Betting odds are the heart and soul of sports betting – the very foundation. They represent both the likelihood of an event happening and the potential payout if you do make a successful bet.
Understanding how bookmakers set odds isn’t just interesting, it can also help you to identify a value bet — bets where the odds offered are higher than the actual probability of it happening.
Here, we’re going to look at how bookmakers set odds and how you can use this knowledge to your advantage to pick the right bet and improve your betting strategy.
How Bookmakers Set Odds
Probability and Implied Odds
At the very core of odds-making, we have probability. Bookies basically assign a probability to every possible outcome of an event. Then, the odds they offer are a reflection of this probability but are slightly adjusted to make sure the bookmaker gets a profit. This little tweak is called the “vig” or the “overround.”
So, for example in a tennis match – where there are only 2 possible outcomes, if the bookie thinks Player A has a 60% chance of winning and Player B a 40% chance, the implied odds without the ‘vig’ would be:
- Player A: 100/60
- 1.67 decimal odds
- 67/100 fractional odds
- Player B: 100/ 40
- 2.50 decimal odds
- 6/4 fractional odds
However, because they need to make a profit, they’ll adjust these odds slightly to create that margin – and maybe offer odds like 1.60 (⅗) for Player A and 2.40 (7/5) for Player B.
The Market Influence and Adjustments
Once they set their initial odds, they’ll then monitor all the betting activity and adjust accordingly. If lots of bets are placed on one outcome, the bookmaker might potentially lower the odds for that outcome and minimise any potential losses. Conversely, punters might start putting money on the other outcome – and balance the books a bit more.
This means that the bookmaker should get a profit no matter what the outcome.
Data and Algorithms
Lots of modern bookmakers use things like advanced algorithms, historical data, and expert analysis to help them calculate odds – which consider things like:
- Team/player form and statistics
- Head-to-head records
- Injuries and suspensions
- Other external factors like weather conditions, etc
- Market trends and other betting patterns
The Overround and Bookmaker Margin
The overround (or vig) is the bookmaker’s edge – which is how they make a profit regardless of the outcome. If the actual (true) probability of all of the possible outcomes adds up to 100%, then bookmakers have to adjust odds so that the total is more – normally around 105-110%.
So, for example, if you look at the football odds today – with the three possible outcomes, you might see:
- Bookies odds: Home Win (1.91), Draw (3.50), Away Win (4.00)
- Implied probabilities: 52.36% (Home), 28.57% (Draw), 25.00% (Away)
- Total: 105.93% (Overround = 5.93%)
It’s the extra 5.93% that is what ensures the bookies make a profit over time.
How to Identify a Value Bet
You’ll often hear people saying that you should only place a bet if it’s a value bet… but what is it? Well, it’s basically when the odds offered by a bookmaker are higher than the true probability of the event actually happening.
1. Calculate Your Own Implied Probability
To decide if it’s a value bet, you’ll need to compare the bookmaker’s implied probability with your own opinion on the matter.
To work out the bookies’ implied probability it’s: Implied Probability = (1 / Decimal Odds) × 100
So, for example, if the bookie gives a team odds of 2.50 , the implied probability is: (1 / 2.50) × 100 = 40%.
If you think that true probability is closer to 50%, then it’s a value bet.
2. Compare Odds Across Different Bookmakers
Different bookmakers set slightly different odds – based on their own models. If you compare lots of different odds, you’ll be able to find the best odds and go with that.
3. Follow The Market Movements
Looking at how the odds are moving can help you to identify value. If odds change a lot, it it could show that lots of people are betting on a certain outcome – and you could potentially bet on the other side before any adjustments are fully made.
So, hopefully you know a bit more about how bookies set their odds – and how you can spot a great value bet!