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How Do Bookmakers Make Money?

May 23, 2018 9:00 am Published by

BookmakersThis seems like an easy question, however it has a more complicated answer than many of us might realise. Yes, in simple terms the bookies make money by offering us bets. If the bet comes in they pay out and we walk away happy and with a heavier wallet. If the bet doesn’t come in they keep our money.

However in reality the situation is more complicated than this.

This is not simply a case of throwing up some odds wily-nily and hoping that they make money from us chump punters – for one thing, we are often better at this whole gambling thing than the bookies would like us to be!

They therefore employ two concepts when putting together a book – the Over-Round and the Bet Expectation.

Over-Round – This is the percentage of profit that a bookmaker stands to make on a book, and it is calculated by the winning parentage assigned to all the bets within it. An over-round of 120% on a bet means the bookie will make £120 for every £100 of bets. So the higher the over-round the bigger his profits. The bets will however not look very attractive to punters if the over-round is high. It’s a balance therefore of trying to make money on the market whilst giving attractive odds to bring the betters in.

Bet Expectation – This is the sum of all possible gains and losses multiplied by their relative probabilities. Easy right? Ok, maybe not! What this means is whether you as a gambler stand to gain or lose on your bet by seeing what would happen if your bet was placed at the same odds over and over again. It’s a good shorthand way to calculate if the bet you make, at the odds offered, is profitable.

Bets: Positive & Negative Expectation

If you look at a bet through the prism of bet expectation, then you will see two outcomes positive & negative expectation.

Lets explain this with a coin toss. Assuming the toss is fair, there is 50:50 outcome. If you bet £10 on heads and keep betting that over and over you have a 50% chance of winning and a 50% chance of losing.

This means that this particular bet actually has a neutral expectation.

What is a bet with positive expectation? A bet that has a positive expectation suggests that, over time, it should make a profit.

What is a bet with negative expectation? So I’m sure that you can figure out therefore that a bet with a negative expectation suggests that over time it will lose money.

To calculate the Bet Expectation, you use a simple formula:

(Winning amount per bet times by probability of winning) minus (Losing amount of bet times by probability of losing)

Take the coin toss again. Say you are offered odds of 2/1 for it to be a head. Therefore every time you stake £10 you stand to get £20 back for a head, and lose £10 for a tails.

So we get:

£20 x 50% minus £10 x 50% = +5

You therefore expect to make, on average, a profit of £5 for every £10 that you bet. This indicates then that is a very good bet to get behind!

If you can calculate the bet expectation, then you can find the bets with the best value.

How Does The Bookmaker Always Win?

MoneyOf course, even if you know how to work out the bet expectation, then the bookie will still probably win.

How?

That other term we introduced up top – the Over-Round. It is this concept that allows the bookie to keep lighting his Cuban cigars with £50 notes.

The bookie uses the Over-Round calculation to ensure that he always turns a profit on a book – a book being the selection of bets within an event.

Lets take a look with an example of a horse race with 5 runners. Please note, this is a very simple explanation that doesn’t take into account form, past results, etc. actually working our the Over-Round on a book in real life, with all those variables, is actually really bloody hard, which is why the top online betting sites and bookmakers are actually more skilled than we often give them credit for!

So if there are five horses they each have a 20% of winning. If they all have odds of 4 to 1, then assuming the bookie takes an equal stake on each horse he would then break even on this book – five punters stake £10 each. The bookie keeps the 4 x £10 of the losers and pays out £40 plus returns the £10 stake to the winner.
The over-round for this book is 100% – the bookie has made no profit, but he has also lost no money.

However if he changes the odds to 3/1 this changes the over round in his favour.

How?

Well, now 5 punters stake £10 to put £50 into the bookies hand. He then pays out £30 to the winner, plus returning the £10 stake. So when the winner walks away with his £30 profit plus his original stake, the bookie is left with £10 still in his hand.

The over-round is now 110%, and he has turned a profit of £10.

Does It Always Work?

No. The above is an incredibly simplistic way of looking at something that is crazily complex. Broadly speaking though, the bookie is always aiming for an over-round of over 100% – because this is where his profit lies. He will adjust the odds as he sees fit to keep that over-round high without going to far and pushing the odds too much in his favour.

A high over-round will result in a poor payout for winning punters, which is why bookies compete to offer the best odds on events.

Can You Beat The Bookies?

PoundsIt is hard to truly beat the bookie – they are, after all, experts at what they do. There are however three tricks that even if you can’t beat him, can help you to get better value from your bets:

Identifying Positive Expectation

As we discussed above, it is hard but not impossible to discover the Positive Expectation value of a bet – but this is definitely one of the ways to stick it to the bookie.

Basically you can identify both the bets that could turn the highest profit for lowest risk, and also the bookies who are paying out low amounts on winning bets – so when you do gamble, you have the highest potential returns if your bet does come in.

Arbitrage

Arbitrage betting is also referred to as a “Miraclebet” – that nickname should give you an idea of how hard they are to find.

Basically, this type of bet is a guaranteed return. It sees you placing proportionate bets on the outcome of an event with different bookmakers. It works best with a book with only two possible results, like a Tennis Match.

It involves finding two bookmakers who disagree with who they think will win the match. By betting player A with bookie A and Player B with Bookie B, no matter who wins you will cover the loss at the other bookie whilst making a small profit on the winning bet – provided the odds are in your favour in both instances.

It requires an almost mathematical formula to be able to identify the odds at competing bookmakers that allow the scheme to work. It also requires you have funded accounts at a wide range of bookies to take advantage of all the odds offered on an event – it is also going to take an awful lot of time.

But in theory it is possible – and if you can work it, well… they don’t call it the “Miraclebet” for nothing!

Matched Betting

This is a form of Arbitrage betting, except that it takes advantage of bookie bonuses like free bets. These are usually introductory offers for joining a betting company, like the standard “bet £25 and we’ll match it with another £25 stake” kind of deals.

The system is basically the same as standard Arbitrage we discussed above, with using the “free” bonus money or bets to cover multiple outcomes across a range of bookmakers on a single event.

How Hard Is It To Win Long Term?

Bloody hard.

For one thing the bookmakers are very good at what they do – which is why you will probably never meet a poor bookie.

They also have security teams that monitor accounts for suspicious activity or betting patterns – and do not hesitate to close accounts and kick you out.

So good luck beating the bookie, it is the dream of most gamblers after all. Whilst it may seem impossible at times, there are plenty of examples of people out there who did just that. If you can combine knowledge, skill and a fair chunk of luck then you could do it too.