How do bookies set odds?

How bookmakers are balancing the book so no matter who wins, the bookie makes a profit?

The world of betting is a risky business. Customers definitely understand the probabilities that are involved in their betting to be profitable. However, bookmakers are also affected by the risks of betting. Bookmakers only make a profit by pricing their betting markets towards making sure that the odds offered are lower than the statistical and researched probability of the event. To successfully market their betting pricing, the bookmakers also channel their efforts towards keeping their markets attractive to potential customers.

To keep their success consistent in the long-term, bookmakers’ practice what is called overround. Overround is a practice where bookmakers factor in a profit margin on all the prices that are offered by the bookies. Overround is what helps bookies decide the odds on any market and how much betting profit they will make.

Explaining Overround

A perfect book in betting odds will round up the implied probability of all outcomes at 100% in total. However, bookies make use of overround to increase this possibility to be higher than 100% and this overload becomes the profit for the bookies. So, if a bookie has odds of 1.43 for Wolves to win against Burnley with odds of 2.7, then we will calculate the implied probability. Using this formula, (1/Decimal Odds) x 100, the implied probability for a Wolves win lies at 70% and the odds for a Burnley win are at 37%. This means that there is an overround of 7% which is the profit the bookmakers will gain from this event.

Why bookmakers use accumulators

Bookmakers like it when gamblers place accumulator bets and when you consider our explanation of overrounds above, it is highly understandable. Accumulators increase the betting odds and uncoincidentally solidify a gambler’s chances of losing. When a gambler places multiple bets, it increases the overround. If a bookmaker has an overround of 103%, and a gambler selects 10 matches on an accumulator with 103% overround, then the bookie’s overround is 30%. In other words, his betting profit is 30%.

How overround is determined

Because gamblers don’t equally bet on all outcomes, there is a high chance that they will back one outcome instead of another. This is the reason why bookies prefer to overround the shorter odds on one and lengthen the odds on the other. In the process of adjusting odds, bookies make the effort to protect the overround. This process will help ensure that gamblers will begin to back other outcomes due to the improved odds on offer.

With highly popular markets, bookies understand that their overround has to be lower in order to be competitive against their rivals. With the large volume of bets on football matches, for example, there will still be enough incentive for profit.

How markets are determined when making a bet?

A market is something that allows people to trade their services or items in exchange for payment. Bookmakers allow their customers to only accept the price or buy on the outcome for a future event (except for exchanges with websites like Betfair) A market is only created in situations where the odds have been set by the bookmaker. These odds are only based on the gambler’s perception of chance relative to what the results of each event may be. Realistically, bookmakers typically do not bring up the prices of their markets in-house. Instead, their prices are received from third-party feed providers. Complex algorithms are applied by making use of the strength of the participants, previous data, audience betting predictions, or they get rid of the odds from the bookmaker and create aggregated prices. As a result of this, the bookmaker is given the choice to create a marketplace with odds that are competitive and less competitive.

With the amount of relative uncertainty with the outcome, a bookmaker will definitely lose confidence concerning the results of the bet. Bookmakers usually ensure that there is a large overround when creating odds for the market in order to fully ensure that there is a fully uncertain outcome.

Controlling risks in bookmaking

When the event is getting closer, there can be less uncertainty than that which was originally present in the original pricing. This means that the risks can be mitigated and there will be increased confidence levels from gamblers which leads to fewer amounts of overrounds in total. A bookmaker confident in their preliminary evaluation should not move the odds. This might not always be the best option as sometimes, not moving the odds will make the results to be out of line with what other operators have, and there will be overly exposed results on an outcome. Instead of taking that risk, bookmakers commonly alter the odds based on the drift of money. More cash coming in for the effects in the odds shortening and the options lengthened.

From this, we can definitely infer that there is a lot that goes into the work of bookmakers to successfully create odds with good overrounds. It is because of this extensive research that beating the bookmakers is one of the best goals to achieve in the world of sports betting.