How do Bookmakers determine betting odds?
Bookmakers determine betting odds by determining the probability factor of the outcomes in an event. In a sporting contest, there are generally only going to be three possible outcomes. A win for either team (or individual, pairs etc) or a draw. Therefore, in a football match for example, there will likely be a favourite team who are expected to go on and win, leaving the other team facing the much more unlikely outcome of producing a victory. This is the basics of how Bookmakers will determine betting odds. Naturally the bookmaker is not going to set generous odds on the favourite team, or else every punter would jump on that offer and the bookie would be out of pocket. That is the last thing the bookie wants, so they will offer generous odds on the most unlikely outcome pertaining to a sporting event. This is part of the way that the bookmaker will look to earn itself some profits, by tempting the punter to back the underdog, even though the chance of that underdog prevailing is extremely slim. If the sporting event then plays out to its natural conclusion of having the favourite win, then the bookmaker will have won all the lost stakes placed on that underdog, and it will compensate for the smaller profits paid out on the favourite winning at short odds.
The big part of your betting strategy is to get the fine balance between picking up small profits by betting big on favourites (which in itself occurs some degree of risk as always, because the favourites do lose on occasion), or risk losing your stake in the search of bigger profits. Naturally the bookmaker wants you to do the latter, because that is to their benefit, and anytime an outsider romps home first, the bookmaker will likely be onto a loss. Remember that the bookmaker is running a business and that they are out to look after themselves, and yes, make profit. A bookmaker will earn its profit through the betting odds, by adding into overall match odds, margin of excess for their prices. This is in order to provide further coverage for themselves, whichever way the punters bet. For example, if you are betting on a football match, and you convert odds into probability percentages, the total percentage will always be more than 100%. That excess on the odds is the profit margin for the bookie. Just as bookmaker work out their odds based on sports books and markets throughout the industry, you can convert those odds into a probability number, just to see what kind of value you really are getting.
For fractional odds, you just need to know a small equation, which is this: z divided by (y + z). When you see odds of 2/9 for example, look at them (and this works for all odds) as y/z and then you can do the math. First add together the two numbers of the fraction, which is 2 + 9. Then divide the second part of the fraction (in this case the number 9) by that figure. So, 9 divided by (2 + 9) which equals 0.81. Multiply that by 100 to get your percentage, and you see that odds of 2/9 have an 81% probability of happening. That is all there is too it. For decimal odds, you just do 100 divided by the odds. So if the odds are 1.25 then it will be 100 divided by 1.25 which equals 80%, which means that odds of 1.25 have an 80% probability of happening. This is all according to the bookies of course and you have to decide whether to go with, or go against the bookmaker’s grain of thought. Remember, that when two football teams take to the field, the probability of each outcome occurring, is not even. It’s not like flipping a coin where you have an exact 50/50 chance of either outcome happening. Certain teams are stronger than others, and that is where there is a variance in betting odds. Finding value and profit in the odds set by bookmakers, is the job of the punter.