How do Online Bookmakers Make and Calculate Betting Odds?

How bookmakers “make” or calculate odds can be a little complicated for the new gambler.

Here we explain the most basic way bookmakers calculate their odds.

Let's check and learn the inside of the bookmaker's operation to become smart punter.

The “Margin”

We all know that bookmakers make money by paying win bets and keeping the money from losing bets.

However, this raises some simple questions:

The answer to these three questions is the “margin”.

The “margin” is the “difference” (+/-) in the “real” chance of a result happening and the “actual” odds the bookmaker gives for the result happening.

It is measured as a percentage (%) and is set at 100%.

Margin calculation example（2-way results）

When a bookmaker makes odds – they ask a number of questions.

The first question is: What are the possible results?

In a typical baseball game there are two possible results: Team A will win or Team B will win

So the “real” chance as a % are Team A has a 50% chance of winning and Team B has a 50% chance of winning. (This equals 100%)

If we change the “%” to standard “odds” by bookmakers then this looks like:

At these “odds” the margin is 0% - 50% + 50% = 100% so there is 0% difference FROM 100%

So if: Person 1 bets $1 on Team A @2.00, and Person B bets $1 on Team B @2.00

The bookmaker has now got $2.00. ($1 from person 1 and $1 from person 2)

Then： Team A wins – the bookmaker will pay winnings to Person 1 and keep the losing bet from Person 2.

A win bet of $1 @ 2.00 is $2. So the bookmaker gives Person 1 $2.

Put more simply: Person A and Person B give $1 each to bookmaker.

Bookmaker now has $2.

The bookmaker has not made or lost any money.

So the bookmaker asks a second question: How can I make money from these two possible results?

Instead of giving “odds” of 2.00 for a 50/50% chance result, the bookmaker will “adjust” the odds a little (change the odds) to increase the % margin from 0% to say 10% (or 100% to 110%).

This reduces the possible payout for the same result – in this case from $2 to $1.91:

Again: Person 1 bets $1 on Team A, and Person 2 bets $1 on Team B

The bookmaker has now got $2.00. ($1 from person 1 and $1 from person 2)

Then: Team A wins – A win bet of $1 @ 1.91 pays $1.91 so the bookmaker will pay $1.91 winnings to Person 1 and pay $0 to Person 2.

The bookmaker has now made $0.09. ($2 – $1.91) This is because the bookmaker’s “margin” had a +10% difference (110%).

If Team B wins then the same thing happens, the bookmaker pays $1.91 to Person 2 and $0 to person 1 and “makes” $0.09.

What about when there are more than two possible results?

In a typical Football(Soccer) game there are three possible results: Team A wins or Team B wins or a Tie (Draw)

So the “real” chances are:

Team A has a 33.333 % chance of winning
Team B has a 33.333 % chance of winning
A tie has a 33.333 % chance of happening

So each result has a 1/3 (or “one in three”) chance of happening.

If we change the chance % of 33.333rec to standard “odds” by bookmakers then this looks like:

So if three people bet $1 each the bookmaker has $3 and will pay out $3 to the winner.

Again, with these odds the bookmaker won’t make any money so they “adjust” the odds as before so there is a % margin. The “adjusted” odds (might) become:

So the bookmaker has $3 [$1 from 3 people] but when they pay out they will only pay $2.50 to one person and so will keep $0.50. (This would be a 150% difference or a 50% margin).

So bookmakers adjust odds to make sure that whatever result happens they still keep some money after the bets have been paid to the winners.

The third question is: But what if everyone bets on Team A to win, AND no-one bets on Team B to win, AND Team A wins?

If you take the two baseball teams – Team A and Team B it is very unlikely that they are both exactly the same level.

Although they both have a 50/50% chance of winning the game, common sense says that one team will be better than the other.

This means that the bookmakers will “adjust” the odds a lot more.

But for this game ten people think New York Yankees will win so all ten people put $1 each on the New York Yankees.

