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How do bookmakers set the odds?

Bookmakers - Odds calculation

Do you enjoy the occasional sports bet? Or perhaps you're a passionate punter who places multiple bets a day. Either way, at some point you've likely wondered how bookmakers set their odds and how exactly the betting markets work. You'll find out the answers in this article.

Here are the main parameters that oddsmakers take into account to set the odds:

  • The margin
  • The handle (total amount bet)
  • The probabilities

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The bookmakers have to profit

Naturally, the bookmakers consider the margin first when they set the odds. This is how they keep the business running. Every business has to make a profit, otherwise it is doomed to failure. A bookmaker is also a business and must therefore make a profit.

To do this, bookmakers offer odds that are adjusted according to the probabilities, which allows it to be lucrative in the long run. If a bookmaker estimates a probability at 1.55 or 1.60, it’s likely that the odds would be set at 1.5. This is how sports betting sites work.

Bookmakers, like us punters, will not make money every time and on every game. But in the long run, they are the big winners.

More bets, lower odds

At every bookmaker, the odds are also lowered if the handle (total amount bet) is too lopsided on one team or another. Bookmakers don't like having a high amount of libability on the result of a match. Should the handle on a game be 80% in favor of one side, for example, the bookmaker would suffer a heavy loss if things go wrong. To counter this, the books will often adjust the odds according to the amount of action coming in.

For a practical example, let’s consider a Premier League match between Liverpool and Manchester United. For our hypothetical, say the odds open with Liverpool being the favorites at 2.15 odds to get the win at Anfield while Manchester United come in as the underdogs at a price of 3.40 to win outright.

Let’s say the books then received heavy action on the side of Liverpool, creating a lopsided situation where 80% of the money placed was on the Reds. In this scenario, the bookmakers would likely alter the odds to make a bet on Liverpool less enticing. They could drop the odds on the home side to 1.85, thus dissuading bettors from backing the Merseyside club. This, in turn, would raise the odds on United, say to 4.00. In theory, this would result in more of the betting public backing the Red Devils, thus helping to even out the amount of action the bookmakers have on each side.

Remember, if there is a perfect 50/50 split in the amount of money bet on both sides of a bet, the bookmakers are guaranteed to walk away with a profit. This is likely what they would prefer in an ideal world. Therefore, if you've done your research on a match and have concluded that the odds posted are much higher than they should be, you'll want to lock in your bet as soon as possible. This is how value bets are made.

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Probabilities, the headache from high school

Probability. A vague memory from maths class that you probably preferred to forget. And yet, they are essential in sports betting.

Using the formula: (1/odds) x 100, you can calculate the probability of your bet winning according to the bookmaker. As an example, take a Champions League match between Chelsea vs Rennes:

  • For the bet "Chelsea win": (1/1.30) x 100 = 76.9. According to the bookmaker, Chelsea has a 76.9% chance of winning.
  • For the bet "Rennes win": (1/11) x 100 = 9. According to the bookmaker, Rennes has a 9% chance of winning.

It is thanks to this calculation that the bookmakers fix their odds. This allows them to determine the margin they can apply, and therefore the values to offer on each match.

You can then use the formula: (Odds x Stake) = total return - initial stake = net profit, to determine how much you stand to win on a given bet. Using the example from above, let's say you want to bet €50 on Chelsea to win:

  • (1.30 x €50) = €65 - €50 = €15

Your total return on this bet would be €65 meaning your total profit would end up being €15. As you get more experienced in sports betting and as the formula becomes more second-nature, you’ll be able to quickly calculate potential winnings on the spot.

Other factors

When setting their odds, bookmakers also take other parameters into account on a match by match basis. Some examples are:

  • The form of the teams: A red hot team will generally see its odds drop while a team in a slump will tend to receive higher odds than normal. 
  • Suspensions, injuries and unavailable players: Obviously, it is more difficult to get a victory without your best players on the field. A club without its important players will see its odds increase considerably.
  • Match schedule: Teams often opt to rotate their squads in preperation for a more important match on the horizion. This can lead to higher odds as well.

As you can see, there are a lot of factors for bookmakers to take into account when calculating odds. They have to think about their profit while remaining attractive for the players.

Why compare odds?

As you will have noticed, the greater the odds, the greater the potential winnings. Therefore, it’s easy to understand why guaranteeing that you always receive the best possible betting odds for your wagers will have a profound impact on your profits. Odds can sometimes vary up to 10% on different bookmakers. While that may not seem like a significant amount for just one bet, consider the effect over an entire season.

Let's take the example of a match between Southampton and Watford and the offerings at three different bookmakers.

I bet €20 on Southampton to win with the odds of:

  • Bet365 - 2.00 = €40 return
  • Unibet - 1.97 = €39.40 return
  • Vbet - 1.90 = €38 return

In this scenario, the best odds on the market would see us taking home €2 more than the worst price. Over the course of 100 bets, this would turn out to be €200!

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