How do Bookmakers Calculate their Odds
Introduction
The whole point of betting is to make money by taking advantage of the odds offered for a specific event. All punters know the equations: stake x odds = payoff and payoff – stake = profit. Therefore, the higher the odds on this system, the greater is the profit for a successful bet. Consequently, if a player wants to always receive the best odds and therefore always make the greatest profit, they only need to sign up at the best betting platform. That said, do you know how betting odds are calculated?
Following this train of thought, if all bettors manage to win their bets on a specific market, then the bookmaker stands to lose a lot on money. It sure sounds as a bad way of doing business. However, this is far from the truth. As strange as it may sound, if there is one thing all bookmakers do not want to do, is to gamble on one outcome over another. What they actually do is practicing an exercise of great and very delicate balance.
The mathematics
The prices (or odds) are set through an algorithm that reduces the variance and ensures a profit while still reflecting the actual probability of an event occurring. The profit is reflected in the margin each bookmaker sets. This margin is subtracted from the total so that the actual price offered will always yield the intended profit. Let’s explain this a little more.
Let’s assume that the margin set is 5%. The next step is to use mathematical models that calculate the possibilities for each outcome of an athletic event. When the results of these models are produced, then the margin is built into the bet actually reducing the odd given by the models. For example, if the calculation says that the actual probability is 2/1 (or 3.00 in the decimal system / 200 in the American system) this is what will actually be offered to the punters:
- Fractional system: 2/1 – 5% = 19/10
- Decimal system: 3.00 – 5% = 2.79
- American system: 200 – 5% = 186
The considerations
So the actual question here is what does a bookmaker take into account as a parameter to be introduced into the algorithm they use. The list is quite long:
The statistics
The numbers never lie if you know how to correctly interpret them.- The form
When a team on a winning streak goes against a team that does not seem to be able to put two passes together, then the result is rather obvious. Things get complicated with teams that fight with their backs to the wall, or in pursuit of the same goals, or in more or less the same form. - The history
It is a proven fact that there are cases where a team is under a serious psychological disadvantage when facing another team on a home or away game. There are plenty of examples where teams in a much superior form, face teams on the verge of, or already relegated, and yet not be able to defeat them. 
The handicaps
When there is a huge difference of class between two sides then, for the bookmakers, there will be no betting on the event between them as the profit will be very little. Betting is all about profit and it makes no sense on placing a bet of 1 € to make a profit of 5 cents.To draw punters in for such cases, an entire system of handicaps has been put in place. On this issue, the Asian system of handicaps is a little more enticing than the European. The point of the exercise is to offer an incentive so that people can see the possibilities of some good profits even in events where there is no doubt as far as the outcome is concerned.
- Public and personal opinions
This is actually a most crucial part of the calculations. If the consensus says that on a specific event there will be a specific outcome, it implies that the vast majority of punters will tend to place their bets on this outcome. This will actually reduce the odds offered. - The market
For each event there is a number of markets. It is quite possible that for one market the odds may favor one side, while for another market for the same event, the odds may favor the other side. In general, for example, the odds for head to head markets are 2 to 5% lower. - The information available
This is probably the most decisive aspect. The more information exists on a game, the closer the odds offered reflect the real probabilities for the outcomes. For matches were the information is limited, the odds tend to be on the safe side for the bookmakers, i.e. lower than what they should be.
An actual example
Let’s put what we have discussed so far in an actual bet.
| Event: Team A vs Team B | |||
| Outcome | Victory team A | Victory team B | Draw |
| Odds | (2.00 – 5%) = 1.90 | (3.00 – 5%) = 2.79 | (2.00 – 5%) = 1.90 |
| Stake | € 50.00 | € 50.00 | € 50.00 |
| Payout | € 95.00 | € 142.50 | € 95.00 |
| Profit for the player | € 45.00 | € 92.50 | € 45.00 |
| Profit for the bookmaker | € 5.00 | € 7.50 | € 5.00 |
Our tools
At the end of it, what interests the punter is what makes them make a profit out of the betting process. BET-IBC always has your best interests in mind. This is why we have created a set of tools that help you sort out what you need before making your choices. Tools like our odds converter, or our over/under and Asian handicap calculator, take out the need for various calculations that the punters had to make in the past. However, a fully informed punter is always a good punter. And a fully informed punter is a punter who is well aware of how betting odds are calculated and how the betting industry works.