Although there are a lot of materials on this topic around the Internet, I have found them a bit confusing and hard to understand. A good sports bettor has to know the real probabilities in order to make a good pick. Don't be surprised when I tell you that the coefficients you see when you bet on games, are actually far away from their "true" value.
Let's look at the following example, that I will use in this article, to make things more clear for you:
Say we have: TeamA and TeamB and their true probabilities are the following:
TeamA: 55% chance of winning
TeamB: 25% chance of winning
A draw between the two sides: 20% chance
When you sum up the above percentages you get 100%, which means that if the bookmaker offers you those odds they will neither win nor loose. So in order for them to profit they modify the original values to something similar:
TeamA: 54% chance of winning
TeamB: 32.4% chance of winning
A draw between the two sides: 21.6% chance
Now the sum is 108% which will guarantee the bookmaker a profit of 8%.
In European format, these odds are displayed as coefficients:
54% = 1.85
32.4% = 3.09
21.6% = 4.63
At these odds, the bookmaker pays out the player's stake multiplied by 1.85 or multiplied by 3.09 or multiplied by 4.63. Too keep things simple here's what I am talking about:
Using these figures, we can calculate back to 8%: the amount of profit the bookmaker will take:
For each $100 staked, $50 would be on TeamA to win, $30 on TeamB to win, and $20 on a draw.
If TeamA wins, the bookie pays out 50*1.85 = $92.50
If TeamB wins, the bookie pays out 30*3.09 = $92.70
If the two sides draw, the bookie pays out 20*4.63 = $92.60
This would be perfect for the bookmaker if everyone bets according to the odds. However we all know most people bet on who they favor.This is also called the "public opinion spread". This means that even though TeamB has only 32.4% chance of winning, its supporters would bet on it.
Let's say the actual "public opinion spread" is:
70% total money staked on TeamA to win
25% total money staked on TeamB to win
5% total money staked on a draw between the two sides
For every $100 staked, the bookmaker will take $70 on TeamA, $25 on TeamB, and $5 on a draw.
If the bookmaker offered odds as per the 'true' probabilities - and not as per the actual spread of bets, for each $100 they took, they would pay out (with profit margin accounted for):
If TeamA wins: 70*1.85 = $129.50
If TeamB wins: 25*3.09 = $77.25
If the two sides draw: 5*4.63 = $23.15
You see now that this is not a very good way to make profit, because in some cases the bookmaker will win money and some will loose money.So instead, the bookmaker aims to make a consistent profit by calculating its odds based not on the likely outcomes, but rather on the spread of bets that they expect to receive on the different outcomes.
So a bookmaker expecting the following spread of bets:
70% total money staked on TeamA to win
25% total money staked on TeamB to win
5% total money staked on a draw between the two sides
will adjust its profit margin at 8% profit, so the percentages will be - 75.6% / 27% / 5.4%
And converting these figures to odds:
1.32 TeamA to win
3.70 TeamB to win
18.52 for a draw between the two sides
So on each $100 staked:
If TeamA wins bookmaker pays out 1.32*70 = $92.40
If TeamB wins bookmaker pays out 3.70*25 = $92.50
If it's a draw bookmaker pays out 18.52*5 = $92.60
Thus the bookmaker's profit is between $7 and $8 = 8%. (Rounding of figures dictates that the profit is not always precisely 8%.)
Bookmakers employ further formulas to calculate adjustments to make to odds depending on the actual money flow on each outcome of an event.
Let's look at the following example, that I will use in this article, to make things more clear for you:
Say we have: TeamA and TeamB and their true probabilities are the following:
TeamA: 55% chance of winning
TeamB: 25% chance of winning
A draw between the two sides: 20% chance
When you sum up the above percentages you get 100%, which means that if the bookmaker offers you those odds they will neither win nor loose. So in order for them to profit they modify the original values to something similar:
TeamA: 54% chance of winning
TeamB: 32.4% chance of winning
A draw between the two sides: 21.6% chance
Now the sum is 108% which will guarantee the bookmaker a profit of 8%.
In European format, these odds are displayed as coefficients:
54% = 1.85
32.4% = 3.09
21.6% = 4.63
At these odds, the bookmaker pays out the player's stake multiplied by 1.85 or multiplied by 3.09 or multiplied by 4.63. Too keep things simple here's what I am talking about:
Using these figures, we can calculate back to 8%: the amount of profit the bookmaker will take:
For each $100 staked, $50 would be on TeamA to win, $30 on TeamB to win, and $20 on a draw.
If TeamA wins, the bookie pays out 50*1.85 = $92.50
If TeamB wins, the bookie pays out 30*3.09 = $92.70
If the two sides draw, the bookie pays out 20*4.63 = $92.60
This would be perfect for the bookmaker if everyone bets according to the odds. However we all know most people bet on who they favor.This is also called the "public opinion spread". This means that even though TeamB has only 32.4% chance of winning, its supporters would bet on it.
Let's say the actual "public opinion spread" is:
70% total money staked on TeamA to win
25% total money staked on TeamB to win
5% total money staked on a draw between the two sides
For every $100 staked, the bookmaker will take $70 on TeamA, $25 on TeamB, and $5 on a draw.
If the bookmaker offered odds as per the 'true' probabilities - and not as per the actual spread of bets, for each $100 they took, they would pay out (with profit margin accounted for):
If TeamA wins: 70*1.85 = $129.50
If TeamB wins: 25*3.09 = $77.25
If the two sides draw: 5*4.63 = $23.15
You see now that this is not a very good way to make profit, because in some cases the bookmaker will win money and some will loose money.So instead, the bookmaker aims to make a consistent profit by calculating its odds based not on the likely outcomes, but rather on the spread of bets that they expect to receive on the different outcomes.
So a bookmaker expecting the following spread of bets:
70% total money staked on TeamA to win
25% total money staked on TeamB to win
5% total money staked on a draw between the two sides
will adjust its profit margin at 8% profit, so the percentages will be - 75.6% / 27% / 5.4%
And converting these figures to odds:
1.32 TeamA to win
3.70 TeamB to win
18.52 for a draw between the two sides
So on each $100 staked:
If TeamA wins bookmaker pays out 1.32*70 = $92.40
If TeamB wins bookmaker pays out 3.70*25 = $92.50
If it's a draw bookmaker pays out 18.52*5 = $92.60
Thus the bookmaker's profit is between $7 and $8 = 8%. (Rounding of figures dictates that the profit is not always precisely 8%.)
Bookmakers employ further formulas to calculate adjustments to make to odds depending on the actual money flow on each outcome of an event.
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