How Do Bookmakers Calculate Odds, Set Prices and Make Money?
Successful bookmaking is about building margins into odds and balancing the book so no matter who wins the bookie makes a profit. Odds are not just set to reflect the probabilities of an outcome they also reflect the bookmakers own exposure. The goal of any fixed odds bookie is to ensure that each outcome is backed in the right proportion so that they make a profit whatever the outcome. This means it is often possible to find good value odds if you are betting against the grain.
In this guide we cover everything you need to know about the factors that go into pricing markets. We show you how to calculate bookmaker margins, we explain what vig and overround are and how betting sites make money. We also discuss how prices move in response to betting, what markets have higher or lower margins, how to spot overpriced odds before the bookie does as well as how to be your own bookie and use exchanges.
how are odds calculated and markets priced?
Ironically the last thing a bookmaker wants to do when it comes to setting odds is gamble on one outcome over another. Prices are set in a way that reduces variance and ensures profit while still roughly reflecting the real probability of an event occurring. This is a balance of making a profit and ensuring punters are still attracted to bet on the outcome.
Bookmakers start off by setting their margin (let's say 5%) and they then set the odds for the various outcomes incorporating this commission. The margin built in to a bet is referred to as the Vig or Overrround which we will also discuss further down. The betting company calculate the probability of each outcome occurring and then subtract the margin. If the real probability is 2/1 (3.0 in decimal, 200 in American) then the bookie will subtract their 5% margin and the real odds given will be 19/10 (2.90, 190).
Bookmakers and odds traders calculate the real probabilities of something happening based on statistics, form, history and ultimately human opinion (their own opinions, other bookies opinions and public opinion). The more data that is available the more likely the bookmaker odds are going to reflect the real probability, if the event has never happened before or there is less data on the outcomes then bookmakers will be more cautious and their odds will be lower than the real probability. For example, football odds, on the whole, tend to be good value as there is a lot of data available. However, odds on say the winner of X-factor are far less certain and so will have higher margins built in, therefore overall worse value for the punter.
The easiest way to understand odds pricing is to think of an event with just two possible outcomes. We want to bet on which team will kick off a football match, this is based on the flip of a coin and so has an exactly 50/50 chance of happening. The naïve among us may think therefore that the odds should be evens for each outcome, but in reality they never will be, this is where the bookmaker builds in their profit margin.
In this case let's say the bookie is giving odds of 10/11 (1.91 in decimal) on each team to kick off. If we were to place a £50 on each team to win the kick off it would cost us £100, the maximum return however is £95.50 (£50 stake + £45.50 winnings). The margin therefore is 100-95.50 = 4.5%, if the book is balanced (equal amount wagered on each team to kick off) then the bookie is guaranteed to make £4.50 for every £100 wagered.
Probability however is only one aspect of odds pricing. Bookies don't actually set their odds based completely on the real probabilities but rather on how likely they think their punters will wager on each outcome, allowing them to balance their book. See our section on how odds move in response to betting for more about this.
Head to head markets on major sports tend to have the lowest margins, usually between 2-5%, this can go up to 20% or more if betting on more exotic lines or markets. For markets where there are multiple outcomes or uneven chances we need to do a little more calculation, details can be found further down this page.
Vig, Vigorish, Edge, Juice and Overround
The vig or overround is the process by which the bookmaker sets to balance the wagers placed on all possible outcomes so that they will make a profit regardless of what happens. This is in effect making a book.
In practice it is rarely possible to perfectly balance a book and so in reality bookmakers will tend to have liability more one way than the other. The bookmaker will change the odds lines in a run up to an event to attract bets that they have less exposure on whilst deterring more bets on lines they are over exposed on.
Another way of thinking of Vig is the amount charged by a bookie for taking the bet from the punter. Technically Vigorish and Overround are different:
- Vig or Vigorish is the percentage profit a bookie makes from all the wagers placed on a market or an event,
- Overrround is the actual percentage over 100% a book is for a particular event or market.
