What a lot of people fail to realise with betting is that bookmaking has a huge amount of maths applied to each and every bet. The numbers that you see on each market aren’t just plucked out the air, they are part of an extensive process for each bet to be formed in order to secure a net win on pretty much every market that the bookmaker offers.
This is widely known as the bookmaker’s margin and the amount of margin can vary, as we discuss later in the article. It’s designed to be a percentage of the total bets placed that gain a net win for that market. For example, if there was a football match and someone was betting on the Match Result, which includes home win, away win and draw, the market will be priced in a way that regardless of the bet that you take and the odds that you take, the bookmaker will have secured a net win.
It’s worth noting that these margins can vary between each bookmaker and even each betting market. You may find that bookmakers are happy to run on certain markets with smaller margins or if they are feeling confident, may drift the margin for one bet over another. The idea is that they are able to balance the books as they see fit. This may be more liability on result than another, but it means that they can move the odds to reflect this is needed. The easiest way to think of it is as a fee for using the bookmakers service. But, let’s dive in a little deeper as to how these margins are created.
How Do Bookmakers Set Odds & Then Create a Margin?
Setting odds is something that requires a lot of skill. Whilst we’ve spoken about working with the numbers to create a solid margin for the bookmaker to take, the fact of the matter is that a lot of manual work needs to be applied to setting the odds. You see, the bookmaker essentially goes in cold with each new market.
With a football game, this could be two teams that have never played each other and even come from different leagues. It’s for this reason that they have a team of highly skilled professionals that are able to work out the likelihood of each result occurring in any market.
This could include things like form, starting line ups, previous matches, head to heads and plenty more factors for sports like football. Other sports will vary and other betting markets such as politics and non-sports (TV programs) will vary again. You will find that the more information there is on a market, the lower the margins will be as the bookmaker is able to have a much better of idea of what might happen. The less info there is, then the higher the margins given that the bookmaker needs to cover their back as they are essentially guessing.
“True” Odds
The margin will be decided prior to setting the odds for most markets. If we work on the percentage of 10% margin for our examples, it will be easier to work with, although bear in mind that they are often much smaller than this, usually around 5% or so. We need to be aware that the bookmaker is never going to offer you the “true” odds for an outcome. So, if you had a horse race with just two horses, but both horses have identical records and almost identical in their makeup, then you could argue that each horse would go off at odds of even money (2.00) given they’ve equal chance of winning.
Even money would be known as their true odds. Bookmakers would then apply their margin to this, of which we are using 10%. So, 10% of 2.00 is 0.20, which would then give us odds of 1.80 for both horses in this hypothetical two horse race. This means that should they take an even amount of money on each horse, they would be set to make 10% net win of every bet taken. This would be their margin. The true odds would create a margin of 100%, which basically means no margin. This is a blank or fair book, as it’s sometimes referred to. As you will see in the next section, margins will always differ and always be over 100%.
How to Work Out a Bookmaker’s Margin & How They Can Differ
Whilst we’ve shown you how to easily see the margin in what is essentially a coin toss above, the fact of the matter is that most markets include multiple selections and the odds are often rarely a 50/50 chance. What we are going to do is show you the betting market for the upcoming Champions League final between Liverpool and Tottenham. Whilst the game will need to have a winner on the night, the Match Result market still includes a home win, away win and the draw, three results that can all occur over the 90 minutes.
Equation
The first thing we need to do is the get the odds from each one, then apply a little bit of maths to work out what we need to know. The equation is actually pretty simple to apply and all we do is divide 1 by the decimals odds, multiply that number by 100 and then add them together. It will look a little bit like this:
- (1/odds) x 100 + (1/odds) x 100 + (1/odds) x 100 = margin
You can obviously do these using fractions, but you will need to convert the odds to decimals to make sure you get the right formula input.
Bookmaker 1 – BetVictor
The first bookmaker is BetVictor and the odds are as follows:
- Tottenham = 4.00
- Draw = 3.6
- Liverpool = 1.925
Our equation is then:
(1/4.00) x 100 + (1/3.6) x 100 + (1/1.925) x100 = 25 + 27.77 + 51.95 = 104.72%
Bookmakers Margin = 4.72%
Bookmaker 2 – Ladbrokes
- Tottenham = 3.90
- Draw = 3.50
- Liverpool = 1.90
Equations is then:
(1/3.9) x 100 + (1/3.50) x100 + (1/1.90) x 100 = 25.64 + 28.57 + 52.63 = 106.84%
Bookmakers Margin = 6.84%
Bookmaker 3 – Paddy Power
- Tottenham = 4.2
- Draw = 3.4
- Liverpool = 1.83
Equation is then:
(1/4.2) x100 + (1/3.4) x 100 + (1/1.83) x 100 = 23.81 + 29.41 + 54.64 = 107.86%
Bookmakers Margin = 7.86%
There you can see three of the biggest names in the betting industry with what is likely going to be one of, if not the biggest football betting event of the year and three very different margins that are on show.
