Bookmakers and odds know how

Knowing how bookmakers operate will increase the chances to be successful as a bettor in the long run.

By setting the rules and manipulating the odds, bookmakers have a significant advantage over their customers. This explains why they are still in business after so long.

How does a bookmaker manipulate the odds? We will explain with an example:

Suppose the Spanish club Real Madrid hosts the English club Sunderland in a friendly match. The probabilities have been calculated as follows: Real Madrid Wins – 60%; Draw – 25% and Sunderland Wins – 15%. By converting the probabilities into betting odds we come up with:

Win Real Madrid: 1/60 * 100 = 1.67 ratio

Draw: 1/25 * 100 = 4.00 ratio

Win Sunderland: 1/15 * 100 = 6.67 ratio

Those would be “fair” betting odds and they exist only in theory because the profit margin of the bookmaker is not yet included. Let’s recalculate the odds with a profit margin of 10%. This means we replace the 100% in the formula with 90%:

Win Real Madrid: 1/60 * 90 = 1.50 ratio

Draw: 1/25 * 90 = 3.60 ratio

Win Sunderland: 1/15 * 90 = 6.00 ratio

So by lowering the odds for each possible outcome, the bookmaker ensures a 10% profit margin. But wait! There’s more! In practice you will rarely find uniform distribution of the profit margin on all possible outcomes. In our scenario, Real Madrid is the favorite while Sunderland is the underdog.

As expected, the majority of bets will be placed on the favorite. For a bookmaker, this means that the profit margin will be more distributed on the favorite as well. In order to compensate and balance the “books”, a bookmaker will operate with a negative profit margin on certain outcomes. A more realistic scenario for our example would be:

Win Real Madrid with 20% profit margin: 1/60 * 80 = 1.33 ratio

Draw with 10% profit margin: 1/25 * 90 = 3.60 ratio

Win Sunderland with 30% loss margin: 1/15 * 130 = 8.67 ratio

Even with a 30% loss margin, the overall profit margin is:

Profit margin = 1 –(1:(1/1.33 + 1/3.60 + 1/8.67)) = 12.51%

Those are approximate calculations in order to explain how bookmakers manage to gain a profit margin even with 30% loss margin on certain outcomes.

As a bettor, it’s important to know what the profit margin set by the betting provider is, in order to determine the amount you have to make up for, before you manage to enter the profit zone. The following concepts will help you achieve just that:

The profit margin of a bookmaker is higher when there are several outcomes to a particular event. In soccer for example, where there are 3 possible outcomes 1, X or 2, the profit margin is usually between 7-13%. In sports like tennis or baseball there are only 2 possible outcomes 1 or 2 and it’s normal for the profit margin to be lower.

All special bets like: time of first goal, total corners in the first half and so on, have a very high profit margin. This creates a big disadvantage for bettors and we recommend staying away from them.

Popular soccer leagues have a lower profit margin than exotic leagues. This happens because popular soccer leagues are offered by all bookmakers and there is a fierce competition among bookmakers to offer the best odds in order to stay in business. By lowering their profit margin, bookmakers can offer higher odds, making them more attractive to bettors.

Exotic leagues are offered by fewer sports betting providers and there is less reliable information for bookmakers to create accurate probabilities, thus the profit margin is higher due to a high risk of inaccurate rating by the bookmaker.

A much underestimated aspect of betting is the mass psychology as a vast majority of bettors will place their bets according to their gut feeling with no interest for statistics or any other background information specific to that event. As a bettor, you don’t compete against bookmakers but against other bettors.

Professional bookmakers are well aware of how important is the behavior of all market participants in order to exploit them.