How do bookies earn? How much commission money should you be paying them? And how exactly to go about bookie margin calculations are some of the things that we’ll cover in this write-up. It can help you tremendously in benefiting from the best odds and in reducing your margins.
Visit any offline or online casino, for instance Bet365 accepting sports bets and you’ll find bookie margins addressed by all sorts of names: the percentage, the vig, the cut, the juice, the take, the commission and more. Whichever name you call it by, at core it’s a small slice of action that every bookie takes out from the odds, in order to make his/her business worthwhile indulging in.
This margin may vary from bookie to bookie and even from one event to the other. Many a times, bookies offer special reduced or discounted margins on specific tournaments or leagues, just to be able to attract more customers. Their main intent is to offer better returns and higher odds than their competitors. But what exactly are these margins? And how do you go about calculating them? Do you know the exact commission you pay with every bet and how it can impact on your overall betting profits?
The meaning of bookie margins
Many people are of the opinion that bookmakers are nothing but risk takers, and the odds offered by them are a reflection of the party they think will win the contest under consideration. Hence, all bookies have their own preferred winners in the contests that they accept bets on. But, this isn’t the complete truth!
Agreed that bookmakers usually have their preferred winners in given contests, but that’s not actually because they favour a particular party at the time of creating the odds. And a bookmaker can’t be termed as a risk taker in any way!
When creating odds for a certain event, bookies attempt at setting the odds in a manner that they believe will attract bettors from both sides of the marketplace. Their main target is to balance their liability, keeping in mind the possible outcomes of the contest under consideration.
Now you may ask if a bookmaker tries to balance his/her liability in any given outcome, how it is that he/she earns a profit from the game? The answer to this lies in the keyword ‘margin!’
Bookmakers take a small slice out of odds offered by them, helping them earn a margin or profit, provided they have managed to balance their liabilities on either side of odds. To put it another way, margin is that small percentage of money that bookmaker takes from bettors, provided he/she has balance the liabilities perfectly. Although it’s quite unlikely that a bookie can achieve that perfect balance in liabilities on both sides of a particular event, the fact that he/she offers hundreds of different markets every day and accepts bets on a wide range of events, helps him/her even out the overall liability and successfully take a cut from the money wagered by bettors.
About fair market
Let’s show you a market example wherein a bookie may successfully take out a margin. The best example of this can be seen in even money events wherein both sides of the market get equal amount of action. The betting public normally gives every outcome an even probability of 50 - 50.
Let’s take the example of a coin toss to make it clearer. We can expect a coin to come up heads or tails at least 50% of the times over enough number of tosses. Now in the event that the bookmakers were offering fair market without any margin, the odds would be 2 .00 on both tails and heads, implying that you’d win £ 100 if you bet £ 100. This is what is referred to as fair odds or a 100% market. In other words, you get full value on your winning bets.
But bookies also need their slice or cut from the action. After all, they in it to make money! In order to do so, they provide ‘even money’ odds ranging between 1.84 to 1.99. So essentially they don’t offer full price and take out their cut. This is how they make money.
So for instance if you are offered fair odds of 2 .00 for tossing of a coin, which is basically a 50 - 50 event, spanning over a sample size running into thousands of £ 10 bets, it’s pretty unlikely that you will end up on the losing side eventually. Half of the time you’ll win, making a profit of £ 10 and the other half times you’d lose, booking a loss of £ 10 each. But a bookie will not provide you with that kind of odds. He/she needs to make some money in between, so you are more likely to get odds of somewhere around 1.9 for tossing of a coin. It implies that on average you’ll win around £ 9 for every £ 10 bet you’d place, handing over a £ 1 margin to the bookie. This is how bookies make their margins by avoiding offering fair odds for any given outcome.
How to calculate the betting market margins?
