HOW DO BETTING ODDS WORK?
The book percentage (or “overround”) is defined by the Racing Post as the “sum of the quoted probabilities across all horses in a race”. The bookmakers assign each horse a probability of winning, represented by its odds. The percentage of the “book” represented by particular odds can be calculated by adding one to the odds and dividing the resultant figure into 100. For example:
Evens: 100 / (1+1) = 50%
2/1: 100 / (2+1) = 33.33%
3/1: 100 / (3+1) = 25%
4/1: 100 / (4+1) = 20%, etc.
Simplistically, the overround is indicates the bookmaker’s profitability on a race. If an overround is 125%, then the bookmaker can expect to make a profit of 20% (25/125). However, this profit percentage is dependent on each horse being laid for an amount proportional to their contribution to the total book. For the sake of clarity and simplicity, suppose there is a 5-horse race, in which each competitor has an equal winning chance. In a “fair” market, each would be priced at 4/1, so a bookmaker taking bets of £20 on each horse would have a perfectly matched book. Regardless of the result, he has taken £100 on the race and must pay out £100 on the winner, so cannot lose. However, neither can he win.
In a real racing scenario, it is far more likely that the prices are likely to be, say, 6/4, 2/1, 3/1, 4/1and 7/1. In this case, if the bookie takes bets equal to each horse’s contribution to the book percentage, he would like to accept bets of £40 on the 6/4 favourite, £33.33 on the 2/1 chance, £25 at 3/1, £20 at 4/1 and £12.50 at 7/1. In this case, the book overround is 130.83%. The layer’s maximum liability is still £100, but has generated turnover of £130.83.A cursory examination appears to indicate that making money from laying horses is a straightforward process. Unfortunately, this is not the case.
As can be seen, the overround concept depends on a perfectly evenly matched book. In reality, this evenness of match is never achieved and the reported “overround” is very often a poor indication of the state of the betting market.
The “favourite-outsider bias” also distorts the book as a true reflection of the market. It is often impossible to lay some horses, irrespective of the odds offered, whether they are 20/1 or 200/1. However, when pricing up a race, bookmakers tend to be cautious as there are plenty of shrewd gambling stables, who like to go for a “touch” if their horse is overpriced. Punters wishing to back outsiders will often, for some unfathomable reason, be as likely to accept 16/1 as 33/1 about their selection. This allows the layer to limit his potential liability on the longer-priced horse, without unduly compromising turnover on the race. The “favourite-outsider bias” can be further demonstrated using the previous 5-horse example.
The overround was 130.83%, including the 3 outsiders. Suppose that the actual price of the outsiders should be bigger, say, 5/1, 7/1 and 12/1. Using a total liability of £100 for convenience, the bets required are £40 at 6/4, £33.33 at 2/1 £16.66 at 5/1, £12.50 at 7/1 and £7.69 at 12/1, giving an overround of 110% (109.85%).The punter should be aware that value prices are often found with the more fancied horses, as the odds are not unduly biased.
For this reason, it is common for outsiders to trade at much higher prices on the betting exchanges such as BetFair and BETDAQ than with the fixed-odds layers such as Ladbrokes, Victor Chandler, William Hill, Blue Square etc. BetFair layers are laying one horse, not a full book, so in order to find a backer, they need to offer unbiased odds.
Successful bookmaking requires skill and judgment. There is far more to the bookmaker’s art than setting what appear to be unfavourable odds and reaping the rewards from “mug” punters. In many cases, not only will a layer be unable to achieve an even book, but will fail to lay some of the horses at all. Using the original 5-horse example, suppose he lays the favourite, second-favourite and one of the 4/1 outsiders. This leaves the bookmaker in the unenviable position of having a liability of £100 against a turnover of £93.33.
In practical situations, far more extreme market behaviour is commonplace, especially in non-handicap races with large fields. In large fields, of maidens, in particular, on many occasions punters wish to back only the first two or three in the market. This leaves the overall book in a vulnerable state, and a profit or loss on such races is subject to the individual layer’s skill and judgement. A bookmaker may consider one of the fancied horses vulnerable in some way, and set out to “get” that horse by laying it at a shade of odds better that his fellow layers.
If such a ploy is successful, he is likely to make a profit, but conversely sets himself up for a financial battering if the horse wins. Despite reported overrounds of approaching 200% in such races, the layer is essentially running a “judgement” book, a decidedly risky process.
Hopefully, the above discussion will aid punters’ understanding of the difficulties encountered in the art of laying horses and encourage them to put down the big stick, with which they continually beat layers over the perceived lack of value in betting markets.