How to beat bookmakers’ odds
In the last article in this series we’ll tell you why you should not believe the betting lines and how to understand what odds are worth to bet. If you are a beginner, we recommend first to read three previous articles in this series.
We all know how bookmakers make money – they simply take more money in losing bets than they pay out in winning bets, this is a bookmakers` betting margin. This is the first thing we have learned about bookmakers in the previous article. Besides, bookmakers create a balanced book which means that they have to pay out the same amount of money regardless of the outcome because the total amounts of stakes were taken in proportion to the odds. Moreover, a bookmaker translates probabilities into odds and they show how likely the certain outcome is to happen. Well, now it’s time to break the stereotypes, because all this is just a fairy tale! More precisely, it’s only half the truth.
If the bookmakers` profit is margin, then it is not difficult to calculate their net profit. If bookmakers have accepted stakes for a total amount of ₤1000 and margin is 5%, then their commission will be (1 – (1 / 1.05)) * 100% = 4.8%, that makes ₤48, right? Let’s look at the ‘William Hill Annual Report’, according to which their annual revenue was equal to £1 591 millions. As we know William Hill overall betting margin is about 4.5% so their commission will be (1 – (1 / 1.045) * 100% = 4.3% percent of revenue which is equal to £68 million. Not too bad at all! But here’s the problem, in fact, in the same report it is mentioned that William Hill have annual operating income of £283 million! This is four times more than we thought! But if the bookmaker earns only at the expense of a margin, then taking into account such profit the margin should be 18%! There is no doubt – the margin is not the only source of bookmakers’ profit! This is an undeniable fact!
The betting margin is not the only source of bookmakers’ profit!
We also know that odds are a representation of probabilities and bookmakers translate probabilities into odds, so the odds show how likely the outcome is to happen. But even bookmakers with their huge analytical centres can make mistakes and are incapable to predict how players will bet. For instance, a bookmaker calculates the probability of outcomes for a football match as: home win – 50%, draw – 22% and away win – 28%. Accordingly, we will see the following betting lines 1.80 – 4.00 – 3.20. But this does not mean that all players will make their bets in such proportion! Assume that all bets were split as follows: home win – £400, draw – £150, away win – £350 and the guests unexpectedly won. Bookmakers` total pay-out would be £350 x (3.20 -1) = £770 in winning stakes against the total of £550 (£400 + £150) they have accepted. It’s impossible, as we know that bookmakers do not expose themselves to such risk. It is absolutely clear that if bookmakers calculate odds only on the basis of probabilities, they will not be able to guarantee a profit for themselves!
Bookmakers` odds do not necessarily accurately reflect the true probability of possible outcomes, but they are usually pretty close.
Ok, if odds do not reflect the true probability and, as mentioned above we all know that bookmakers` profit is not only a margin, what is the basis for calculating odds? Maybe it’s the percentage of the total amount of accepted bets? But if bookmakers set odds in the right proportion to bets, so their profits cannot exceed the margin rate! And we know for sure that they earn much more! How? Do you still think that odds reflect the percentage of bets made? Then how can you explain this?
Some bookmakers give information on the percentage of bets made; for instance, Pinnacle uses a Twitter account for this purpose and Coral displays the information on its website. Pinnacle is one of the companies who have always officially positioned themselves as a bookmaker who earns profit solely from the margin. We have a real football match in the Champions League Monaco – Manchester City and the percentage of bets accepted. Let’s count! Home win – 38%, so the odds will be 1 / 0.38 = 2.63; Draw – 33%, so the odds will be 1 / 0.33 = 3.03; Away win – 29%, so the odds will be 1 / 0.29 = 3.45. This is just a simple math! So, what do we have here? The betting lines should look like 2.63 – 3.03 – 3.45, but in real life they were 2.95 – 3.90 – 2.35! A little surprising, isn’t it? Monaco won that match 3:1, which means that Pinnacle pay out was ₤38 x (2.95 – 1) = ₤74.1 and the bookie suffered losses, because the total amount of the rest bets made was ₤62 (₤29 + ₤33). The bookmaker deliberately took the risk and set odds that did not correspond to the true percentage of the bets. The same story with Coral odds, here is an absolutely incredible example with a draw in the match Roma – Lyon. A bookmaker confirms that 69% of all bets are placed on a draw, while offering the outcome at 3.20, but taking into account the given percentage of bets it should be 1.45!
In fact bookmakers do not have a balanced book for a particular event!
All the above facts are confirmed by real numbers and calculations. We can safely state that odds do not reflect the true probabilities; bookmakers make the higher amount of money than their margin rate and do not have balanced betting lines. How can this be explained? It’s very simple – bookmakers are as much a bettor as you are! In fact, they really risk their money accepting bets and making their own against yours! Their train of thought is clear – why should we limit the income by the margin rate, if we can act as a bettor and get a lot more profit? After all, bookmakers know for sure that they are better bettors than most of us because they have thousands of analysts and full access to all needed information. Their advantage is that they make you place bets on certain terms by setting odds, and we have to play by their rules! Today bookmakers are not the middleman between players. This means that if you want to win in the long run, you need to be a better player than a bookie!
A Bookmaker is the same player as you are, only with the ability to set rules of the game, but this doesn’t mean you can’t beat them!
All abovementioned facts can be a little bit complicated and may seem even impossible, but that’s the truth about how bookmakers make money. There are few key points that you should learn from this article. Remember it’s really not important how high is your Hit Rate, you may have 75% correct predictions, but still lose money overall. What is really important is to select your own odds. Even bookmakers make mistakes as we can see in the above example of Monaco – Manchester City match, so you must bet only on such outcomes, when odds offered are actually higher than they should be! That’s the only way to be profitable in the long run. Certainly it’s not so easy to find such opportunities and value bets, but in fact, you must be able to do only two things – to calculate an expected value and reduce bookmakers` margin!
A positive expected value of the outcome is the most important when you decide what type of bet to place. Yes, the value is rather a subjective notion and you’ll need an ability to analyse data and statistics, but if you have ever place bets that have a positive expected value then you should make money in the long run. There is no guarantee of success, but that’s the only way! If you want to know how betting margins impact your winnings read our article ‘How to reduce the bookmakers` margins?’ If you want to know how to find value bets read our article ‘How to calculate an Expected Value?’