bookie can get an equal proportion of bets for every line (in the same way as the formula above it will make a 10.7% profit on that race regardless of the event. To do so, it will have to get 23.85% of money bet on first selection, 6.6% on second and so on.

Why Is Betting Odds Moving In Response To Betting?

If you look at financial markets, you will see that if there is interest in buying shares of a company those will go up, if not they will go down. A very similar principle also applies to bookmaker odds.

As we have flagged the real probability of an event happening is just one of the factors that will determine the odds. The betting site will start by compiling the odds looking at the real probabilities, but they will the add their own margin.

Adjusting The Odds

If, however, a large number of people will be on the same outcome, the bookmaker will have to adjust the odds to reduce the risk. He will do so by increasing the margin on the most popular line with the intent of reducing or stopping the betting and will reduce their margin on the less popular so to attract more wagers.

In big horse races, heaving betting on one selection can move the entire market significantly with bookies that are protecting their business.

In reality, the whole process is not too risky. Betting sites do not just wait to see what are the most popular bets and then adjust the margins. They try instead to predict their customer base preference and identify what the betting lines that will be more popular are.

Example

Let’s take for example a game between Man City and Crystal Palace. Betting sites already know that more people will be tempted to back the favourite, Manchester City: the reason being that they are expected to win and also they have more fans. The bookmaker will, therefore, build a more significant margin on Manchester City odds to win over Palace. So by backing the underdog, you will get better value, but this is not going to be a concern for the operator as long as they can have a more balanced book and make money.

The more outcomes are in a market, the more difficult would be for the betting site to come up with a balanced book. This is the reason why bookies are building in higher margins in multiple-choice markets like first goalscorer, and lowest margin on markets like win/ draw/win.

How Bookmakers Balance A Book And Make Money

BookmakerNo matter how hard a bookmaker is trying they are only able to balance their book if they can get an equal proportion of wagers. Betting is driven by people opinions and by moving odds lines it is not possible to always attract the bets in the right selections.

For example, a UK bookmaker will normally be overexposed on England in a major international tournament. Let’s imagine that England will face France in the final, it will be challenging for the UK betting sites to attract enough bets on France to balance their book unless they do build in a significant margin on England. If however, they will do so, people will not bet on England with them, but they could potentially move their business to competition.

Different Scenarios

So in this scenario, the betting sites have a decision to make. They could take the risk and hope that England will lose so they can make a profit or whether possible try to lay their liabilities with other betting sites or using a betting exchange. Taking risks in this case, it is a rapid way for the operator to go out of business so it is not usually the route followed: mitigating risks is the best answer here.

In the example above if the UK facing betting sites are exposed on England, France facing betting sites will be overexposed on France. So this means that the UK betting sites can lay their liability with the French bookies and the other way around: in doing so, they will reduce the risks and make a small profit regardless of the outcome. This is done through wholesale bookies that are working as a clearinghouse for books that are unbalanced.

This method will cover bookmakers back in the vast majority of the cases. There will still be however the situation where all bookmakers carry liabilities on the same betting market. This tends to happen frequently in horse racing when there is a firm favourite. When this is the case, there will be fewer possibilities to lay the liabilities with others operators: in this scenario, the whole industry will lose if the favourite goes ahead and wins but in reality, this doesn’t happen too frequently.

Sometimes Bookies Just Lose

You might have read stories about betting sites losing millions on some bets but this is the nature of the industry and sometimes can happen that punters will collectively beat the bookies. But in reality, this only happens rarely, and generally, you will hear operators moan when they lose, but they stay very quiet when they make a substantial profit in the majority of the cases.

What Are Better Value: Betting On Favourites Or Outsiders?

Usually, bookmakers do not like when favourites are winning. This is because if something has a high probability of winning it is likely that the majority of bets will be concentrated on that outcome. When overexposed bookmakers will normally give poor value odds on the favourite hoping to make the outsiders more appealing to punters so that they can balance their book.

On the other hand, if an outsider wins the bookmaker will generally make a profit. If a horse wins at 100/1 but only a few people have backed the bookie will make an overall profit if they have taken lots of bets on the other selections. Rarely bookmakers do get it wrong and price an outside at horrific odds: this had happened when Leicester City won the Premier League back in 2016.

Leicester Case

The price for The Foxes to win the title was at around 5000/1 at the start of the season: those odds were indicating that a team like Leicester will not win the title in 5000 years. Even if was difficult to predict Leicester to win the title, the odds were obviously too valuable for punters, and it did cost UK betting operators millions. So even bookmakers with all their resources can get it wrong sometimes, and if you are a lucky or smart punter, you can take advantage of some situations.

