You may have wondered how come bookmakers keep making money consistently. They can’t predict the future, and in most cases they cannot affect the results of pending matches, yet almost every semi-capable bookmaker turns a profitable margin in the long-term. In fact, a recent UK study found that sports-related bookmaking is even more profitable than other forms of gambling such as lotteries, roulettes or gambling machines.
In Britain, football-related conventional betting has grown immensely, in large part due to the emergence of high-risk high-reward odds such as betting on particular players scoring goals or other specific outcomes of football matches. This has been reflected in nationwide statistics as well —gambling losses are estimated at £286 per adult per year in the UK and rose by over a third between 2010 and 2015.
To understand how conventional betting is increasingly depriving people of their money, we must first find out how bookmakers keep turning a consistent profitable margin.
Bookmaking is an old profession and its name is derived from the understanding of odds-calculating in England. As early as in the late 18th century, oddsmakers would write down the individual odds of each participant in the most common contest of those times — horse racing. These odds would be written into a hard-bound ledger (a book), thus creating the term of a bookmaker.
Bookmakers need to make a profit regardless of the outcome of the contests for which they “calculate” odds. This is achieved by fixing the odds downwards of their actual percentages, ensuring that the bookmaker pays out less than what he would have if he used the actual odds. Of course, this isn’t easy — it means the bookmaker must have as much information as possible about the upcoming matches, and then he can shave off the odds marginally downwards, careful enough to not put the bettor at a too large disadvantage. A major reduction will not draw in enough players and negatively affect his expected profits.
The creation of a profitable “book” is known as the notion of the overround.
Imagine a race between five horses. a bookmaker may choose to price up each horse at odds of 5/1. If this bookmaker accepts an equal amount of money on each participating horse, he would break even, as each horse would have a 20% (or 1 to 5) chance of winning. Such a book would be “rounded” even at 100%. However, bookmakers need to go above this 100% in order to be profitable, and they usually fix the book up to 120% (creating a 20% overround).
Going over this limit has traditionally been off-limits to bookmakers due to the perceived unfairness of such odds. People simply won’t bet enough money on overrounds above 20% because they detect the weak odds (for them) or the inadequate reward.
That held true until recently, when bookmakers developed the sneaky but effective method of creating large odds on highly-specific outcomes. Such odds can be extremely high in comparison to the more traditional model of betting on wins, losses or draws.
For instance, a football game may have the following odds:
Home team wins — 1–1(50%).
Draw: 2–1 (33.33%)
Away team wins: 5–1 (16.67%)
However, using highly specific events, such as a certain player scoring, or the match ending with a particular score, the bookmaker may create much higher odds (500–1, or 0.2%) where the difference between their “real” (as estimated by the bookmaker) chance of occurring and the odds set can be hidden better, allowing the bookmaker to make more money.
We will get into the specifics of hiding an increasingly larger overround within large odds in part 2 of our article on how conventional sports bookmakers operate, explaining the way large odds set by bookmakers are in fact hiding larger margins and cheating their customers by setting unfair conditions.
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