How to calculate a bookmakers profit margin
In any market where the odds are unequal or there are multiple outcomes then there is a basic and easy mathematical formula you can use to calculate a bookie margin. For simplicity let's say there are five outcomes with odds A-E:
( (1/A) + (1/B) + (1/C) + (1/D) + (1/E) ) x 100
To do this calculation you need to convert your odds to decimal. See our article on betting odds explained for more on how to do this.
Now let's plug in a real world example to the equation. We have a horse race with seven runners, I've taken this from a race from Catterick at the time of writing, decimal odds in brackets:
- Rusty Rocket – 10/3 (4.33)
- Native Falls – 14/1 (15.0)
- Landing Light – 11/2 (6.50)
- Desert Command – 9/1 (10.0)
- Ficka's Boy – 5/2 (3.50)
- Royal Brave – 20/1 (21.0)
- First Bomardment – 7/2 (4.5)
( (1/4.33) + (1/15) + (1/6.5) + (1/10) + (1/3.5) + (1/21) + (1/4.5) ) x 100)
( 0.2326 + 0.0667 + 0.1538 + 0.1 + 0.2857 + 0.0476 + 0.2222 ) x 100)
( 1.1070 x 100) = 110.70
The overall margin on this race is therefore 110.70 – 100 = 10.70%
The bookie will want to have an equal proportion of bets on each line, this is the same as the proportions in the equation, so for example you would want 23.86% of money on Rusty Rocket, 6.6% of money on Native Falls, etc.
how do odds prices move in response to betting?
In financial markets if there is more interest in buying the stock of a company then it will go up, if there is more interest in selling stock then it will go down. The same basic principle basic principle is true in bookmaking.
As I mentioned earlier the real probability of an event occurring is only one factor in setting odds. The bookie starts off by making a rough prediction of the probability and then adds in their margin on top. If everyone was to now bet on just one of those outcomes then the money coming in will be skewed one way. In response to this the bookie will increase their margin on the popular line (to stop people betting) and will reduce their margin on the less popular line (to encourage betting).
You can see from this example how heavy betting on one particular outcome can move entire markets. This commonly happens in big horse races.
The process isn't quite this risky in reality. The bookmaker doesn't just wait to see which bets will be popular and then move the move the margins, instead they profile their customer base in attempt to predict which markets and lines will be more popular than others.
As an example if looking at the FA Cup final between Manchester United and Crystal Palace. Now the bookmakers know there will be more betting on Manchester United, partly because they are the favourites and partly because they are more widely supported. The bookie therefore builds in a higher margin to odds on Manchester United to win over Crystal Palace. If you bet on Palace and they win you will get a better value bet but either way the bookie doesn't care, as long as their book is balanced they make money.
The more outcomes there are on a given market the harder it is for a bookmaker to balance and so multiple choice markets (such as first goalscorer) tend to have higher margins than less complex markets (win / draw / win).
How Bookmakers make money, balancing a book
No matter how hard an individual bookie tries they can only balance their books if there is an equal proportion of bets. Betting is based on popular opinion and this means that it is simply not always possible to get the right proportions just by moving their own odds lines. For example, a UK facing bookmaker will often be over exposed with bets on England in international tournaments. Let's say England are playing Spain in the final, it is hard for these UK operators to attract sufficient bets to balance the book on their own without creating a huge margin on England. If they did this people wouldn't bet on England and they could lose money to their competitors.
The bookie therefore now has a choice. Firstly, they could take the risk that England will lose and they will still make a profit. Taking risks in bookmaking is a very quick way to go out of business so instead, where possible, bookmakers will lay their liabilities with other bookmakers or through mechanisms simialr to betting exchanges.
Taking the above example if a UK facing bookie is over exposed on England then a Spanish facing bookie will be over exposed on Spain. This means the UK bookie can lay their overall liability with the Spanish bookie and vice versa, this way they both make a small profit either way (due to their margins) without having to take any risks. They do this through wholesale bookmakers who effectively work as a clearing house for unbalanced books.
This system covers a bookie in 99% of cases. There will still always be scenarios however where all bookmakers have liabilities on the same market. If we take the example of a strong favourite in the Grand National, now all bookmakers will be over exposed and there will be less options to lay the liabilities elsewhere. In this scenario the whole industry stands to lose if the favourite wins, and this does happen quite often.
