How Bookmakers Fix the Odds

How Bookmakers Fix the Odds

The way that the fan or uninformed punter looks at betting, it’s a game of football or tennis or a cricket match – maybe with his favourite teams and players – and it’s entertainment.

The way a bookmaker looks at it, it isn’t fun at all. It’s simply a series of probabilities. Probabilities which you can measure and make a profit from.

Swap the Fun for Numbers and the Money Is Easy

It is this different mindset that enables the bookmaker to come out on top when taking on the common-or-garden punter. You may actually know more about the competing teams than the bookie. But unless you understand odds compiling, you only know it in a disorganised, haphazard way.

Whenever you feel the temptation to put money down on a sporting event, get yourself into numbers mode first. Move out of the world of entertainment, and into the field of chance, odds and probabilities… the bookmakers’ home territory. In order to win, you’ll need to be as cold and methodical as they strive to become.

Working Out Odds Starts with Common Sense

For instance, rolling dice gives every outcome the same chance. There are 6 sides, so each side has a 5/1 chance of appearing on top. This means that it won’t happen 5 times and it will happen once. Simple to work out, and useful to know if a bookmaker is trying to offer you just 4/1.

Let’s get into the bookmaker’s mind for ten minutes, see things as he sees them, and watch how he tries to turn your favourite sports into cash.

Even bookmakers have children, so let’s imagine we’ve turned up for a birthday party. There are 10 pieces of cake to be had, 6 of them with blue icing on top, and 4 with pink. Little Sidney, whose Dad runs a book at the dog track, is first in line...

What are Little Sid’s Chances of a Blue Piece of Cake?

Let’s use the basic formula. The total number of possible outcomes is 10. That is, 6 blue pieces and 4 pink pieces added together. Now take away the number of chances of a “blue piece of cake outcome” – which is 6 – and we’re left with the top figure for our odds, which is four.

The bottom figure is simply the number of times that the outcome could happen. The cake has 6 blue pieces, so our bottom figure is 6.

Put the two figures together, and we have the true odds of Sidney getting a piece of blue cake: 4/6.

Let’s do it again, but this time Little Sid has had to show some manners, and he’s second in line. Someone else has already been given the first blue piece... so what are young Sidney’s chances of getting a blue piece now?

The total possible outcomes are now nine (one blue piece has already gone remember). Take away the number of chances that the blue piece outcome can occur (five), and the figure remaining is four. This is the top figure in our odds. The bottom figure is the number of times that the blue outcome can happen – and with five blue pieces left, the true odds of Sidney getting a blue piece are now 4/5.

But Sidney’s Dad Had a Terrible Night at the Dogs on Tuesday...

Done up like a kipper by the punters indeed. So he’s decided to make a bit of money back, running a book on Sidney getting a slice of blue cake. First off, he’s worked out Sidney’s true chances – just as you and I have. But being a bookmaker who’s skint, he now needs to add a nice profit margin for himself.

Let’s grab that piece of cake off the little tinker who beat Sidney to the cake board, and go right back to the beginning...

With ten pieces on the plate and Sid’s true chances of a blue bit at 4/6, how does his Dad build a profit into his odds? He can’t offer the other parents at the party odds of 4/6. There wouldn’t be anything in the deal for him.

Instead he will offer the next shortest price bookmakers offer, which is 8/13.

Sidney's Dad Recalls his Bookmaking Basics

He remembers that odds come in pairs - always have, always will. And if a bookmaker offers the favourite in a two-horse race at 8/13, then the matching price for the outsider will be 6/5. Standard industry practice since betting began, designed to save the bookmaker time while extending his profit margin across the whole event.

But at 8/13 and 6/5, Sid's Dad hits a snag. The percentage profit he makes "If Sid gets blue" is 1.9%, but the profit he makes "If Sid doesn't get blue" is a massive 5.45%. What his Dad really needs is a set of odds which return him around the same profit, whether the poor kid ever gets round to winning a piece of the cake or not.

To create a more balanced book delivering similar profit whatever happens, Sid's Dad needs to shorten up the 8/13, and lengthen the 6/5. So he changes the 8/13 to the next shortest price, which is 4/7.

If a bookmaker offers 4/7 about a favourite, the world would come to an end if he didn't offer 5/4 for the outsider - which is exactly what Sidney's Dad now does.

So the odds actually offered are 4/7 Sidney gets a blue piece of cake (a profit margin of 3.63%) and 5/4 he doesn't (which gives Sid's Dad a margin of 4.4%).

All this birthday-cake palaver gives you a fair indication of how bookmakers aim to have their cake and eat it. But thanks to the sporting investment revolution now sweeping the betting world, the bookies are gambling on markets they don't understand... and ignoring the basic maths which kept them in profit for so long.

Secret of Value