Anyone who has ever placed a bet on sports, racing or even at the casino would have encountered odds. But the truth is most casual gamblers would struggle to tell you exactly what odds represent or how they are calculated, and how knowing what an odd is can have a major impact if you wish to make profit in the long term.
So what is a betting odd?
Put simply, betting odds are a representation of the implied probability of the particular event occurring.
Unfortunately though it isn’t quite that simple, because not only are odds not given to us in a simple percentage form, but bookmakers also have a very sneaky way of tipping the odds in their favour in each bet.
How a Betting Odd is Calculated
The best way of thinking about what an odd represents is to use the following calculation:
Odd = implied probability +/- expected/received money + vigorish
Let’s look at each of those elements to gain a deeper understanding of how each odd is calculated.
Implied probability- Just like punters, bookmakers used a range of statistical modelling and expert opinion to calculate a probability of a particular event happening.
Expected/received money– In an ideal market, bookmakers will receive the same amount of money for all options in a market, meaning that they will make a profit regardless of the result. This means however that in order to balance the books, they will alter the prices to encourage punters to bet on options which are not receiving money, and discourage punters from betting on the option being bet heavily. To do this, bookmakers will lower the odds of the heavily bet option so it is less attractive as a betting proposition. Note that the changes to the odds on one option should be reflected by a change in the other options (ie as one goes down, the other should go up).
On occasion bookmakers may pre-empt this flood of money and build it into the opening price. This can sometimes be seen with big market or well supported teams which attract large amounts of public money. Sides like Manchester United, LA Lakers and Dallas Cowboys often trade over their true probability due to the sheer weight of money from their fans.
Vigorish– also know as vig, juice, cut or take, is a premium charged on top of a bet to ensure that if a bookmaker is successful in balancing their book on an event they will make money regardless of the result. Vigorish for sports books can range anywhere from 1% to 10%, generally proposition bets will attract higher vigorish than outright or line bets as they tend to be harder to accurately predict.
We will learn how to work out the vigorish of a market in a future article about market percentages.
Converting Implied Probability into an Odd
Of course when we go to place a bet we don’t see odds a pure percentage, we see them as odds. The conversion of probability to odds is quite simple:
100 / implied probability
(100 / implied probability) – 1
To convert odds to the implied probability percentage we can use the following techniques:
(1 / decimal odds) x 100
(denominator / denominator + numerator) x 100
Example of the calculation of an odd
To see how this formula works in practice lets use an example.
In an upcoming tiddlywinks match the Sydney Sailors and playing the Canberra Razors. Using their statistical modelling, our bookmaker rates the Stars a 60% chance of winning, and the Razors a 40% chance. This particular bookmaker has a 5% vigorish on all tiddlywinks outright markets which is distributed evenly amount the options.
62.5% = 60% (probability of winning) + 2.5% (vigorish)
42.5% = 40% (probability of winning) + 2.5% (vigorish)
Using these implied probabilities the opening market for the match would be Sydney Stars $1.60 and Canberra Razors $2.35.
However, the Sailors are currently on top of the table in the Australian Tiddlywinks League and the match is due to be played on prime time Monday Night Tiddlywinks. With so many fans and good judges backing the Stars, our bookmaker is forced to move the price for the Stars. This changed the implied probability of the match:
67.5% = 60% (probability of winning) + 5% (adjustment for money received) + 2.5% (vigorish)
37.5% = 40% (probability of winning) – 5% (adjustment for money received) + 2.5% (vigorish)
This change to the probability of the match meant the closing odds at the beginning of the match were $1.48 for the Sailors and $2.66 for the Razors. Notice that the change in lowering the Sailors odds, caused the odds for the Razers to increase.
Now that you know what an odd is, and how it is calculated stay tuned for further articles about understanding odds to find an edge, how to analyse a market to work out the bookmaker vigorish, and the importance of shopping around to find the best odds available.