You read stories all the time of bookies losing millions on individual wagers, this is the nature of the industry, punters collectively can beat the bookie but it rarely happens. You will only ever hear a bookmaker moan when they lose, they stay very quiet the 99% of times that that make a profit.
Favourites and Outsiders - Which Are Better Value?
In general, the bookies do not want the favourites to win. If something is favourite it is because on one hand it has a high probability of winning and on the other hand there are lots of wagers placed on it. Bookies will often offer horrendous odds on the favourite (if over exposed) in the hope that people will back more outsiders to balance their book, or they hope they punters will place their bets on the favourites with another bookie who has better odds.
The converse of this is if an outsider wins the bookie will tend to win. Even if a horse wins at 100/1 if only ten people have backed it then it will only cost £1000 to pay out, if the bookie has taken more than £1000 in bets on other horses then they make an overall profit. Very rarely however the bookies get it very wrong and price an outsider at ridiculous odds.
This happened when Leicester City won the English Premier League in 2016. The industry gave odds of 5000/1 at the start of the season, effectively saying that Leicester (or a similar team) wouldn't win the league in 5000 years, from today that would be before the pyramids were built. This backfired terribly for the industry and cost UK operators tens of millions. SkyBet alone paid out £5 million on Leicester and although they won't tell you how much they took in bets on other teams to win I can guarantee it would have been a lot less than £5,000,000. It goes to show that bookies, for all their resources, can price events very badly, if you are the lucky punter who happens to be on that band wagon then you can end up quids in.
Best Value Odds - High vs Low Margin Markets
Simpler markets tend to have better margins because there is less variation and less chance for unexpected outcomes. Head to head markets with two choices or match result markets with three choices (Win/Draw/Win) will tend to have the lowest margins, this is because the bookmaker doesn't have to work as hard to balance the book and therefore the line has less risk to them, expect margins below 5%. This is one reason why more professional gamblers like to stick to over/under markets and handicap bets, they are getting more value in the long run.
The more outcomes there are in a market the higher the margin tends to be to control for variation an unbalanced books. Goalscorer, correct score, etc., all have lots of options and will have higher margins.
The most popular sports and events will have the lowest margin built in. This is due to the wealth of information available coupled with the bookmakers desire to be competitive in those markets and make money. The more obscure or exotic a wager is the higher the margin. This is because there is less data so the bookie is less certain of the outcome and also because the bookie may have a harder time balancing the book. As a rule novelty and special bets tend to offer the worse value and top sports like top football, tennis, horse racing, etc., offer the best.
For a beginner or an occasional punter sticking to lower margin markets will more likely give you better value. This doesn't mean you shouldn't place bets in higher margin markets however. The higher margin reflects the greater uncertainty and therefore increases the chances that you might find a line that the bookie has over-priced. Jump on this before everyone else and you could make a good profit if it wins. Higher margin markets are also more likely to vary more between bookies allowing you to shop around and even hedge your bets (see later).
There is a reason why many bookmakers tend to push offers and promotions on multiple outcome markets, this is because they have higher margins to play with. This way they can offer you a deal while still making a good profit most of the time. Try not to get sucked in, a goalscorer market with a deal (e.g. money back on goalscorer bets if there is a red card) will still have a higher margin (and therefore less value) than the simpler match result market.
Accumulators and Multiple Bets Have High Margins
Accumulator betting attracts more bookmaker promotions than any other bet type, ask yourself why? As soon as you place an accumulator then you are in effect compounding the bookmakers margin. This is why they can afford to provide accumulator insurance, freebets, or accumulator bonuses.
Let's look at the most basic example, a double bet. You pick a tennis match between players A vs B and B vs C and let's now say all four selections have an equal chance of winning of winning their respective matches. There are four possible outcomes, A and C win, A and D win, B and C win or B and D win. Each one of these four outcomes has a 25% chance of happening and a 75% chance of not.
