How Bookmakers And The Betting Market Interact
January 4, 2013 by Jonathan
Filed under Recent Articles
Why bookmakers at all?
Because they fundamentally set odds and prices for a wide range of events. Sensibly, the bookmakers work within the parameters of a carefully structured business plan.
What is that business plan?
Basically, it’s defined by these three steps:
- Through careful analysis and research calculate the statistical chances involved for each event.
- Set the odds by taking into account the percentage probabilities of those chances, as well as public opinion.
- Accept enough money in bets to pay off the winning punters AND leave a bit left over as profit.
Do they set the odds on betting exchanges?
No, they don’t. Instead, both punters and betting exchanges use bookmakers as a guide to the market’s strengths and weaknesses.
In fact, the bookies quite often structure and release their odds well in advance of an event – certainly long before the exchanges get around to offering backing and laying for that event.
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Do bookmakers offer accurate odds?
No, they don’t do that either. Very rarely do their odds match the statistically expected odds based on ‘real’ chances.
Rather than predicting the market with accuracy the aim instead is to maintain a balanced book, whilst taking public opinions into account.
As part of this aim they shorten or lengthen their odds to ensure they make a profit on an event.
Why do they do that?
In a sense the bookmaker functions more as an intermediary, similar to, say, a stockbroker. They take and hold money from those who want to bet on the outcome of an event.
On completion of the event they pay out the winners. And their ‘fee’ for these transactions is called the over-round.
If you bet on every runner in a race you might outlay 100 units but only get back, say, 80. The bookmaker has ensured their odds add up to 120% instead of 100%.
Their over-round book leaves 20 units over after they’ve paid out all winning punters. That 20 is their profit.
They then rinse and repeat event after event after event…
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Is it really that easy?
Not really. Bookmakers can and do go bankrupt if they make serious errors and can’t pay out all their liabilities. Life becomes complicated for them as the kick-off or race starting time approaches.
Punters’ opinions change as new data comes in – an injury here, a last-minute withdrawal there, last minute team news is released, private information from the stable suddenly becomes public knowledge.
The market goes into overdrive with the increased betting activity. The weight of money means the odds become more fluid. The order of favouritism can change – sometimes quite dramatically.
Bookmakers have to make frequent re-calculations of their odds on offer to:
- Reflect the market forces at work
- To keep their book balanced
- To maintain a healthy over-round
Great pressure and little room for error.
A risky business, then…How do they manage those risks?
One common strategy is to divert punters’ from one direction that was profitable for the punters to another direction that’s more profitable for the bookmaker!
This is done with certain betting offers. And offering free bets provides the cannon fodder and fresh blood for their business.
There is no such thing as a free lunch. The free bets are very much to the bookmakers’ advantage – they’ve run the numbers already.
How does all this help me?
Simple – you must think like a bookmaker and understand the principles of their business plan. You too must spread the risk just as they do. Then you can become your own bookmaker by compiling your own book.
- Through careful analysis and research you too can calculate the statistical chances involved for each event.
- You then set your own odds by taking into account the percentage probabilities of your calculated chances
- Only bet when the odds are in your favour. If you estimate a horse as a 2.50 runner and the bookie is offering much better odds then you bet. If the odds available are less you don’t bet.
It’s as simple as that. The devil is, of course, in all the details.
The necessary “careful analysis and research” is easily said, but is not so easily done. It’s time consuming and intensive to do that properly, whilst poring over the fine print of a form guide.
But successful punters do it and reap their rewards accordingly.
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