Bookmakers On The Juice
Beginners cutting their teeth in the betting world can find it tough going. Understanding the endless jargon, appreciating the fundamental principles that underpin success, and learning the mechanics behind betting, are prerequisites for turning a profit in the long run. There is an old saying that suggests to beat the enemy, first you have to understand them – therefore we first need to dissect how bookmakers function, and how they make their money. This article explores the concept of the overround (also known as the vigorish or juice), which is the bookmakers inbuilt profit margin in a betting market. In writing this article, I got a lot of help from SportsbettingOnline.net and WikiPedia who have both explained the area in great detail. I believe I can break it down into a less technical post for the masses to understand.
Odds Conversion
Before getting started on the intricacies of odds compilation and bookmaker margins, we first need to quickly address the concept of fractional v decimal odds. Prices are by and large presented fractionally in the UK, and to perform the calculations to work out our overrounds, it is necessary to translate the odds in decimals. There are endless odds translation tables online, but to work out the decimal odds from the fractional display, a very easy calculation needs to be performed. Simply divide the top number by the bottom number and add 1. You could also just use your very own odds calculator.
E.G
7/4 : 7 divided by 4 = 1.75 + 1 = 2.75
9/2 : 9 divided by 2 = 4.5 + 1 = 5.5
6/1 : 6 divided by 1 = 6 +1 = 7
Once the decimal odds have been established, we can work out what these odds represent in terms of implied probability.
Implied Probability & Round Book
Implied probability refers to the percentage chance of success, which is reflected in the betting odds available. It is calculated by taking 100 and dividing it by the decimal odds. For example, odds of 8 would represent an implied probability of 12.5% (100/8) and odds of 2.5 would equate to 40%. In a perfect betting market, the total of all of the implied probabilities in the contest would produce a ‘round book’, which adds up to 100%. Take a hypothetical 6 runner horse race for example:
Decimal Odds | Implied Probabilities | |
Horse A | 4.5 | 22.22% |
Horse B | 4.5 | 22.22% |
Horse C | 6 | 16.67% |
Horse D | 6 | 16.67% |
Horse E | 9 | 11.11% |
Horse F | 9 | 11.11% |
Total Book | 100.00% |
The odds on offer for each runner accurately represent their chance of success, and the total book adds up to 100%. Each horse has its ‘true odds’ attributed to it. In the long run if the bookmakers offered a book to 100%, they would merely break-even, and this is where the overround comes into play.
Overround
The overround is where the bookmakers make their money. When compiling the odds for an event, they do not produce their prices based upon a 100% book. It wouldn’t make sense to have a business model that operates on odds that produce break even returns, and those employing the tactics wouldn’t be trading for very long. Instead, they produce a set of odds for an event that have a built in profit margin. Revisiting the horse racing example above, we look at how the bookmakers may price up the same event:
Decimal Odds | Implied Probabilities | |
Horse A | 3.75 | 26.67% |
Horse B | 3.75 | 26.67% |
Horse C | 5 | 20.00% |
Horse D | 5 | 20.00% |
Horse E | 7.5 | 13.33% |
Horse F | 7.5 | 13.33% |
Total Book | 120.00% |
Adding up the implied probabilities of each runner, we can now see that the book adds up to 120%. The odds of each horse do not accurately represent the chance of each horse being successful – customers are receiving less returns for their bets than they should do based upon the true odds.
A 120% total book means that theoretically for every £120 the bookmakers take on the event, they will have to pay £100 out. This produces a profit of 16.67% for the bookmakers (20/120 *100) and is known as the vigorish, or juice.
When making your betting decisions, it is important to assess the overround of the market. Consistently betting with a bookmaker who has a large overround (and therefore built in profit margin), means you will be receiving odds that do not accurately reflect your chances of being successful. For example, if you are consistently taking odds of 4.0 (implied probability of 25%) about a horse whose true odds are 5.0 (20% chance), then it won’t be long before your betting bank dwindles. For example:
Over 100 bets @ £10 per bet, receiving odds of 4.0 when true odds are 5.0,
Total Stake: £10 x 100 = £1000
Return: 4.0 x 20 x £10 = £800
Loss: £-200
You could expect to lose £200.
The closer the bookmakers’ prices are to 100%, then the better value you are getting and the more profitable your betting is likely to be in the long run.
Good & Bad Value Markets
Generally speaking, the lower the number of participants and the less likelihood of market fluctuation, the smaller the juice on the market. Many bookmakers prices up their football matches with overrounds as low as 103-105%, as information surrounding the top teams is all in the public domain, and there are only three possible outcomes in each match.
Early horse racing prices typically range in the 125-130% margin, due to having more runners, and there being more incomplete information surrounding the events. The importance of knowledge to produce competitive odds is demonstrated with greyhound betting, where the books regularly exceed 140%. Greyhound racing is notoriously unpredictable and is seen by many as very susceptible to corruption. The oddsmakers therefore cover themselves by being cagey with their prices.
Arbitrage
Occasionally, there will be an event which will divide bookmaker opinion and the total market will add up to less than 100%. This occurrence is called arbitrage and enables the punter to bet on both sides and make a guaranteed profit. Arbitrage opportunities usually exist on events with only a limited number of outcomes, as the initial overround is likely to be small. We can use the fight between George Groves v Carl Froch to illustrate arbitrage in action:
Bookmaker 1 | Bookmaker 2 | ||||
Carl Froch | 1.67 | 60.00% | Carl Froch | 1.50 | 66.67% |
George Groves | 2.25 | 44.44% | George Groves | 2.63 | 38.10% |
Book | 104.44% | Book | 104.76% |
Bookmaker 1 believes the fight will be close, and has Froch as a marginal favourite. Conversely, bookmaker two more heavily favour Froch and as such Groves can be backed at more generous odds. Therefore, this fight presents an arbitrage opportunity:
Odds | |||
Bookmaker 1 | Carl Froch | 1.67 | 59.88% |
Bookmaker 2 | George Groves | 2.63 | 38.02% |
97.90% | |||
We can back both fighters to make a guaranteed profit:
Back Froch with Bookmaker 1 for £61 @1.67 = £101.87
Back Groves with Bookmaker 2 for £39 @2.63 = £102.57
The total outlay is £100, but both scenarios produce a guaranteed profit. (The exact figures may be slightly different due to rounding).
Remember – Convert. Compile. Repeat
After a period of dealing with fractional and decimal odds, the implied probabilities that are attached to these figures will soon become second nature, and with a little bit of mental arithmetic, you will be able to produce a rough overround for each event in your head. However, to help along the way, you can use the overround calculator on our site.