Where Are The Best Value Odds: High Vs Low Margin Markets

ForecastUsually, simpler markets have better margins because there are fewer surprises. Typically, markets that have only three choices (Win/Draw/Win) have the lowest margins and the reason being that the betting sites don’t have to work too hard to balance the book. Risks will, therefore, be less and margins usually are less than 5%. Professional gamblers tend to focus on under/over and handicap markets for this reason as over time the value will be more significant.

House Margins

The more selections there are in a betting market the higher will be the margin as the bookmaker will need to cover themselves as the book is likely to be unbalanced. This means that when betting on the correct score, first goalscorer and so on you will always find higher margins compared with more straightforward markets.

It is also worth considering that sports that are most popular like football and horse racing have a lower margin than more obscure ones. The main reason is that betting sites have lots of information available and also they need to produce competitive odds so that they can attract customers. More obscure markets tend to have higher margins as less information are available, and also the betting site will have more problems to try and balance the book. Novelty and Special bets have usually the worse value as they are more unpredictable.

Stick With Lower Margin Markets

We do suggest that regardless if you are a beginner or a veteran, you stick with the lower margin markets as the value will be significantly higher over time. On the other hand, if you are convinced about an outcome in a higher margin, you might want to consider getting involved as the betting site might have got it wrong and over-priced the line. Another thing to think is that higher margin usually tends to vary more between betting sites so you can even hedge your bets if necessary.

Also, you might have noticed that the majority of bookmakers offers are on multiple outcome markets: the reason is that on those markets betting sites have higher margins and therefore room to run promotions and still be profitable. Unless you already decided to place a bet on a market try not to be dragged into it just because there is an offer.

High Margins For Accumulators & Multiple Bets

As we have seen accumulators tend to attract more offers and the reason is that they are high margin. When you place an accumulator you are accepting a significantly higher house advantage: this is why operators can reduce it by offering accumulator bonuses, freebets, money back insurance and still end up in positive territory.

Let’s say for example that there are two tennis matches between players that have the equal chances of winning. There would be 4 possible outcomes, and each of those outcomes will have a 25% probability of happening.

If there was no bookies margin if you would place a £100 bet on any of those 4 outcomes you could potentially win £400. Bookmakers however will build in their margin so you might get 1.91 for every of the outcome (10/11). So every selection will have their margin, and it will be per match ((1/1.91) + (1/1.91) x 100 = 104.7) 100-104.7 = 4.7%. Now if you combine those two matches in a double, you are effectively doubling the betting site margin: 4.7 + 4.7 = 9.4%.

Acca Insurances

This is the main reason why accumulator insurances are usually starting only from X number of selections: the more the selections, the more significant is the betting site margin.

The same will apply to other multiples like full cover bets, Lucky’s 15’s, Yankees as those are packaged multiple individual accas. Also, for this reason, you will find offers around those bet types.

Betting on accumulators is excellent fun, and you win you will get a high return. Generally, though they are poor value and over time you will lose more then you will win on average. Having said that it doesn’t mean that you shouldn’t place accumulators but it is suggested that you only use small stakes.

How Competition In Bookmaking Impact Odds

MultiplesCompetition between betting sites is fierce and has forced them to reduce their margins in the last years progressively. This is excellent news for punters that will be able to quickly shop around and find the most valuable odds for the bet they want to place.

By having a quick look at the different odds, it is easy to see the bookmakers that are trying to push an outcome to balance their book. Having betting accounts with a large number of operators will help you not only benefit from the best odds but also you will be able to take advantage of the generous welcome offers when you sign up.

Taking Advantage Of Offers

Here at BestBettingSites.Online we do not list the overall ‘best’ betting sites as with our experience we know that to a certain extent this is subjective. We have instead selected some top betting sites, and we suggest that you include most of them in your betting portfolio. In this way, you will always benefit from the best value, in addition, to get all the generous welcome offers when opening a new account. In our betting site reviews, you will find all you need to know to ensure that you know how to take advantage of regular promotions and how to find the best possible odds. In addition to that if you like to bet on sport, you can read our sports guide reviews and if you are promotions focused go to our betting offers guide.

Below we have made a list of a well-balanced betting accounts portfolio. Having an account with all those top betting sites will allow you to maximise the value from your online betting activity:

Get Best Value

Ladbrokes – the main betting site. It has a vast range of markets and also runs regular promotions for new and existing customers. Great streaming and live betting section.
Coral – an account with Coral will ensure you will take advantage of enhanced odds deals and also free bets offers for new and regular customers.
BetVictor – this bookmaker is known in the industry to have the best value on single lines so it has to be part of your betting portfolio.
ComeOn – great to reward loyalty. You can exchange points for free bets, cash or reload bonus.

Of course, the list above is just a suggestion and you might want to have a different set up after reading our betting sites reviews. Either way, it is essential you do not put all your eggs in one basket.

