How bookmakers set odds

On a basic football match, there are 3 outcomes possible, a home win, a draw or an away win which is typically represented as 1 X 2. The probability on the whole game add up to 100% meaning if there is 50% chance of draw and equal chance of either team winning (25-25), the total is 100%. Bookmakers use these odds to calculate the true odds. According to the statistics regarding the two teams (victory of the home team, home draw, defeat, classification scores, player’s physical fitness, team motivation, goals scored, goals endured) and several other factors of minor importance, the bookmaker’s shareholders determine the probability of each event.

For example,

  • Team A (50% win chance) = (1/50) X 100 = 2.00
  • Draw (20%) = (1/20) X 100 = 5.00
  • Team B (30% win chance) = (1/30) X 100 = 3.34

These would be the true odds if bookies set it according to the probability of an event occurring but they will not publish this to the public because the bookmakers would gain no profit at all. If equal bets of 100$ each were placed in each outcome, and 50 punters bet on a home win, 20 punters bet on a draw and 30 punters bet on an away win, bookies would pay $10,000 no matter what the outcome is. Therefore, bookmakers reduce the true odds and set their own odds in such a way, they would profit no matter what the outcome is therefore breaking even over a period of time.

  • Team A = 1.89
  • Draw = 4.8
  • Team B = 3.20

This technique can be further understood by understand bookmaker’s disbursement rate. The disbursement rate of a bookmaker is the percentage of devolution to bettors, that is to say the part of bets that the bookmaker will transfer back to winning bettors.

Bookmaker’s disbursement = 1/ [(1/odds of {1}) + (1/odds of {X}) + (1/odds of {2})]

So, in the case of true odds for the above example,

Bookmaker’s disbursement =1/ ([1/2.00] + [1/5] + [1/3.34}]) = 100%

For odds set by bookmaker = 1/([1/1.89] + [1/4.8] + [1/3.20}]) = 95.24%

So basically, the bookmaker will transfer back 95.24% of the bets realised and keep 4.76%.

Once the disbursement is calculated, we can calculate the real probability of a bookmaker

Probability of result 1 = (1/odds of {1}) X bookmaker’s disbursement rate = (1/1.89) X 95.24% = 50%

Probability of result X = (1/4.8) X 95.24% = 20%

Probability of result 2 = (1/3.2) X 95.24% = 30%, which is the same as above.

Odds fluctuation

After bookies publish odds, stakes start flowing in. When the game goes live, the bookmaker constantly monitors the flow of bets along with the flow of the game. It’s similar to the basic concept of economics where demand and supply set the price in the market. If there are more bets for a home win, the odds will be lowered, but there is also a factor of gameplay to be considered. If it looks certain that the home team will win, the odds for a home win will be lowered and the odds for an away win will be raised. This is mostly done by using software. These adjustments are continuous and are carried out by all bookmakers.