Imagine two of your friends are going to embark on a coin tossing contest (it’s amazing what people get up down the pub). Being a savvy sort, you decide to run your own book on who will win.
Assuming that this is a fair coin, and not a double-headed number straight from Del Boy Trotter’s playbook in Only Fools and Horses, both of your friends will have an equal chance of winning the contest – both heads and tails can be spun with a 50% chance of either landing.
To that end, if you wanted to offer punters a ‘fair’ market on this coin-tossing clash of the titans, you would offer even money – confirming the equal chance both combatants have of triumphing. However, your average bookmakers’ business model is not built around fairness… more on that later.
Now imagine those same two chums decide to have an arm-wrestling competition. In purely theoretical terms, if both contestants were equally strong, they would have a 50% chance of either winning or losing. It’s more likely though that they won’t be so evenly matched: perhaps one of your friends is a regular at the gym, and the other resembles a contestant in a Mr Puniverse competition.
To that end, if you were running a book here, you would make your muscular mate the odds-on favourite (greater than 50% chance of winning) and your featherweight friend an odds-against underdog (less than 50% chance of winning).
What Do Even Odds Mean?
These two examples help to explain one of the oldest concepts in betting: even money.
An event that has two outcomes of equal probability would yield fair odds of evens. We can flip heads or tails in a coin toss, we can reach into our sock drawer and pull out either a right or a left sock, and so on.
So if your bet is priced at EVS, you will get back double your stake if you win: A £10 bet would equal a £20 return.
The complication is when there are more than two possible outcomes, and yet a bookmaker still prices one of them at even money; for example, they price the favourite in a football match at evens or the market principle in an eight-horse race at evens.
How have the bookies come to this eventuality?
There are two things to consider: their unique way of making money and the concept of implied probability.
How Do Bookies Make Money?
We know that the flip of a standard coin yields two possible outcomes that have a 50% chance of happening: heads or tails.
If you were running a fair betting operation, you would therefore price both at even money – written as ‘EVS’ in a betting market, or 2.00 for those using decimal odds.
The ‘problem’ with that approach is that, in the long run, you would expect to break even – the law of large numbers states that an infinite number of coin tosses would yield 50% heads and the same for tails, meaning that your bookmaking operation wouldn’t make a single penny or cent.
So bookmakers got savvy. They decided not to offer fair odds to their customers at all, and instead build an over round – known as ‘vig’ or ‘juice’ in the American market – into their prices to ensure they are in an equitable position.
Here’s an example:
- Heads – 10/11
- Tails – 10/11
If you do the math, these two eventualities add up to 104.8% – meaning that the bookmaker has implemented an over round of 4.8% on top of the ‘fair’ book.
And yet, if we calculate the implied probabilities, we are being offered a 47.6% chance of that heads will be spun and the same again for tails. And yet we know either should be given a 50% probability.
The point is that, in this market, the bookmakers have a positive expectancy – they can lay as many bets as they want at those odds, knowing that in the long run they will be profitable. Punters, meanwhile, would be getting a bad deal no matter if they wagered on heads or tails.
How Do Bookies Set Odds?
What can confuse some punters is when even money is offered in a multiple runner market.
Here, we need to introduce the concept of implied probability. As you may recall from your maths days at school, fractions can be converted to percentages – therefore, fractional betting odds in a horse race can be converted to a percentage chance of that outcome occurring, i.e. that horse winning.
What a bookmakers’ odds-compilers will do is analyse all of the runners in the race using a myriad of factors, such as form, trainer reputation, the going, the distance, the handicap mark, the grade of the race, and many other things.
After that process is completed, they will designate a percentage chance to each horse of winning the race, which they then convert back to a fractional figure to create their odds (remembering to build in their over round, of course).
Here’s an example of a race, with both the horse’s odds and implied probabilities listed:
| Horse | Odds | Implied Prob. |
|---|---|---|
| Sir Gregory | EVS | 50% |
| Brazen Arrow | 5/1 | 16.70% |
| Atrafan | 11/2 | 15.40% |
| Twentygrey | 6/1 | 14.30% |
| Won Love | 8/1 | 11.10% |
| Wicklow Warrior | 10/1 | 9.10% |
| Edessann | 33/1 | 2.90% |
| Delegate the Lady | 40/1 | 2.40% |
| Spirit of Heaven | 100/1 | 1% |
| Outofthegloom | 100/1 | 1% |
What do we learn? Well, by adding up the tally of implied probabilities, we note that the book equals 123.9% – an over round of a cool 23.9%. THIS is how bookies make money.
As you can also see, the bookmakers rate Sir Gregory as an even money chance – giving him a 50% chance of winning. The rest of the field is adjusted accordingly.
This helps us to uncover the true secret of successful sports betting. Let’s say you perform your own analysis of the race, and you actually believe that Brazen Arrow has a 25% chance of winning – that would be reflected by odds of 3/1. So, if you take the bookies’ 5/1 as offered, you would be in a position of positive expectancy – long term, this is the key to being profitable as a punter.