How To Be Your Own Bookmaker & How To Hedge Your Bets

When you hedge a bet, you are merely avoiding committing too much in one way or another. So, instead of chasing a win you are trying to prevent a loss. If you have for example a market that has two possible outcomes you can find different betting sites that are offering good odds on every one of the two opposite selections. If you back both selections in the right proportions you will lock a secure profit. Although the fun will be reduced, you will get a gain regardless of the result.

Although this is not strictly illegal, it is not well accepted by the industry. If a betting site will suspect that you are using their book to consistently hedge your bets they are likely to limit or close your betting account. This is also known as arbing, and we have a section where we look at this in details.

Exchange Betting – Better Odds

WinTraditional betting sites are employing teams of experts traders, analysts and mathematicians to set odds and balance their books. You will still be able to find loopholes and get a top price, but it is a challenging thing to do.

This is the reason why the vast majority of professional punters are betting on exchanges. A betting exchange it is a platform that allows everyone to back or lay a bet and in doing so setting their own odds. The betting site is acting as a middleman here and will take a commission on winnings. With betting exchanges, everyone is their own micro bookmaker.

Odds Are Based On People Instincts

Odds are therefore based more on people instincts and are far less influenced by the criteria that are driving fixed odds books. This is why odds are always very close to 100%, or odds can be significantly different from fixed odds bookmakers. With a proper strategy betting consistently on betting exchanges can be very profitable.

In our betting exchanges section we have done a full analysis of exchange betting and also provided a list of recommended operators.

Enhanced Odds & Loss Leaders

Price boosts or specials or enhanced odds are run by betting sites for two main reasons. Firstly the betting site will run the offer at a very low margin and even at a loss to try and get new customers on board hoping that they will stick around for long. In some cases betting sites might boost odds to try to balance their book.

Taking advantage of those deals, it is strongly suggested especially if you are able to get enhanced odds offers on different and opposite outcomes by signing up with different bookmakers. Since there are always strict terms around those type of offers, it is advisable to check first the bet limits to avoid disappointments down the line.

Enhanced Odds Offers

Betting sites also tend to run enhanced odds offers on those betting markets that already have high margins. This might lead some punters to believe they are actually getting a good deal, but in reality, the betting site still has enough room to make a profit. As we mentioned before this is the main reason why you will find lots of accumulator offers advertised in most betting sites. Even though the prices might be boosted the bookmaker will still make a healthy profit, a lot more than they would make if everyone would be on single bets separately.

You should try to find those enhanced odds that are run as loss leaders instead of those that are run just to balance the book. In our enhanced odds and price boost guide, we are giving some crucial advice in this regards. Having accounts with a rather large number of best-betting sites will ensure you will be in a position to benefit as and when new pice boosts are released.

Making Use Of Best Betting Promotions & Offers

You will need to be aware that the majority of offers will tempt you to bet on high margin betting markets. This is why you will see that almost every betting site are running offers on multiples or markets like correct score, goalscorer and so on. This is because the betting site still can run a profit even after discounted the costs of the promotion.

We do not suggest that you take every single deal: in fact, you should be very selective and only try to find an offer once you have decided on what market to bet. It shouldn’t be the other way around as if the promotion is the only reason you are placing the wager on that market it can well end in tears! So you should first decide the market that you want and only then looking for deals.

Aggressive Offers

You will also find that around huge sporting events betting sites are likely to run very aggressive offers even on low margin markets: this is because they want to maximise the opportunities and they are accepting this is coming to a cost. Without doubts, those are the best offers to commit to, and we suggest you are taking advantage when possible.

How To Spot Overpriced Odd?

AccumulatorAlthough all the top betting sites have solid treading teams, they are still relying on humans and mistakes can happen. Even if the price is set by an algorithm, this will still require human intervention when setting up and there are no perfect situations.

Prices could be set over-optimistically if the betting site is assuming that the outcome has more possibilities to happen than the probabilities. Punters, on the other hand, will also have their own knowledge of the betting market and with experience, they can spot when a line is off.

Spotting Overpriced Odds

Spotting those type of overpriced odds is possible by going beyond the data that is usually available and consider the subjective factors that can be relevant in the outcome. For example if you are betting on a Formula 1 driver that has lost a family member the previous week, his performance might not be as focused as usual. Odds, in this case, would probably be set based on the form so there might be an opportunity to exploit. You can learn more how to spot an overpriced odds in our beating the odds guide.

Suspended Odds And Markets

A betting site is a private business, and they can decide what they prefer when setting odds. If a betting site is not convinced in the way the betting is going or they have their liability too high they can move odds very fast or even suspend the market. As a punter, you will have to respect their decision. If you had placed a bet before the market was suspended, you would not have problems, but if you do come later, you will not be able to bet on that outcome until the betting site change their mind.

