Overround explained - what is bookmaker margin?
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· 'Overround' can be simply defined as the practice of factoring in the profit margin which is implemented by bookmakers, and is best displayed as a percentage. The level of Overround differs throughout the various bookmaker providers, and also various when focussing on specific markets and events.
Whilst the famous old adage 'you never meet a poor bookmaker' has a ring of truth to it there are plenty of people who have tried their hand at running casinos or betting companies and lost money along the way.
Of course, the house does not always win and Donald Trump has reportedly managed to bankrupt several casinos in his time, but well organised and professional bookmakers have a proven business model for generating profit. So exactly how do bookmakers make money?
In this article we will answer that precise question, examining the concept of the overround, which is fundamental to understanding this topic. We will see how the overround is calculated, how odds are created, how to look at odds as percentages of probability of outcomes and why that is important.
Along the way, you will gain knowledge which could assist you in building a more informed and enlightened betting strategy as you learn which are the best markets to be a punter in and how you can make money on exchanges, in addition to sportsbooks.
Bookmakers and punters alike have to understand the simple mathematics behind calculating and setting odds in order to lay or back bets successfully and profitably.
The methods bookmakers use to drive a profit are quite straightforward in many cases. Understanding the methodology they employ to stack the odds in their favour and spotting the value in the best odds in the market - in addition to taking advantage of the bonuses and free offers bookmakers often offer – is the key to profitability for the punter. It is you against the bookie when it comes to sportsbooks, whilst on exchanges, of course, you are competing against other punters.
The more you know about bookmakers’ calculations and techniques when it comes to sportsbook betting the more likely it is that you’ll generate a profit on an exchange, where you have the opportunity to essentially become the bookmaker.
Laying and backing
One of the key concepts to grasp in betting is that of laying and backing, which are the two sides of any bet. Say you want to back (bet on) a draw in a big football match at a specific price, then you need someone (a bookmaker or another punter on an exchange) to lay that bet at the price (odds) you are willing to take.
Laying a number of bets and keeping a record of the odds and the stakes put down in a book or ledger is in fact where the name bookmaker comes from. The bookmaker offers odds on each possible outcome of an event, set their odds and then ensure that they take an adequate amount of money staked on each outcome, thus guaranteeing a profit whatever the final outcome is.
For online bookmakers in the digital age, most of this work is done by algorithms and using a hefty amount of computer power across a vast array of markets and on millions of selections per year. One of the key elements of these calculations determined by the bookmakers’ digital algorithms is the overround.
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What is the overround?
To explain this with an example let’s take the case of the three possible simple single 1x2 bet options for the full-time result of a Premier League match. The game is at Anfield and the home side are Liverpool, with Manchester City on Merseyside as the visiting side.
Say the bookmaker feels the approximate probabilities for the full-time result are 40% for a Liverpool victory, 30% for the game to end in a draw and 30% for City to return to Manchester with three points for the win.
The odds presented by the bookmaker are 7/5 for 1 (home win), 11/5 for X (draw) and 12/5 for 2 (away win). Let’s look at those odds in a bit more detail. In the UK and Ireland fractional odds are used, whilst in Europe the familiar format is decimal odds and with both there is an associated implied probability.
For the odds quoted the model looks like this:
1 (home win) = 7/5 (fractional odds) | 2.40 (decimal odds) | 41.67% Implied probability
X (draw) = 11/5 | 3.20 | 31.25%
2 (away win) = 12/5 | 3.40 | 29.41%
Then let’s add up the total implied probability for the three possible outcomes of the game:
41.67% + 31.25% + 29.41% = 102.33%
The numbers (prices or odds) and their associated implied probabilities provide the bookmaker in this instance with an overround of 2.33%, which guarantees the bookmaker a profit, regardless of the final score in that tasty Liverpool vs Manchester City showdown. They have been able to offer a ‘good’ price for the punter on the away win as they took in enough cash on the other selections.
Thinking about accumulators
In the example above of the 2.33% overround from the 1X2 Liverpool vs Man City bet you might think that is not much of a profit margin for the bookmaker. Given the hundreds of thousands or even millions of bets taken by the bookmaker each year those profits start to add up.
Indeed, bookmakers can also compound their profit margins by offering multiple bets such as doubles, trebles or bigger accumulators. Say they offer similar 1X2 odds on two football matches the bets become doubles for the punter (who has to predict correctly on the outcome of two games) and the profit margin doubles 2.33% + 2.33% = 4.66%. If it’s a five match accumulator those overround figures grow to 2.33% + 2.33% + 2.33% + 2.33% + 2.33% = 11.65%.
For punters it is harder to calculate the value in accumulator odds than in single bets, but of course, they are attractive because they are fun and can provide big wins when they come off.
When it comes to laying bets on an exchange the prices you are willing to offer other punters will be calculated using the methodology outlined earlier in this text. For the site owner in that case the risk is not theirs as they simply charge a small commission on every bet transaction on their exchange platform.
As a final word remember that many bookmakers also reserve the right to restrict or suspend bettors accounts if they suspect any kind of foul play, or simply because providing their services to very well informed punters affects their bottom line too much. We cover that topic in more depth in our article on how to identify a good tipster.
It is totally legal for bookmakers to do this and whilst the best bookmakers act in a reasonable manner and take customer service very seriously some lesser-known bookies might not always be as amiable.
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