Bookmakers accept bets on all outcomes of an event in order to generate a profit regardless of which outcome prevails. If the odds offered by the Bookmaker are “fair” then they precisely reflect the real probability of an event occurring e.g. offering even money for Heads at the toss of a coin.
How Big Is Their Edge?
Offering fair odds has 0% edge for Bookmakers so they use various techniques for adjusting their odds to values that result in a profit no matter what wins or loses.
Coin Toss Example
To keep it simple let’s take the classic coin toss example and assume the Bookmaker has a perfectly balanced book with $100 stake on heads and $100 stake on tails ($200 total stake). This situation is ideal for the Bookmaker as they will always generate profit provided they offer odds less than 2.0 for both outcomes. If the Bookmaker offered 1.98 for both outcomes then one of the following two outcomes occurs (from the Bookmaker’s point of view):
Outcome 1: Heads Wins (50% real chance)
Heads: -$98 loss Tails: +$100 win Result = +$2 for the Bookmaker
Outcome 2: Tails Wins (50% real chance)
Heads: +$100 win for the bookie Tails: -$98 loss for the bookie Result = +$2 for the Bookmaker.
No matter what result, the bookmaker is in profit. This is the simplest representation of Bookmaking, and it relies on balanced books to ensure that the profit is absolutely guaranteed.
Implied Probability & Calculating the Overround
The implied probability for both outcomes in the above example, according to the odds offered by the bookmaker is calculated by the following forumula:
1 / (decimal odds) = 1 / 1.98 = 0.50505 = 50.51%
Using the implied odds we can calculate the over round, or “house edge”, by totaling the implied probabilities of all outcomes (in this case there’s 2 outcomes of “Heads” and “Tails”):
50.51% (for tails) + 50.51% (for heads) = 101.02%
Notice that for fair odds (where the Bookmaker offers 2.0 for both outcomes), the total of all outcomes is exactly 100.00%
Therefore 1.02% is the over round in our example. That is, for every 100 units paid out to punters, the Bookmaker can expect to take 101.02 or 1.02% profit.
In our example we know the real fixed, fair probability of a heads occurring is 50%. With Horse Racing, or indeed any other sport, calculating the chance of winning is much more difficult and Bookies don’t always get it right. Indeed this can play into the hands of the Bettor as the sometimes the odds offered are above the fair odds for some selections.
Per Head Network provides services for those who want to offer online gambling services to the public. Our company does not have a stake in the winnings or losses of our clients. This means that we ourselves are not a sportsbook/casino, but we offer all services needed to operate a sportsbook/casino.
Try our superior Pay Per Head Service? Sign Up Today and Get 2 Weeks Free.