There are many reasons why betting markets can be suspended. One could be that new information has been made available: for example, if you are betting on Man Utd next manager and there is breaking news that manager X has been seen in Manchester in the afternoon, the betting site will suspend the market. Another reason is when there are large amounts of bets in a very short time. If you are betting in play, you will see that markets are temporarily suspended several times when there are dangerous scenarios. You will need to wait and place your bets when there are more calm moments of the game.

Betting In Play

It is also worth considering that when you are betting in play, the betting site will delay the acceptance of the bet: if during this time the market is suspended or odds will change, there is not much you can do rather then accepting the new odds or refrain to place the wager.

Betting Live And Cashing Out Odds

Usually, in play odds are controlled by a computer algorithm as odds traders will not be able to move so quickly and manage different markets. For this reason in play betting markets odds are more dependent from probabilities and stats and bookmakers are building up higher margins to compensate for this.

We do suggest that if you are looking for the best value, you place the bet pre-event and only go in in-play if you have a firm idea that the market will move. So, for example, you might want to refrain from backing Liverpool pre-match to win at home against Watford at odds of 1/3. If, however, the game will begin and Liverpool does concede an early goal it might make sense to take advantage of in-play odds if you are confident that the Reds will be able to turn things around.

Cash Out

Cash Out odds are also done by computer programmes, and they are worked out as a ration of the original odds that you were given. Similarly to in play odds you need to remember that Cash Out odds are not good value and this feature should only be used if you are confident that by taking action you will minimise losses or maximise profits. For example if there is a sudden change of weather or a significant injury and so on. In those cases, though it is likely that the betting site would have already suspended the market. Take a look at our cash out guide article if you want to know more about this functionality.

Why are Casino Odds Better Value Than Sports?

competitivityGenerally speaking, Casino odds are better than the ones you get with a sportsbook. When considering individual bets, they do have lower margins compared with sports betting. For example, roulette has a return of over 98% with the casino profit that is in the region of 2%. Unless you are taking advantage of a promotion, you will never see a low margin on sports markets.

The main reason why casino can offer better odds is that casino games have very fixed parameters. All games outcomes are correctly calculated like the probabilities: in this way, the casino can predict precisely what will be the long-term profit based on probabilities and maths alone.

Sports Have Outcomes That Happen In Real World

Sports is a different kind of fish with outcomes that will happen in the real world: nobody can predict what will happen with total accuracy and for this reason, betting operators are running higher margins to cover themselves against a higher level of unpredictability.

Saying that casino odds are better than sportsbook though it is quite misleading. Casinos make more cash from punters compared with bookmakers. This is because despite the individual casino bets are better value, every punter is making more bets in a session compared with sports bet. So if you are in a roulette table for one hour you will make at least 45 bets: it is improbable you will do so in sports betting.

Casino

This is why over a long period of time casino bets might generate higher losses to players and be more profitable for the operator. In sports betting, you have the possibility that you can beat the odds by spotting something that the betting site hasn’t realised. This is why betting on sports is more challenging and based on skills than the average casino game.

Odds & True Probabilities

strategyThe reason why there is no unique way to defeat bookmakers odds is that is is impossible to find out the exact probabilities of an outcome to occur. If we were able to do so, we would be all millionaires and the betting sites all broken. We all calculate probabilities lots of times every day for whatever we do, and those who have succeeded in life are people that make rational and objective decisions and also do take care in mitigating risks. The same it is for professional gamblers.

Those who are going all in hoping for a big win they normally end up in hot water. The more you are able to approximate true probabilities and the more success you will have in betting.

Conclusion

So, in conclusion, those are the 5 top rules to be a successful punter:

Sign up to more top betting sites – to secure the best price you will need to be able to shop around bet by bet and you can only do that if you have multiple betting accounts in your portfolio. We suggest you have at least 5 betting sites as this will also allow you to take advantage of the recurrent deals and promotions.

Betting On Low Edge Markets – It is best to bet on markets that have very low margins with a small number of possible outcomes and also on major sports. Try to avoid accumulators and obscure betting markets where betting sites margins will be higher.

Take Advantage Of Some Offers – Once you have decided to place a bet, look around for offers that match your taste and if you find them take full advantage. Do not let offers to drag you to markets you wouldn’t normally consider.

Limit the use of Live Betting And Cash Out Functionalities – odds will be more valuable pre-event so unless you are very confident that something will occur stay away from Live Betting and Cash Out as in the long run, you will just paying higher commission to the betting site.

Do Your Own Research And Find Your Edge – undoubtedly studying form and statistics will not give you a good edge on the betting sites as they have more resources and info and are likely to be better than you. You can, however, try to find information that betting sites are not looking at and that can have an impact on the outcome (i.e. relationship break-up, etc.). Immerse yourself into the contestant mind(s) to try to find an edge and if you do use it at your advantage against the betting site.