Without any margin If you were to place a £100 bet on any of those outcomes you could win £400. Bookmakers of course won't give you evens on an even chance so let's instead say each outcome is 10/11 (1.91) to win. This means each selection has it's own margin of ((1/1.91) + (1/1.91) x 100 = 104.7) 100-104.7 = 4.7%.
By combining these selections into a double we give the bookie double the margin, 4.7 + 4.7 = 9.4%. This is one reason why acca insurance only starts with 5+ selections and why accumulator bonuses are tiered, increasing as the number of selections increase.
Of course this also applies to full cover bets, such as Lucky 15's and Yankees, as these are just packaged multiple individual accumulators. This is also why you find so many offers for these bet types.
Accumulators are great fun and give good returns when you do win but in general they are poor value bets and the more selections you have the more margin you are giving the bookie. This again doesn't mean you shouldn't place them but perhaps you should only place small stake accumulators and multiples for this reason.
Competition in Bookmaking Controls Prices
If you believe that competition in a capitalist free market works there is no better example than modern bookmaking. Competition between betting sites forces them to run with as low a margin as they think they can get away with, this is a win-win for a punter. A quick scan of an odds comparison site is all you need to get the best price on a major outcome.
It is easy to spot which bookies are trying to push an outcome by their odds, more often than not this is because they are trying to balance their books. Shopping around is the single best approach to increasing value from your wager and maximising profits in the long run. Of course you can also take advantage of the very generous welcome deals to each time you sign up, increasing your chances further.
At OnlineBetting.org.uk if we have one consistent piece of advice for punters it is to have your own portfolio of betting sites that suits your betting style. This is why we don't list the overall 'best' betting sites as we know it is relative to what you want to wager on and how you like to bet. In our betting site reviews you can find in depth analysis of our recommended bookies to find the right ones for you, whether that be loyalty, regular promotions or the lowest margin prices. If you like to bet based on sports read out sports guide reviews and if you like to bet based on promotions take a look at our betting offers section.
Here is an example of a balanced list of five betting sites, if you had an account with them all and switched between them based on the type of wager this can really add huge amounts of value:
- William Hill – Your main bookie. Best for range of markets and best value promotions as well as more streaming and live betting than anyone else.
- Coral – Best for regular enhanced odds deals and regular free bet deals.
- BetVictor – Top for lowest margin odds, giving the best value on single lines.
- Sport Nation – Loyalty bookie, points for betting that can be exchanged for free bets, reload bonuses and even cash.
- RaceBets – A racing specialist bookie, by placing your racing bets here you can get better value and bigger market range.
Obviously this list is just a personal example and you may find a completely different set of operators are better for you. Either way just don't put all your eggs in one basket.
Be Your Own Bookmaker, Hedge your bets
Hedging a bet is simply the process of avoiding committing yourself one way or the other. In other words rather than chasing a win you are avoiding a loss. The most basic form of hedging is on a market with just two possible outcomes. Here you find two different bookmakers offering favourable odds on each on the opposite outcome and back these in the correct proportions to ensure you always make a profit. In effect you are being your own bookmaker and placing bets that balance your risks to ensure a profit. This may be less fun as you don't get the trill of the win but it does guarantee a profit.
This is not illegal but it is certainly not promoted in the industry. If you are suspected of using a bookie to hedge your bets regularly they will likely close or limit your account. This process is also known as arbitration or arbing and you can read more about it here.
Get Better Odds - Try Exchange Betting
Fixed odds bookmakers employ teams of odds traders and use tons of maths and analysis to set prices, margins and balance books. While it is possible to find the loop holes and get a great price it is very hard to do on a regular basis.
Most professional bettors almost exclusively bet on exchanges. An exchange is simply a platform in which anyone can back or lay a bet setting their own odds. In this situation the betting site is the agent who takes commission, each punter can become their own micro bookie.
In this scenario odds are based far more on individual's people's instincts and are less influenced by the factors that drive fixed odds books. Here you can find prices that can be sometimes 100% or more different to a fixed odds book, betting sensibly using exchanges can be hugely profitable, if you keep a cool head.
