How the Bookmakers Compile Their Betting Odds
Most people know that the bookmakers win in the long run and that beating them is almost impossible. The main reason for that is the margin in the odds that reach the customers, but the whole method of compiling the betting lines and prices is designed to eliminate any risks.
The system works in a similar fashion in both old-school sportsbooks and online betting sites. Let’s take a closer look at the different steps.
Initial Data Analysis
It all starts with a sophisticated data analysis process performed by the traders and odds compilers of the bookmaker. They use a large set of stats and go through them using systems built on the base of mathematical models like the Poisson distribution.
The approach improves all the time and in recent years, some bookmakers have been experimenting with machine learning. The overall point is that sportsbooks have some of the most precise tools for data analysis, access to a lot of raw numbers, and the qualified people that complete the whole procedure.
As a result, they get very accurate probabilities for the outcome of each sporting event and that’s the starting point of their betting odds and lines.
Other Factors in Play
The raw numbers are an excellent base, but there are other factors in play here. We all know that an injury or a suspension of a key player can be crucial for any team out there. The job of the bookmaker is to make sure that the odds are adjusted to the circumstances.
The traders take into account all important variables that could affect the outcome of the sporting events, such as team news, weather forecasts, and more.
The sportsbooks usually do well in that regard in popular sports and leagues where they can invest in data feeds. That’s not really the case when it comes to obscure competition. The bookmakers often can afford to follow them carefully if there aren’t enough players betting on them.
It’s one of the few reasons why some players with good information sources for smaller events might be able to consistently beat the bookmakers.
Cash Projections
The next important step in the whole process is to adjust the odds based on the bookmaker’s cash flow projections. The money placed on the different outcomes of a sporting event is rarely evenly spread.
Most of the time, there is more cash backing the favorite or another disparity that could be the consequence of various factors.
The point is that each sportsbook has to balance the books in order to stay profitable. That means providing more unfavorable odds for the outcomes that attract more money. That way, the users naturally tend to bet on the opposite option or, at least, the betting sites have a better long-term Return of Investment.
This is a key moment for many bettors that actually make money by betting against the public, but more on that is about to come soon.
Adding the Margin
At this point, the bookmakers have fairly accurate odds that reflect the probabilities and have been adjusted for the projected bets. And yet, they are still at huge risk of losing or at least breaking even when it’s all said and done.
That’s where the margin comes into play. It’s very similar to the house edge of the casinos and it’s designed to guarantee the profits of the sportsbook. It’s usually in the 5-10% region, but it could be higher when it comes to obscure leagues and sports.
The easiest way to understand how big the margin would be to transform the odds for the betting market into probabilities and add them. If the prices are fair, the result should be 100%. Since the bookmakers have implemented their margin, it would be around 105-110% instead.
Odds Movement
Once the odds are released, the bookmakers have to stay alert too. They need to adjust them continuously to make any important changes and make sure the cash flow is balanced. If the actual wager distribution is different from their projections, they always move the lines and the prices.
As it was mentioned earlier, that’s how positive expected value appears sometimes. The experience bettors know how to follow the prices and hit the betting sites when that happens.
From the bookmaker’s perspective, that’s usually not a problem because the mass user has placed a lot of money on the other outcome.
Conclusion
The overall process of odds compiling is not perfect, but it’s very, very good. It’ has been the core of the sports betting industry and beating the bookmakers is not easy. That’s why the vast majority of people lose money in the long run.
If you want to avoid their fate, you should learn the bookmaker’s process and identify the weak points, based on an in-depth analysis.
