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What is the bookmaker's job?

Published on October 25, 2014, 4:32 pm

by Jeff Grant Twitter account Jeff Grant LinkedIn account

Summer 1947 - a bookmaker at the Goodwood Racecourse
Summer 1947 - a bookmaker at the Goodwood Racecourse

Whether you simply dabble in sports betting or you participate in betting on a regular basis, it makes sense that you would want to understand how bookmakers make their odds. When you are betting on something that is more likely to happen, the payoff to you is less significant if the event happens.

If you bet on something that is significantly less likely to happen and that event does occur, the payoff is generally far greater. However, when the odds of winning appear to be far-fetched, this can actually discourage some individuals from placing the bet that they really want.

It is important to understand the factors that are used in bookmaking calculations as well as how the calculation is computed so that you can make a more informed decision when placing your bets.

The Factors Considered

Bookmaking or sports betting is a major industry, and with each sport or event that you can bet on, multiple factors are considered. For example, for a football game, each team’s record for the season, individual stats for specific players, coaching records and even if there is a home field advantage are taken into account. Because bookmakers stand to gain or lose a significant amount of money on each event, rest assured that all factors that have a likelihood to sway the outcome of the game one way or the other are likely taken into account.

The Possible Outcomes

Depending on the event, there are different possible outcomes. For example, with a football game or soccer game, the outcomes are that a specific team will win, lose or tie. Some sports betting takes into account more specific outcomes, such as the home team winning by a certain number of points. Bookmaking is an industry that is based on probabilities, so understanding each possible outcome that is being considered for the event is important.

The Bookmaker’s Profit Margin

It is important to note that bookmakers would quickly go out of business and the sports betting industry would fall to the wayside if bookmakers were not turning a profit. With this in mind, rest assured that each of the possible outcomes offered to a betting individual has a probability ratio that is at least slightly inflated. For example, if you review the odds of each possible outcome occurring for a specific event and run the calculation to transfer the odds into a percentage rate, you will generally see that the total odds of all possible outcomes for an event well exceed 100 percent. In fact, it is more common to see the possible outcomes for an event equal to 110 percent or more. This reflects the profit margin of the bookmaker. Understanding this concept is important for betters because it can help them to understand the true odds for a specific event occurring.

Example of bookmaker's margin calculation
Example of bookmaker's margin calculation

The Calculation

There are several rather similar calculations that are computed when bookmakers establish their odds for a specific event. The most basic calculation, which can be rather complicated to understand, is the disbursement calculation for bookmakers. The basic disbursement rate for equals:

100 percent x [(1 / [(1 / odds of [outcome 1]) + (1 / odds of [a draw]) + (1 / odds of [outcome 2])]

Then, the actual probability for the bookmakers is calculated, and this is the back-end calculation that does not take into account the profit margin for bookmakers. The probability of each possible outcome is calculated, and this is calculated by:

(1/odds of [outcome]) x bookmaker's disbursement rate

Finally, the bookmaker will factor in the profit margin. The profit margin can vary considerably for each bookmaker, and in some cases, it may be as low as five percent or less. In other cases, it may exceed 10 percent. Some individuals refer to this aspect of sports betting or bookmaking as fixing the bets, but the fact is that bookmaking is an industry, and bookmakers must turn a profit. They cannot control the actual outcome of the event, but they can build in a profit margin for each possible outcome to minimize the likelihood that they will experience a loss and increase the likelihood that they will profit from their activities for specific the events.

Understanding bookmaking is complicated because it is rooted in probability and statistics. The calculations can be complex, and multiple factors are used to determine odds for each event. This basic overview of sports betting, however, has provided you with some working knowledge about how the process of calculating odds works. Use this new information in your favor the next time you place a bet.


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