See our betting exchanges page for a full analysis of exchange betting and a list of recommended exchanges.
Enhanced odds and loss leaders
Enhanced odds or price boosts are run by bookmakers for two major reasons. Firstly the bookie may be running that line with a very low margin, even at a loss, to try and entice you to place your wagers with them, in the hope you carry on betting. Alternatively bookies may boost lines that they are attempting to balance, providing better odds than others to get an equal book.
These deals can be used by the punter to get extra value from bets, especially if you can get enhanced odds on opposite outcomes with different operators. It is worth checking the terms and the limits before you bet, but in general this is an effective way to get the best prices.
Bookies also run enhanced odds on many lines that are already high margin. This may look to the punter like you are getting a great deal but the bookie still has enough room to make a profit. As I pointed out above accumulators have compound margins and so many betting sites advertise enhanced accumulators. These prices are enhanced but the bookmaker is still making a nice profit and far more than they would make if you were to bet on events independently.
Try to spot the price boosts that are run as loss leaders as opposed to the ones run to balance books. Read our article on enhanced odds and price boosting to find out more. If you have accounts with several bookies that run regular price boosts you can switch between them to ensure you are always getting the bet prices.
Use Betting Offers and Promotions
Most promotions try to get you to bet on high margin lines. Nearly every bookmaker runs money back, free bets or bonuses on accumulators and markets with multiple outcomes, such as goalscorer, correct score, etc. The reason for this is these markets already have higher margins and so the bookie can afford to run a deal and still make a profit. This doesn't mean you shouldn't take the deals, if you want to place an acca or a first goalscorer bet then you may as well take the offer to get better value. Try not to do the reverse however and let the promotion be the reason that you place the bet. Decide on the wager you want and then look for the deal that will add the highest value.
For big major sporting events and tournaments, bookies will run low margin outright lines at a loss, e.g. "best odds on all teams to win the Premier League". They do this to try to get you in the door in the hope that you will carry on gambling with them throughout the league or tournament. These are the best offers to take and you should do so whenever they are available.
Try To Spot Overpriced Odds
Odds traders are only human and no matter how much experience they have and how many resources they have access to they are still liable to make mistakes. Even prices set by a computer programme require people to input the parameters and this means there is no infallible means of setting prices.
Prices tend to be set over-optimistically, i.e. the bookie assumes the outcome is more likely to happen than probability alone suggests. Punters who can use unique knowledge of markets can spot regular overpricing and make consistent profits. To do this you need to think beyond the standard form, history and stats (the bookie has far more resources than you) and instead think about more subjective factors that could impact an outcome. Let's say your betting on a driver to win a Grand Prix but you've heard a family member has died during the previous week. This single factor could have a massive impact on the outcome but may not be reflected in the odds that are more reliant on objective factors such as form.
Read far more about how to spot over pricing in our beating the odds article.
Suspended Odds and Markets
You need to remember a bookmaker is a private business and they can in effect do what they like when it comes to their odds. If a bookie doesn't like the way the betting is going or they are becoming over exposed on one outcome they can drop the odds dramatically or event suspend the market or the whole book. As a punter there is nothing you can do. If you placed your bet before a market closes it is safe but should you come in too late then there will be no slice of the pie for you.
Markets are suspended a few reasons. There may be new information that changes the probabilities, e.g. if we were punting on the next Manchester United manger and there is a news report saying "manager X spotted in Manchester this afternoon" this is enough for a bookie to suspend a market. The other reason to suspend a market is if there is a large amount of betting in a short space of time.
In play markets are suspended all of the time during dangerous scenarios. You need to be patient and try to out your wagers on during passive passages of play. Each time you place a live bet there is a delay and if the odds change or the market is suspended during this time again there is nothing you can do.
Live Betting and Cash Out Odds
Live in play odds are controlled predominantly by computer algorithms, no odds trader would be able to move that quickly with the multitude of live markets now available. In play lines tend to be worse value in terms of margins than pre-event markets. Bookies have more time to manually adjust odds before an event starts but in running they are reliant more on probabilities, stats and form and so they run a higher margin to compensate for this. In general place your main bets pre-event to get the best value and only bet in play if you have a strong instinct a market will move. For example, you don't want to back Liverpool at home because the odds are poor (1/3 for example). The game kicks off and Liverpool concede an early goal but you think Liverpool will still easily win, in play is giving you odds of evens for Liverpool to win. This is the time to bet in play.