Should You Always Take the Bookmaker with the Lowest Margin?
The short answer to this is no, believe it or not. The bookmaker’s margin is the amount of the money that they are taking from that market, not just that specific bet, so you need to bear this in mind. As you can see from our examples above, each price from each bookmaker is different. At the end of the day, as a punter you want to be looking to get the best price for your bet and this is pretty much all that should matter.
For example, Paddy Power have the largest margin from the three that we have tested, and by some distance as well given the size of the game and the amount that will be wagered. But, if you were wanting to bet on a Tottenham win, then they have the best price of 4.2. You would obviously take this every time over prices of 3.90 and 4.00 that were offered by Ladbrokes and BetVictor.
To answer the question of taking the bookies with the lowest margin, then no, you need to take the best odds. But, if you only bet with Paddy Power and their margins were equally as high for every single betting market that they ran, then you would essentially be paying a higher price to use their services over a rival bookmaker. Eventually, you’d be paying for the higher margin along the line and this is not something that you want to get into the habit of.
Can Margins Change?
They can and this is based on the more of the fact that bookmakers’ prices will constantly change in the lead up to that event. Horse racing is a big one for this as many factors prior to the race can affect a horse’s chances, such as a heavy downpour making the ground softer or the horse becoming uneasy in the parade ring.
Another reason why odds change is the amount of money that is being wagered on one event over another. If we go back to out hypothetical horse race earlier that the bookies were saying was a 50/50 chance of either winning, well if £10,000 was wagered on one horse and just £100 wagered on the other horse, then there would be a huge liability on one horse over the other.
Balancing the Books
To balance the books, they will shorten the price for the horse with £10,000 staked on it to deter people from betting on it and lengthen the price of the other horse to encourage people to bet on that. The odds and pricing will mean that the margin will likely change. They may decide that they need to make the margin wider given the difference in money staked and to cover their backs or they may shorten it to induce more bets and possibly just cut their losses a little bit with this specific market.
The reality is that balancing books is actually quite hard. They can’t just make people go and bet on another outcome, regardless of the price that the bookmaker has set. In order to combat this they use betting exchange. The exchange allows them to both back and lay certain bet and for very specific amounts. This means that they can still cover their bets and secure a net win with all outcomes. However, the more they need to cover often the lower the overall margin will be for the bookmaker.
Do the Bookmakers Ever Lose?
Given how complex the systems that they set up, the dialled in margins that they create and the fact that they have betting exchanges at their disposal to limit loses, it’s very rare for bookmakers to lose on any betting market. But it does happen! One of the more common markets is that of the Grand National, which is the biggest steeplechase in the world. It includes a field of 40 horses most years and is rum over a 4m+ course. It’s a brutal race, but massively popular and hundreds of millions are wagered each year.
The field size, amount wagered, and the uncertainty of the race means that it can leave bookmakers very exposed. What you often find is that they lose more as an “industry” because there wasn’t enough money going around to make sure they all had the prices and exposure that they needed, even on the betting exchanges. Often the best they can do is limit losses on certain horses.
Heavily backed short favourites that go on to win can be crippling in the Grand National for a lot of bookmakers. Tiger Roll’s win in 2019 was reported to have cost the industry more than £250million in losses, such was the popularity of the horse. But, the flip side of this is that Paddy Power actually made a net win with the horse winning as they had it covered elsewhere.
How Do Margins Affect Accumulator Bets?
They have a big role to play in accumulator bets as you are essentially increasing with each selection. We know that each selection comes with its own margin already, be it priced in, adjusted or set out initially by the bookmaker, but as you combine more selections, they start to stack up on top of each other.
Therefore, with an accumulator bet you then add on the margin from each single bet. So, if you had 5 selections each with a margin 5%, then the total margin for that bet would be 25%. Whilst again, these numbers seem high, we must stress that you really need to be considering the odds over the margins, especially with accumulator. The odds can vary drastically with just a couple of the individual prices being different, so accumulator betting is even more important to go out and find the best price. Yes, margins will be high, but they will be high with each bookmaker.
The question then comes to if you feel that it offers good value or not? Obviously, no price will be “true” odds for that outcome, but there can be a number of external factors to consider with these bets, which can offset margins more than most other betting markets.
How Concerned Should You Be as Punter with Margins?
First thing to consider is that you don’t want to be lining the pockets of bookmakers any more than you have to. Margins are essentially their “fee” for allowing you to use their services, the lower the better. If you use one single bookmaker, making it ones with a track record of low margins is likely going to benefit you in the long run.
That being said, if you use multiple bookmakers, then it’s always going to be more beneficial to simply choose the one with the highest odds. With most, higher odds can offset any difference in margins, which is likely only going to be a few percent overall.