Like we explained above, you get fair odds in a 100% market; and there is no particular advantage for bookmaker or the bettor in it. Any time a market gets assessed below 100%, the advantage goes in favour of the bettor, implying that there is higher value in the odds compared to the probability of every possible outcome. When a market is higher than 100% on the other hand, which normally is the case, it implies that there is less than full value in it. In such a scenario the advantage lies with the bookie.
So how do you go about calculating margins in a particular betting market?
Well, the calculation is pretty simple! To begin with, you must convert the decimal odds into percentage probabilities represented by them, also referred to as their implied probability.
For instance, if the odds are 1.65, you convert them into percentage by simply dividing 1 by 1.65. This comes out to 0.606. This must be done for every possible outcome of the event. Thereafter, all of them must be summed up together and multiplied by 100. The result is the market percentage, which is also referred to as the ‘overround.’
Let’s say you’re betting on a soccer game at an online casino such as Bet365. It can have a maximum of 3 different outcomes – a draw or either of the team winning the match. Following are the offered odds:
– Odds of a draw: 3.40
– Odds of Team 1 winning: 2 .00
– Odds of Team 2 winning: 3.80
We carry out a conversions and get the following figures:
– Probability of a draw: 1 / 3.50 = 0.294
– Probability of Team 1 winning: 1 / 2 .00 = 0.500
– Probability of Team 2 winning: 1 / 3.90 = 0.263
– Total = 1.057
– Market margin = 105.7%
Now coming to the calculation of the average commission paid on every bet, there are different ways in which you can calculate this commission for specific odds. One of the preferred ways of going about it is as follows:
Taking the above example of a soccer match further, let’s calculate the margins as follows:
Commission = (1 – (1 / Market Margin)) x 100%
Commission = (1 – (1 / 1.057) x 100
Commission = (1 – 0.94) x 100
Commission = 6%
So in the example detailed above every £ 100 bet that you place, you pay an average of £ 6 to the bookie. To put it another way, you’d be provided odds of 1.88 on the coin toss if the commission rate were 6%.
Obviously, you wouldn't want to do this over and over again, every time you place a bet, especially if you’re betting on horse races with 12 or more runners. Fortunately, there are popular betting exchanges like Betfair that do all these calculations and display market margins on every market. You can also make use of all sorts of calculators available on the Internet too, that’ll readily do this for you. Perhaps you can visit some reputed online casino that also accepts bets, for instance Bet365, and see such tools in action.
How the margins affect your profits?
Hopefully we have a better understanding of the bookie commissions now! Let’s look at the importance of shopping around for the markets with best value. This can be done by comparing several ‘even money’ odds and then seeing how a slight increase or reduction in commission impacts your betting bank. There are total 1000 bets under consideration at different even paying coin toss odds, based on the market margins.
Market Margin / Commission / Odds of Coin Toss / Win Rate Return of 55%
101% / 1% / 1.98 / 8.9%
102% / 2% / 1.96 / 7.8%
103.1% / 3% / 1.94 / 6.7%
104.2% / 4% / 1.92 / 5.6%
105.3% / 5% / 1.90 / 4.5%
As is evident from the table above that the difference between wagering on a market having a commission of 2% and one having 5% is 3.3% higher returns with a win strike rate of 55%. Assessing margins in the markets becomes highly crucial when we talk about slight percentages of differences between successful and losing bettors.
Always take the best odds
Although the conclusion of the above write-up is pretty straightforward, we’d like to highlight again that it’s much more beneficial betting with bookies that offer higher value markets. New bettors in particular and don’t quite understand this point’s importance.
The possibility of reducing commission has become much higher as you can easily compare odds offered by different bookmakers when placing online bets. This has become even easier with the introduction of betting exchanges. Hence, your portfolio should comprise of bookmakers that enable you to take frequent best odds. Although it may seem like a matter of slight percentages, since 1.90 odds are only slightly lesser compared to 1.95, but it can be the differentiating factor over the long run and impact your overall chances of succeeding as a sports punter.