How Do Bookmakers Make Their Money?

Overround can be your friend..

It’s quite apparent from the rise and rise of the gambling sector that bookmakers are making money at an increasing rate but it seems that a lot of people don’t know exactly how they are doing this. In this guide we will describe what ‘overround’ is and how bookies use this to generate their large profits.

For this we will use the concept of ‘implied probability’ that we discussed in Understanding Odds, as this is the basis of all bookmaking. So, we know from this article that all selections offered have an implied probability and that we can find out what that is. Now we will see how much added probability a bookmaker has added, how to work that out and what that means for our own betting.

If we take tennis match as an example; Player A vs Player B.

Now Player A & Player B are equally capable of winning the match. This implies that they both have a 50% chance of winning the game. This would mean that if bookmakers offered fair odds for this match that they would be offering 2.0 or Evens for both players and this makes sense because there can only be one result; A win for Player A or Player B, which sums to 100%.

Now if the bookmaker offered 2.0 (Evens) for both players then theoretically they would win no money as they have offered fair odds. To make sure they do make money they add what we described earlier, ‘overround’. This quite simply added extra percentage to the total percentage offered in order to guarantee a profit. In this case the traditional offering would be Player 1.83 (5/6) and Player B (5/6). To see how much ‘overround’ has been added, we have to calculate implied probability of all selections

Implied Probability for Player A = 1/1.83 = 0.5465 = 54.65%

Total book = Player A + Player B  =  54.65% + 54.65% = 109.3%

Overround = Total book – 100% = 9.3%

Now as we now that both players have the same probability of winning the match and that the odds have changed for both players from 50% to 54.65%, we can see that the bookmaker has added 4.65% to each player and a total of 9.3% to the total book. This 9.3% is the amount that the bookie would expect to make long term from a match with this characteristic. In reality, the weight of money will effect the amount the bookmaker wins but the theory is the same.

Now knowing this should effect the decision we make we betting, as we should be looking for the best prices. This means that very often we will be looking for the companies offering the lowest ‘overround’. Many odds comparison websites will do this for you but it becomes almost impossible to in-play which means that knowing how to calculate this yourself can be incredibly important.

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