Calculating an exchanges hidden commission
Unlike regular bookmakers, exchanges charge commission on your winnings, i.e. net profit on the market. Base commission is often at 5% of your winnings, but increased to 6% or 7% for many countries. With an exchange like Betfair you place bets, you collect points that will discount your commission, but the points are subject to decay every week, and if you are really successful, you will find yourself caught in the so-called Premium Charge, that may take as much as 60% of your profit.
So, you have just seen that Pinnacle Sports offers 1X2 odds of 1.84 for Swansea to win against Crystal Palace, while that same bet is available at 1.86 at a betting exchange. And you wonder which one offers better value – is the exchange’s 1.86 after commission still better than Pinnacle Sports’ commission-free 1.84?
Decimal odds represent an inversion of probability of an event to happen (e.g., probability of landing on a head when tossing a fair coin is 50%, or 0.50, so equivalent odds are 1/0.50 = 2.00), but also a ratio of your possible return and your stake. For example, if you staked £100 at odds of 1.86, you hope to pocket £186, which consists of the £100 you staked earlier and £86 that you won.
Decimal odds = return / stake
Decimal odds = 1 + (profit / stake)
As we have explained, betting exchanges charge commission on net profit on the market. That means, in this example above, you will get your £100 back untouched, but the £86 that you won will have commission taken off first.
Unlike regular bookmakers, exchanges charge commission on your winnings, i.e. net profit on the market
Let’s suppose that you live in a country that has not been affected by commission increase, but unlucky enough to collect sufficient points for commission discount; that means betting exchanges like Betfair will charge 5% of your winnings, or 0.05 * £86 = £4.3; you will pocket the remaining 0.95 * £86 = £81.70.
To summarise, you risked £100 to win £81.70; therefore, you effectively got your bet at 1.817 – or some 3% worse than the odds available at Pinnacle Sports.
By now, you understand how to calculate net odds after commission; if COMM is your exchange commission in %, and ODDS available back odds, then your actual odds, in decimal format, are calculated as:
Actual odds = 1 + (1 – COMM/100) * (ODDS – 1)
Exchanges are a useful weapon in a bettor’s armoury but the way that commission is deducted after the bet often leads them to misinterpret the extent of their value. Now you have the tools to make the calculations yourself it is up to you to decide where to bet, but we think smart bettors will choose Pinnacle Sports.