Understanding the Betting Odds

by Lewis Watson

The world of betting can be a scary place. Odds, fractions, decimals, handicaps and the rest, punters need to be familiar with what they are staking their cash on. Odds, however, are arguably the most vital ingredient to understand when you are cooking up your recipe for success.

What are the Betting Odds

The odds are crucial in betting. They represent how likely, or unlikely, an event is to happen, and therefore, what your potential winnings are. Whether it’s worth your while to place money on a particular bet is entirely dependent on the odds and what value they represent.

Let's consider the probability of an event happening. A 6-sided dice is rolled: rolling a one, two, three, four, five or six are all the same probability – 16.67%: a one in six chance of correctly guessing the number the dice will fall on.

Bookmakers offer this probability on events based on how likely they are to happen. By using a fraction or a decimal, these odds represent the value of the bet; it’s then down to the punter to decide whether or not to stake money on that bet.

When it comes to sport, odds can be interpreted in many different ways. It isn’t like a dice having six outcomes - all just as likely as one another – but more a prediction from the bookmaker of how likely that event is to happen. It’s not always easy to predict the unknown and a skilled job that requires a lot of homework for that particular market; however, if you think you know better, it allows you make money betting on an event to happen which you think is more likely than the bookmakers do.

How to calculate Calculate the Betting Odds

Actually, calculating the odds is a lot simpler than it sounds. Let’s start with fractional odds:

The calculation for probability is % = B / (A+B)

The probability of a 10/1 shot winning is: 1/(10+1) = 0.09 (9%)
The probability of a 3/1 shot winning is: 1/(3+1) = 0.25 (25%)
The probability of a 1/1 shot winning is: 1/(1+1) = 0.50 (50%)
The probability of a 1/5 shot winning is: 5/(1+5) = 0.83 (83%)
The probability of a 4/7 shot winning is: 7/(4+7) = 0.63 (63%)
The probability of a 1/10 shot winning is: 10/(1+10) = 0.90 (90%)

So how can we calculate our potential winnings from these selections?

10/1: for every £1 you bet, you will win £10
1/1: for every £1 you bet, you will win £1
4/7: for every £7 you bet, you will win £4
1/10: for every £10 you bet, you will win £1

As you will notice, your winnings are significantly decreased in an event where the probability is very high.

But, what about decimals? Decimals are proving more and more popular with exchanges, so it is essential that we understand decimal odds instead of fractions.

The benefit of odds being shown as a decimal is that you don’t have to worry about making sense of odd fractions like 4/7 or 15/4. It is simply a number that represents the probability of the event occurring. Let’s look at fractional odds and their decimal equivalent:

3/1 = 4.0
5/1 = 6.0
11/2 = 6.5
3/5 = 1.6

In effect, all you need to do is add a 1 to the number on the left-hand side to find your decimal (this is once you have reduced the right-hand side of the fraction to 1.

So how can we calculate our potential winnings from these decimal selections? The calculation is: winnings = (odds x stake) – stake.

Let’s say that our stake is £5 for all of these bets.

4.0 would be (4.0 x 5) – 5 = £15 winnings
6.0 would be (6.0 x 5) – 5 = £25 winnings
6.5 would be (6.5 x 5) – 5 = £27.50 winnings
1.6 would be (1.6 x 5) – 5 = £3

How do bookmakers make their money?

For us to correctly gauge how likely it is for us to win money as the customer, it is necessary to understand how bookmakers make their money through betting.

In troubled financial times over the past decade, betting companies have boomed and have been one of the few industries to expand during the economic collapse. With hundreds of different websites, shops and sportsbooks to choose from, cynically it must be assumed that the bookie wins more than they lose: that’s because they do. However, this shouldn’t be reason enough to put you off taking them on, because after all, a very small percentage of customers gamble tactically with a plan.

The Grand National, Wimbledon, the FA Cup final, Eurovision, Big Brother… all of these sports, events, and shows bring in a vast number of casual bettors who will be betting with their heart rather than their head. That’s fine. However, this is one of the reasons that the bookmaker will always come out on top. Money is thrown at huge events with the customer hoping on that one bet coming through, with them enjoying the event more with invested interest.

You can categorise gamblers by the following two groups. People that hope to win and people that plan to win.

Let’s look at home bookmakers make their money from two different angles.

Let’s start with the casino…

Payouts and ‘House Edge’ in Roulette:

To put it simply: payouts are the ratio that each bet will ‘payout’ to you (win), and the house edge is the advantage that the house (casino) has over the player for that bet. To feel confident you are placing the right wager, it helps to understand what you will win from your stake on the said wager, as well as the likelihood of your selection winning.

House Edge is a number expressed as a percentage that the player loses in comparison to the house in any given bet. You read the number as a percentage that represents the likelihood of the player winning going DOWN and the chances of the casino winning going UP.

For example: with every £10 bet, the casino keeps 53p (rounded up) as an average profit and returns the remaining £9.47 to the players in the form of winnings.

How To Calculate House Edge:

If a player bets £1 on black, their chance of winning £1 is 18/38 (taking into consideration the 0 and 00 numbers). Their chance of losing £1 is 20/38. The value can be calculated as follows:

= (1 (winning £1))(18/38) + (-1 (losing £1))(20/38)
= 18/38 - 20/38
= -2/38 = -1/19
= -5.26
= House Edge = 5.26%

Now, let’s take a look at sports betting…

To understand the ‘edge’ that the bookmaker has over the customer in sports betting, it’s important to look at the result of a bet as a percentage. If we go back to the 6-sided dice, we will remember that there is a 16.67% chance of each number being rolled: this amounts to a 100% market.

As a bookmaker, the goal is to create a market that is above 100% but still represents as close to a ‘fair market’ as possible.

Going back to our dice, the odds of rolling any of the six numbers are 5/1; or 6.0 as a decimal. The odds of all six outcomes combine to create a 100% market, however, what if the bookmaker wanted to make a margin on this bet?

By manipulating the odds of all six outcomes to 5.5, this changes the market to 109%, meaning the bookmaker has a 9% margin – creating profit.
This can be detailed in football’s ‘first player to score’ market. When pricing up the squad before the match, the bookmaker/odds compiler will have to make sure that the parentages of all the players involved add up to over 100%. If it is under 100%, then they will lose money in this market. A typical margin for a team when putting together a ‘first player to score’ book will be in the region of 103% to 110%, depending on the bookmaker.
This, in turn, reflects on the odds that you see online or in the shops, so it’s crucial to shop around so that you can find the best price, and a team closest to the 100% market as possible!

Risks to the Bookmaker

Bookmakers pride themselves on the margins that they offer for specific sports, leagues, and matches in an attempt to give clarity to the customer. Well-established bookmakers who have history and respect in the industry can often operate successfully at a 102% margin on average, whereas the newer companies may risk going out to 110%. Either end of the spectrum is a risk for the bookie – the risk of not making money vs not getting any custom.