Every player has probably thought at least once about how bookmakers form odds and how bookmakers make a profit.
We will try to give you answers to these and other questions in our article.
Formation of odds
To begin with, let’s figure out how the initial odds are formed by a bookmaker for a particular sporting event. There are two fundamental factors when setting odds: the probability of the outcome and the bookmaker’s margin.
As for the first factor, everything is quite simple – each event has a more probable and less probable outcome. If the probability of a particular result is lower, then the odds for it will be higher. If this probability is higher, then the odds will be lower accordingly.
Therefore, it is quite logical that in matches between a clear favorite and an underdog, the low odds will be for the favorite to win, since the probability of this outcome is extremely high. The underdog’s victory will be considered a higher odds, since according to probability theory, he has much less chance of winning this battle.
By the way, if the underdog wins, the bookmaker can hit a jackpot, since most players will obviously bet on the favorite’s victory. However, such sensations do not happen very often.
If you want to find the best odds for a particular event, there is no need to search them manually. You can create your own odds comparison software and significantly improve it using xml sports feeds offered by OddsMarket. In this case, you’ll get the best opportunities for betting from more than 300 bookmakers, 45 sports and 250 markets.
Bookmaker’s margin
Another important factor in forming odds is the bookmaker’s margin. The margin is a certain percentage of its own profit, which is initially included by the bookmaker for each match/fight/race, etc. And here it doesn’t matter what the outcome of this meeting is – bookmakers will win in any case.
For greater clarity, let’s look at a specific example:
Let’s say we have a clash between two equal teams. Accordingly, their chances of winning are 50% to 50% (or 0.5 and 0.5). Ideally, the odds for both outcomes should be 2.0 (1/0.5). But this state of affairs clearly does not suit bookmakers, who need to receive their guaranteed income.
That is why the bookmakers include a margin in the odds, which largely depends on the greed of the bookie. In our case, we will take a round number of 10%, so that you can better understand how this margin is set.
Bokmaker will distribute these ten percent between two outcomes, i.e. 5% for each, and accordingly the probability of each of them will already be 55% (or 0.55). Now we calculate the final odds that the bookmaker will give us taking into account the margin. It will be equal to: 1/0.55 = 1.82.
Thus, with absolutely equal chances of victory of two opponents, you can bet on each of the outcomes at only 1.82 odds. Yes, a margin of 10% is of course too much, but 4-7% can be found among many bookmakers.
As you understand, this margin is actually a significant part of the bookmakers’ earnings. At the same time, as I already mentioned above, the percentage level of the margin can vary greatly in different offices, depending on the greed of a particular bookmaker.
For example, the average margin at Pinnacle is only 2.2%, while at 10bet bookmaker its average is 6.7%. Marathonbet includes about 3.5% margin in the odds.
Important note: there is no need to carry about the margin percentage or its calculation if your product is based on OddsMarket odds api cause you will always get the best quotes at your disposal.
As for betting exchanges, the system there is slightly different: they earn not on the margin, but on commissions from players’ winnings, so the odds there are often quite competitive. The absence of margin as such makes betting exchanges attractive to professional players.
Conclusion
Understanding the process of work and earnings of bookmakers is an important point for beginner players, so we can’t stay away from this topic and hope that we have clarified it enough for you.