Certainly, every gambler has ever thought about how the odds in bookmakers are formed and how do bookies make money.
I’ll try to give my exhaustive answers to these and other questions in my today’s article.
Bookies odds formation
To begin with, let’s figure out what forms the initial bookmaker odds for a particular sporting event. Formation of the odds is based on two main factors – outcome probability and bookmaker’s margin.
The first factor of bookies odds formation is quite simple – each event has more and less likely outcome. The lower is outcome probability, the higher are odds. And vice versa, the more probable is the outcome, the lower are the odds.
Therefore, it’s logical that in matches between an obvious favorite and underdog the low odd will be on the chalk’s winning since the probability of this outcome is extremely high. The outsider’s winning, in its turn, will be evaluated with higher odd as there is less chance to win.
By the way, in the case of an outsider’s success, a bookmaker can hit a good jackpot, since most of bettors will obviously bet on favorite’s winning. However, such sensations are rather rare.
Usually, in large bookmakers, there are always experienced analysts in the team, whose task is to form the bookies odds for a certain event. Of course, only in case that this bookie is not a clone, i.e. it doesn’t use the line of another bookmaker in its work.
What is margin?
Another important factor in the formation of odds is bookmaker’s margin. It’s also the way how do bookies make money. The margin is a certain percentage of its own profit, which was originally placed by bookie on every match/fight/race, etc. Thereby, in spite of the outcome, the bookie wins in any scenario.
By way of illustration what is margin, let’s consider a specific example:
Let’s say we have a match between two absolutely equal teams. Accordingly, their chances to win equal to 50% to 50% (or 0.5 and 0.5). In a good way, the odds for both outcomes should be 2.0 (1/0.5). But bookies are clearly not satisfied with such situation as they need to get their guaranteed income.
That’s why the bookmaker puts margin in the odds, which largely depends on the level of its “appetite”. In our case, let’s take a round number of 10%, to make it clearer how this margin is set.
So, these 10% the bookie will distribute between two outcomes (per 5%), and accordingly, the probability of each of them will be equal to 55% (or 0.55). Now let’s calculate the final odd, which will give us a bookie taking into account margin. It will be equal to: 1/0.55 = 1.82.
Thus, you can bet on each of the outcomes only @1.82 with absolutely equal chances to win of two rivals. Of course, 10% of margin is too much, but 4-7% can be found among many bookmakers.
Now you understand what is margin and how do bookies make money with a help of this. As I mentioned above, the percentage margin level can vary greatly in different bookies, depending on their greed.
For instance, the average margin of Pinnacle is only 2.2%, while Bet-at-home value is 6.5%. Sportingbet also sets about 5.8% margin.
As for betting exchanges, their system is slightly different. They don’t earn on margin, but on commissions with players’ wins, so the odds there are often quite competitive. Lack of margin makes exchanges attractive for professional gamblers.
Bookmakers’ earnings and arbers
Today we talked about how bookmakers make money. Now, let’s figure out how the earnings of bookmakers and the margin directly affect the arbers.
When betting on opposite outcomes in different bookmakers, we essentially beat them with their own weapons because such bets allow us to bypass the margin. And this means that bookie loses its guaranteed profit. Accordingly, it’s quite logical that bookmakers don’t welcome arbers in the ranks of their customers and try to fight with them in every possible way.
From this article you understand how do bookies make money and how bookies odds formed. It is important to know for newbies, including arbers. Therefore, I just couldn’t ignore this thread.
In case after reading this article, you still have any questions, leave them in comments and I’d be happy to answer them.