Cash Out odds are also calculated by computer programmes as a ratio of the odds you were given initially versus the odds of that outcome at the time of cash out. Cash Out odds are not good value, if you cash out you are paying a double margin, the margin you paid when placing the wager in the first place and a second slice they take when you cash out. Cash Out should only be used in situations where you really believe it can maximise profit or minimise loss, e.g. if there is a change in weather, big injury, etc. Then again the bookie will probably have suspended the market anyway if something major happens. You can read more about this in our cash out explained article.
Why Are Casino Odds Better Than Sports?
In general casino odds are better than those you get with a sportsbook. For individual bets casino plays tend to offer better value and lower margins compared to the average sports bet. Betting on some versions of roulette, for example, will return over 98% to the player on average, giving a profit margin for the casino of less than 2%. Unless it is a promotion or loss leading line you would never see sports markets with such low profit margins.
One reason for the better odds you get in a casino is down to the fact that casino games have fixed parameters. This means all game outcomes and odds can be perfectly calculated and therefore a casino can predict its long term revenue from any bet based on maths and probabilities alone.
Sports is very different, here outcomes happen in the real world and this means no outcome can ever be predicted with 100% accuracy, therefore betting companies build in higher margins to sports bets to ensure profits in spite of higher variation.
The statement that casino odds are better than sportsbook prices is however a little misleading. Casinos actually make more money from punters than bookmaker do. The reason being that although individual casino bets are better value, we tend to place many more casino bets in a session than we would sports bets. If you sit at a roulette table for an hour with a spin every 90 seconds then you could make 45 bets, it is unlikely you would place 45 sports bets in the same time period. Therefore over time casino bets tend to prove more costly to the player, therefore more profitable to the betting company.
With a fixed odds game wahtever way you look at it you will statistically lose over time. At least with sports there is the possibility, however low, that you could actually beat the odds by spotting something the bookie has missed. This is part of the game between punter and bookmaker that many of us enjoy more than spinning reels in a casino.
Objective Judgement of Odds and Probabilities
There is no particularly special way to beat bookmaker's odds as it is impossible to calculate exact probabilities of an outcome, if we could do that we'd all be millionaires. We all calculate probabilities hundreds of times a day, whether to cross a road or wait, whether to take a job proposal or not, etc. The people who succeed in life (on the whole) are those who make rational and objective judgements and mitigate risks (whether consciously or not), the same is true of successful gamblers.
Those who throw caution to the wind might get lucky and have a big win but in general over time they will lose. The better your long term judgement at approximating true probabilities the more profitable your gambling will be.
To finish off here are my top 5 rules to successful betting.
- Use Multiple Betting Sites – You can only get the best odds and deals if you compare them and you can only act on that if you have multiple betting accounts. It costs nothing to set an account up (in fact you can claim many excellent welcome deals) so it's worth having a portfolio of at least 5 sites. Shop around and get the best value on a bet by bet basis.
- Bet On Low Edge Markets – In general stick to markets with low margins, major sports and lines with only a few possible outcomes. Avoid accumulates and multiple outcomes bets where possible, only bet this way if this is they wager you want to place.
- Use Offers Sensibly – Try to spot why a bookie is running a promotion. Are they trying to balance their book, push high margin lines or is this genuinely a loss leading cracking deal? On the whole deals on single outrights wagers give the highest value.
- Avoid Live Betting and Cash Out – Place your major wagers pre-game to get odds with lower margins. Only cash out if you think it makes real sense, cash out gives poor overall value.
- Do the Research and Find Your Own Edge – Studying form and results isn't going to beat the bookie, they are far better at this than you. Instead try to use information the bookmaker doesn't look at, bookies are very good at objective decision making but not subjective. Try to get into the player, teams, contestant mind(s) to find your edge.