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Compiling the odds for bookmakers’ profit

Compiling the odds for bookmakers’ profit

Setting the odds for a sports event is essentially a function of pricing the market. Setting the odds to make a profit is a critical function that bookmakers have to do well if they want to be successful in the bookmaking business.

 

There are a number of aspects to be considered when pricing the markets for sports betting events. The first and foremost objective here is to make certain the odds accurately designate the likelihood of any particular outcome, while also including a targeted profit margin. Assessing the chances of outcomes involves applying statistical modules along with employing a certain degree of knowledge about a particular sports event.

 

Typically, bookmakers use odds compiling professionals, also known as traders to set the odds for them. The odds set by odds compilers for sports events essentially reflect the amount of cash the bookmakers are likely to receive from wagers, and the amount of profit they are likely to make.

 

Odds compilers, therefore, have to be quite competent about the types of sports events, for which they set the odds. It is quite common for the odds compilers to be profoundly familiar with several types of sports. Usually, they have substantial knowledge of mathematics and statistics as well.

 

Example of odds compilation

We will now use an example to demonstrate how a compiler would price a market for a tennis tournament where Rafael Nadal and Roger Federer would play each other.

 

These players are not far apart in terms of their playing ability, and the compilers would have to consider several different factors when assessing the situation. These could be such factors as each player’s known performance in similar conditions, the players’ state of physical preparedness, outcomes of their matches in the past, and other important circumstances.

 

Taking all these factors into account, the compilers might determine to assign a 60% winning chance to Nadal, and 40% to Federer. If we convert these percentage ratings into decimal odds, the relation would be: Nadal at 1.67 vs Federer at 2.50. However, these odds do not comprise any vigorish, which also has to be included for bookmakers to make money.

 

In most cases, the compilers apply a certain target margin that appears feasible for particular sports events. These margins may vary from sports event to sports event, but for the sake of our example, let us assume the compilers use a 5% margin.

 

Applying a 5% margin would decrease the odds for each player bringing them down to 1.59 for Nadal and 2.38 for Federer.

 

In order to check if the total target of 5% margin is achieved, the compiler can add up the inverse values of the odds for the possible outcomes and convert them into a percentage, which is:

 

Margin = (1/1.59) + (1/2.38) = 1.05 x 100 = 105%.

 

As becomes apparent from the example, the set target of 5% has been reached by the compiler. Nevertheless, this is not the end of the task. Having a balanced book is not any less important than building the right profit margin into the odds. It is also the compiler’s job to ensure that a bookmaker’s book is well balanced.

 

 

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