How do betting odds work

With a large number of bookmakers claiming to offer the best odds and an equally large number of websites comparing betting odds, are you really getting the best deal? In this simple guide we explain how odds work to help you make educated decisions when looking for the best betting odds. Don’t place another bet without knowing how much it really costs you.

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Bookmakers make a profit by accepting bets on a given market and adjusting odds to attract bets in the right proportion in order to secure a profit regardless of the outcome.

This is achieved by offering odds that are higher than the actual statistical probability of the event concerned. This deviation represents the bookmaker’s margin, i.e. what a bookmaker is charging you for making betting available.

What is the odds’ margin?

The simplest analogy for explaining margins is betting on a coin toss. Let’s suppose that you and a friend bet $10 each to win $10. If it is Heads, you become $10 richer. If it is Tails, you lose $10.

Under these terms, neither of you holds any advantage, as the odds given (2.0 in Decimals odds/+100 in American odds) reflect the actual probability (0.5) of the event occurring.

To calculate the margin a bookmaker applies to a match, you need to take into account the odds for all possible outcomes. The higher the margin, the poorer the value for a bettor; which is why margins are the best way to truly compare odds.

In betting terms this is called a 100% market or book, which gives no advantage (margin) to either the person placing or the side accepting the bet. Therefore, a 100% market is a market with zero margin.

If, however, you were placing a bet on a coin toss with someone seeking to make a profit  (i.e a bookmaker), that market percentage would be greater than 100%.

The amount by which the market percentage rises above 100% is the size of the margin the bookmaker holds over the bettor, or simply the price the bookmaker charges for offering their services.

This essentially is how all bookmakers work, but what’s most important for bettors to know is the margin their bookmaker of choice is applying, as this is what determines the value of the odds and ultimately the potential betting profit.

How to calculate the odd’s margin

To calculate the margin a bookmaker applies to a match, you need to take into account the odds for all possible outcomes. Novice bettors might reasonably ask “Why should I care about the odds of all outcomes, as I am only betting on one?”

The concept of betting value relates to the market as a whole, i.e. considering the odds for all outcomes. The higher the margin, the poorer the value for a bettor; which is why margins are the best way to truly compare odds. This is relevant over the longterm. Any serious bettor will make multiple bets over time where the margin will eat into their potential profit

To calculate the margin for a two-way market, like tennis, use the below equation:

(1/Decimal Odds Option A)*100 + (1/Decimal Odds Option B)*100

For example, imagine a hypothetical match between Roger Federer and Rafael Nadal. You can calculate the odds’ margin as follows:

Rafael Nadal 1.926
Roger Federer 2.020

(1/1.926)*100 + (1/2.02*100) = 51.92 + 49.51 = 101.43% Market

This is a margin of 1.43%

To find out how to calculate margins for three way markets, like soccer, go to the article Calculate margins on 1X2 odds.

Pinnacle’s margins vs. average bookmakers’

You may be surprised by the huge difference in margins across the spectrum of bookmakers within the industry. Using Premier League soccer 1X2’s as an example, you’ll find some bookies pricing their markets up to 110% i.e. a 10% margin, compared to Pinnacle’s 2.5%. This represents a huge difference in potential value that any bettor seeking to get the best deal should be aware of.

Compare Pinnacle’ Margins
SPREAD MONEY LINE TOTAL
Industry Average Pinnacle Industry Average Pinnacle Industry Average Pinnacle
NFL Football 5% 2.5% 5% 2.5% 5% 2.5%
College Football 5% 2.5% 5% 2.5% 5% 2.5%
MLB Baseball 5% 2.5% 5% 1.5% 5% 2.5%
NBA Basketball 5% 2.5% 5% 2.5% 5% 2.5%
NHL Hockey 5% 2% 5% 2% 5% 2%
Soccer 6% 2% 8% 2% 6% 2%

The industry average for NFL, College Football, NBA, MLB and NHL uses the recognised standard American benchmark.
Going back to our coin toss bet, let’s calculate what the odds and your profit would be, if your friend decided to charge you Pinnacle’s margin and the average bookmaker’s margin for soccer.

Your friend is applying the margin of: Odds Margin Payout Profit
Pinnacle 1.96 2% $19.6 $9.6
Average bookmaker 1.88 6% $18.8 $8.8

Now that you know how odds work, don’t place another bet without calculating how much your bookmaker is really charging you.

Source: pinnacle.com