Mastering the calculation of betting margins is a crucial skill for any bettor. Once you’ve grasped this straightforward calculation, you’ll quickly discern which bookmakers provide the most favorable odds.

Betting margins are the difference between the odds (an implied probability) the customer is offered to bet at, and the true probability of the outcome.

What are Bookmakers’ Margins?

Bookmakers generate revenue by accepting bets on a market and setting odds that do not accurately reflect the true probability of outcomes. This margin, also known as overround, provides them with an advantage over bettors.

When determining odds for an event, bookmakers strive to establish prices that encourage betting on all sides of the market, thus evenly distributing their potential losses across all potential outcomes.

However, if the bookmaker’s risk on all outcomes were perfectly balanced, they would not profit. Therefore, they incorporate a margin into their market prices to ensure profitability when their risk is evenly distributed.

A Fair Market

An easy analogy to understand bookmaker margins is through a coin toss. Each side of a coin toss has a 50% probability, ideally resulting in odds of 2.0/2.0 for both outcomes. Betting £100 would yield a £100 win, creating a perfectly balanced 100% market.

If a Bookmaker Offered Odds on a coin Toss

Bookmakers do not aim to reflect the true probability of an event in their odds. Instead, they adjust market prices to exceed 100%, creating an inherent advantage for themselves. The difference between the offered odds and the ‘true price’ is known as the bookmaker’s margin.

In the case of a coin toss, bookmakers would offer odds for heads or tails slightly below 2.0, requiring a larger bet to win £100. For instance, if odds were set at 1.91 – resulting in a 4.7% margin – bettors would statistically lose 5p for every pound wagered over time.

Understanding the varying margins among different bookmakers and exchanges is crucial for bettors, as it directly influences the value of their odds and potential profits. Unlike exchanges, bookmakers do not openly disclose their margins, potentially leading bettors to long-term losses.

Calculating Margins on a Two-Way Market

To compute margins in a two-way market, you can apply the following formula:

(1 / Decimal Odds option A) * 100 + (1 / Decimal Odds option B) * 100 = Margin

For instance, using Smarkets’ decimal odds for the 2016 Australian Open final between Novak Djokovic (1.20) and Andy Murray (5.50), the calculation would be:

(1 / 1.20) * 100 + (1 / 5.50) * 100 = 101.51%

Thus, the margin for this market amounts to 1.51%.

Calculating Margins on a 1X2 Market

To determine betting margins in the common 1X2 market, apply the following formula:

(1 / Home Odds) * 100 + (1 / Away Odds) * 100 + (1 / Draw Odds) * 100 = Margin

As an illustration, using Smarkets’ odds for the 2016 League Cup final between Manchester City (2.56) and Liverpool (3.20), with the draw at 3.30, the calculation would be:

(1 / 2.56) * 100 + (1 / 3.20) * 100 + (1 / 3.30) * 100 = 100.61%

Thus, the margin for this market totals 100.61%.

How to Factor in Commission on an Exchange

The examples above demonstrate how to calculate betting margins, excluding the exchange’s commission, which can be as high as 5%, though Smarkets boasts a low industry rate of 2%.

To adjust for commission, incorporate it into the odds using this formula:

1 + ((1 – (Commission / 100)) * (Odds – 1)) = Exchange odds with commission factored in

For instance, for the 2016 Australian Open final between Novak Djokovic (1.20) and Andy Murray (5.50):

Djokovic:

1 + ((1 – (2 / 100)) * (1.20 – 1)) = 1.19

Murray:

1 + ((1 – (2 / 100)) * (5.50 – 1)) = 5.41

To determine the true exchange betting margin, calculate:

(1 / 1.19) * 100 + (1 / 5.41) * 100 = 102.51

Therefore, the margin for this market, including commission, amounts to 2.51%. In contrast, a prominent UK high street bookmaker offered a margin of 7.88%.

It’s important to note that unlike some other exchanges, commission is only charged by Smarkets on winnings.

Apply this to Betting

Now that you can calculate betting margins on both bookmakers and betting exchanges, including factoring in commission, you have the ability to pinpoint the odds offering the greatest betting value.

Betting margins can vary significantly among bookmakers, so mastering these calculations equips you to maximize your profitability over time. With this knowledge, you can confidently identify and place bets with the most advantageous odds available.