So now the bookmaker has a problem: If the New York Yankees win they must pay 10 people 1.91 each and they only have $10 ($1 x 10 people) so they would lose $9.10 (they pay $1.91 x 10 people = $19.10).

So they need to “cover” that $9.10 margin.

So how do they “cover” that $9.10 margin?

If the New York Yankees win then that means (of course logically) that the Boston Red Sox will lose.

The bookmaker needs to get people to bet on Boston Red Sox so they can “cover” the result.

So to “cover” the “margin” they adjust the odds again…

They adjust the odds so that if New York Yankees win they will pay out LESS than $1.91:

So if the Yankees win then the bookmaker will pay out $1.33 instead of $1.91.

They have now reduced their (potential) losses from $9.10 to $3.30 ($1.33 x 10 people is $13.30)

But they still don’t have any bets on Boston Red Sox because people don’t think they will win, (or people think the odds are not very good even if they think Boston might win) so the bookmakers “adjust” the odds again….

They “adjust” the odds so if Boston Red Sox wins then they will pay out MORE than $1.91:

So if the Boston Red Sox win then the bookmaker will pay out $2.80 instead of $1.91.

Now they only need four people to bet on the Red Sox and their “margin” will be covered:

If New York Yankees win @ 1.33 x 10 (people) = $13.30 [The bookmaker keeps $0.70]

If Boston Red Sox win @ 2.80 x 4 (people) = $11.20 [The bookmaker keeps $2.80]

How do bookmakers calculate odds for Win only markets?

Of course there are markets such as “Which team will win the League?” or “Which player will win the tennis or golf tournament?”

In these markets there is only one possible result – someone will win the tournament!

But the bookmakers offer many teams or players odds to win that league or tournament.

But unlike “match” result betting where the possible results are usually 2 or 3 [Win / Lose / Tie] in “Win” only markets there is only one result (Win) with many possible winners:

If we take the Premier League win market as an example:

There are 20 teams in the league so there are 20 possible teams that have a chance to win the Premier League.

So the “real” chances are 20/1 or 21.00.

But when you look at the odds the lowest odds might be 6/4 or 2.50 for Manchester City and the highest odds 5000/1 or 5001.00 for Swansea for example.

To calculate the odds in these markets the bookmakers use one, two or all three of the methods listed below (not in order):

Manchester City, Chelsea and Manchester United have won the league the most times in recent years so they will be the statistical favorites.

Manchester City, Chelsea and Manchester United will also be opinion favorites – most people in the media and people who like football think that one of those three teams will win the league.

Most people betting will bet that one of Manchester City, Chelsea and Manchester United will win the league or / and individuals will gamble large amounts of money on those teams to win the league which makes them money favorites.

So the bookmakers will “adjust” their odds to dramatically reduce how much they pay for the favorites e.g. Manchester City - and dramatically increase how much they will pay out for teams that most people believe will never win the league e.g. Swansea.

What are “fixed” odds?

These are often found on “coupons” for football and the odds are prepared days or weeks in advance, for calculating the odds for these fixtures the bookmakers use years and years of statistical data of both results and general overall betting patterns to choose their “odds”.

Coupons also encourage gamblers to bet on more than one fixture so the “chances” of two results happening increase dramatically.

For example two football games can have NINE (Fixture 1 has 3 possible results x Fixture 2 has 3 possible results) so the chances increase with the odds still low which means an increased margin – so it is easier for the bookmaker to cover margins in fixed odds betting.

What if the bookmaker cannot cover the (potential) losses?

There are a number of ways they may try to “cover” potential losses:

They may place bets with other bookmakers so they receive “winnings” which they can pay out to winners who bet with them. [This often happens in horse racing]

Final word

Online bookmakers make and calculate betting odds based on a lot of statstical data and customers habitual bets.

And in order to earn profits regardless of the match result and league result without customers noticed, they adjust their odds and set margins.

So to be a smart punter and get profits from bookies more, you have to understand what they do, what they think about you.

It's the first step to win constantly against bookmakers.