How Do Bookmakers Determine Odds

Bookies make money through the odds they offer. Let's understand how bookmakers determine odds so they can make money from the game.

how do bookmakers determine odds
How Do Bookmakers Determine Odds

If you wonder how sports bettors make money from their bets, the answer is simple. They profit off of the money they make from winning bets. How about the sportsbooks? How do they make their money? The answer lies within the bookmaker odds.

But how do bookmakers determine odds so they can make money from the game?

How Do Bookmakers Come Up With Their Odds

What makes a successful bookmaker? A good bookie is able to effectively incorporate profit margins into the actual odds of a result. Their ultimate goal is just one thing: to make a profit out of the bets, regardless of which sides of the game win.

Contrary to what a newbie may believe, the bookies do not directly care who wins or who loses or who gets to bag the championship home at the end. After all, bookmaking is a business, and the end goal is profit.

The profit margin of bookies is called the vigorish, or vig for short. Sometimes, this is commonly called the house edge, or sometimes the overround. Bookies set a specific percentage of vig, which can be anywhere around 2%-7%.

At this point, the "real" odds come to play. These are the numbers pertaining to the real probabilities of the game where several real-world factors are considered - player and team history, statistics, form, the weather, and even popular opinion. From these factors, the bookies will arrive at a number that is the "real" odds of an outcome.

At this point, the bookies will then apply the vig to the real odds.

For example, they want to take 5% as their profit margin. Suppose one team has a real odds of 2/1, 3.0 in decimals, or -/+ in American odds. What the bookies would do is deduct their 5% margin from this. Now, the odds that the punters would see would be 19/10 or 2.90 or -/+190.

How do bookmakers determine odds
The logic behind how bookmakers determine odds.

Why Are Bookmakers Not Using True Odds

If bookies use the true odds and present it to the punters, they are risking not making any money out of the game. This is because the "true" odds, also called the fair odds, cannot guarantee them a profit regardless of the outcome of the game. Like the punters, the bookies would end up banking on one outcome just to make their money.

This is where working on a balanced book and the vig comes in. Simply put, a balanced book is when the bookie stands to pay out the same amount of money to bettors regardless of the game outcome. For example, if the bookies take $10,000 in action (or bets) on each side, they are set to pay $20,000 n matter what the results would be. With true odd, this is not possible.

The above example is the ideal situation for a bookie. However, in some instances, punters may notice that the odds change from time to time. Of course, this is still part of ensuring that the bookies maintain their profit margin. But what would push the booki9es to tip the odds to either side?

Reasons for Bookmakers Changing Odds All The Time

If you've been into sports betting for quite some time, or maybe even lurking around as a spectator, you've probably seen something like this - a huge favorite suddenly becomes the underdog on the bookie odds, or vice-versa, or a line with a good profit potential suddenly becomes less valuable. Does this mean that a side of the game is suddenly more or less likely to win?

Not really.

Sometimes, if the volume of the action (or the number of bets) is too concentrated on one side, bookies would make that certain line less "attractive". This is an attempt to veer the attention of the punters toward the other side of the action, hoping to balance the bets placed.

Take for example a football match between Manchester United and Crystal Palace. Since Manchester United is known to be a huge favorite, it is normal for bookies to expect a huge volume of bets to put into their side. However, let's say that two of Manchester United's star players met an injury and their presence in the upcoming game suddenly becomes uncertain. Because of this, more people would suddenly be more inclined to bet on the other side.

Now, the bookies would most likely tip the odds to make betting on Crystal Palace less valuable and money on Manchester United more profitable. If this works, they end up having a fairly balanced book.

Influence of Sharps on Bookmakers' Odds

A laptop and a mobile with "bet" on the screen

Most people would categorize sports bettors into two: the sharps and the squares. The sharps are the "wise" punters. These are people who live and breathe sports betting. They are methodical in their wagers, and more often than not, they place their money on the winning pick. They are what some people might call the "professional" sports bettors.

The squares, on the other hand, are the people that bookies bank on, as they usually make terrible choices in betting. They are either newbies, reckless bettors, casuals looking for a quick way to have fun, and everything else in between. The squares are also often referred to as "the public," since they are bettors who usually just follow whatever is the popular public choice.

Bookies love the squares, but they "hate" sharps, as they have the power to even affect the odds.

Usually, when a sharp bettor places their money on a pick and places a bet with a huge amount, it will cause an imbalance in the action since, of course, the amount of money wagered suddenly more on the other side. Bookies do not like this as this also affects their profit margin.

The pros/sharps love betting on opening odds or the first set of odds released by the bookies, particularly with popular sports like American football or football. This is when their bets usually dictate the movements of the odds. If they place a huge amount of money on the initial underdogs, the chances of that side shifting closer to the favorites are very likely.

So, when a sharp places a huge bet that can disrupt the action, there are usually two possible scenarios: the bookies outright reject the bet, or they push through with it but adjust the odds to manage the shift in action.

Taking Advantage of Bookmakers' Odds

Now that you have a fair understanding of how the odds work, the way sharps think, and how their picks can affect the odds, the question is: how do you take advantage of the odds and its behavior for your benefit?

As with all businesses, there is also competition when it comes to sportsbooks, especially in the UK and in US online sportsbooks. Each bookie tries its best to attract more punters by pulling off offers and discounts such as deposit bonuses, freebies, and better lines than others. As a punter, you take advantage of this fact by shopping around for the best line.

"Shopping" in sports betting means checking multiple bookmakers for the best offers and the best line currently available. Although there are a lot of good betting sites out there, there is no single "best" bookie.

One may provide good lines and odds today, but another one may hold the best numbers tomorrow. Sometimes, a bookie may seem to be pushing a certain pick - smart bettors would recognize this as them attempting to balance their books, not the pick necessarily being a good one.

Always check your bookie and shop around for others until you believe you have the best value for betting odds.

How Do Bookies Determine Odds: FAQ

How do bookmakers set their odds?

Bookmakers set their odds based on true probabilities. And then adding in a profit margin which would be their "cut" from the bets collected.

What are the true odds among sports betting?

The true odds refer to the real probabilities of an outcome, abed on a number of factors including play history, form, weather, and statistics, among other things. Bookies do not use the true odds as this places them at a position of high risk since a profit margin for them cannot be guaranteed.

What is the vig or overround?

The vig or overround refers to the amount of money that goes to the bookies as profit for every wager placed. This can be from 1%-7% (or even more), depending on the bookie.

Do bookmakers favor favorites or underdogs?

Most of the time, bookies do not favor the favorites to win as they are usually the pick of the public (which is why they are favorites in the first place.) This is why they often provide better bet value on the underdogs to attract punters to bet on its side.

What is line shopping?

This refers to you, as the bettor, comparing odds and lines from different bookies in an attempt to find the best value for your money.

Odds and lines released by the bookies do not need to feel like rocket science for any bettor. With enough understanding of how do bookmakers determine odds, you would be able to make better and more strategic bets.