How do bookmakers make their money?
In an ideal world, they would go toe-to-toe with the betting community: offering fair odds on all of their markets and then accepting their fate if a high percentage of favourites won on the day.
But, of course, this isn’t a perfect world and the bookies are smarter than leaving their profitability (or otherwise) down to chance.
So that’s why they introduce a margin, sometimes known as the ‘overround’ (or ‘juice’ or ‘vig’ in the American market), into their odds.
This provides them with something of a safety net should a stack of money come in for the most popular selections – increasing their margin of error, hence the name.
So how does a bookmaker use the margin in their odds, and how can we as punters calculate this to ensure we are getting the best prices as often as possible.
What is a Bookmaker’s Margin?
It’s an example that’s used often to explain betting margins, but it’s also the easiest to follow.
Imagine a bookmaker was offering odds on the toss of a coin. There’s no funny business going on – this is a standard coin with heads on one side and tails on the other. We know that there’s a 50% chance of the coin landing on either side, and therefore the fair odds for this bet would be even money for heads and even money for tails.
But the bookies would lose control if they offered those prices, because their profitability or loss would be determined by the weight of money.
And so they’d probably offer something like 10/11 for heads and 10/11 for tails. Why? Because that way they are able to build in a margin to make money, balance their book and limit their liability if there’s a rush of money coming in for one side.
We’ll show you how to calculate betting margins shortly, but for now note that in this coin toss example the bookie has a margin of 2.38% on either side for a total overround of 4.76%. So, if you continued to bet at this margin over a long period of time, you would lose money because your payouts on winning bets would be superseded by the losses of unsuccessful wagers – there’s simply no equity in these odds.
That’s how a bookmaker makes their money…
How to Calculate Betting Margins
If maths isn’t your strong suit, and you thought you’d left complex equations behind in your school days, the good news is that it isn’t too difficult to work out a bookmaker’s margin.
The first thing to do is switch your betting site/app to decimal odds from fractional odds. You’ll normally find this option available in settings, and it makes the calculation so much more straightforward.
For each selection, simply divide the decimal odds by 1 before multiplying the answer by 100. For example, let’s say Manchester City (2.10) are playing Liverpool (4.00), with the draw at 3.50.
- Man City -> (1/2.10) x 100 = 47.6
- Draw -> (1/3.50) x 100 = 28.5
- Liverpool -> (1/4.00) x 100 = 25
If we add 47.6, 28.5 and 25 together we get 101.1. So, in this scenario, the bookmakers’ overround is 1.1% – that’s a generous margin by anybody’s measure, although expected given that the more popular a betting market is, the tighter the margin will generally be.
Let’s do the same for a random Austrian Bundesliga game between LASK Linz (3.30) and Sturm Graz (2.16). The draw is priced at 3.55.
- LASK Linz -> (1/3.30) x 100 = 30.3
- Draw -> (1/3.55) x 100 = 28.1
- Sturm Graz -> (1/2.16) x 100 = 46.2
These three figures add up to 104.6, so the margin here is 4.6% – more than four times that of the Premier League game already detailed.
You can use this calculation for any kind of betting market you like: even large-field events like the Grand National, with 40 runners, using the same math.
Do Bookmaker Margins Vary?
As we’ve already alluded to, a bookmaker’s margin will be different across the hundreds of different sports and markets that they offer.
As a general rule of thumb, the more popular the event then the tighter the margin – that’s because more people will want to bet on these markets, and so price sensitivity in an era of Oddschecker and the like will ensure the bookies do their best to attract as many bets as possible.
They have to remain competitive or no-one will bet with them.
It’s also true, to some extent, that they will offer tighter margins on markets that they find easier to analyse compared to those that have greater variance, e.g. a football match result is easier to ‘model’ than total goals scored.
Let’s use the example of Bet365 and take a look at their margins for some of the most popular betting markets from a single game:
|Match Result||Odds||Margin||O/U 2.5||Odds||Margin||BTTS||Margin|
Hopefully that gives you a better understanding of how the same bookmaker’s margin can differ from one market to the next.
As mentioned, the margin differs based upon a couple of factors, which include the popularity of the market (and therefore the need for each bookie to be as competitive as possible on price), the variance of the market and the ability of the bookie to accurately predict its outcome.
In some cases, the bookmaker may offer new customers a sizable welcome bonus on a specific event but then increase their margin accordingly. For example, a book might offer a sign-up bonus for the Grand National or extend the places paid to ten – but you can be sure they will adjust their margin accordingly.
Shop ‘til You Drop
Clearly, if you are going to bet then you want to be betting on low-margin odds as often as possible – that way, you can maximise your return if you ever win.
If you bet £10 on an 8/11 chance that wins, you make £7.27. Place that same bet at 4/5 and your revenue increases to £8. That £0.73 difference might not seem like much, but multiply it over a high volume of bets or at bigger stakes and you can see how it could soon stack up. For punters trying to grind out an annual take home of 2% or more on their betting, those pennies will make a massive difference.
And so we come back to one of the golden rules of betting: shop around for the best odds. We all have those betting sites/apps that we prefer to use, but when the dust has settled it really is about getting the best value you can on every single wager you place.
If you continue to bet blindly at higher margin prices, you will find it increasingly difficult to see a meaningful return from your betting.