How are the betting odds generated?

General June 21, 2019 8:40 am

What the odds are and how the "odds principle" works should be clarified by now. The really exciting question, however, is how exactly the odds come about. In the following we will explain this to you, using a fictitious example from the Bundesliga.

The basis of every odds is the so-called "fair odds" – this is based on the probability of occurrence of different starting possibilities of a sporting event. Pooh, that sounds complicated. But it’s quite simple. In the first step, the bookmakers do nothing other than define the probability with which a game will be won, lost or drawn. The basis for determining these probabilities is information and data from the following sources:

  1. Human intuition: All information that is difficult to measure and that is available around a game or a sporting event. This includes, for example, the alignment of a team through team line-ups, tactics of the coach, injuries, team motivation or a home advantage: A great deal of experience is required to correctly assess and classify such data.

  2. Computer-controlled data collection: This includes above all statistics: For example, which team won how often in the last matches, had more ball possession or covered the greater distance during a match.

On the basis of this data, calculations are made of various probabilities of occurrence of results, which are expressed as percentages. Fictitious example: FC Bayern Munich vs. SV Werder Bremen. Let’s assume that the bookmaker’s predicted probability of occurrence (p.o.) of a victory for Bavaria is 60%, a draw 15% and victory for Bremen 25%. These probabilities are now calculated by the formula "100/p.o." to the "fair quota". In our example this would be a odds of 1.66 on a Bayern win, 6.66 on a draw and 4.00 on a Bremen win. That looks very similar to a normal odds.

The problem is: "Fair" means this odds only because the bookmaker, should he offer bets on this odds, would not make a profit. So he would have to pay all the money he earns by the betting "losers" to the "winners". The "fair odds" must therefore be multiplied by a value < 1, so that the business is also profitable for the bookmaker. The result of this calculation is the so-called "real odds", which ultimately also correspond to the odds on which the bet is actually placed.

To come back to our example: Our "Fair Quote" for a Bavarian victory was 1.66 – if you multiply this value by "0.9" you get the "Real Quote" of "1.49". Similarly, the real odds of a draw and a victory can be calculated for Bremen. In other words: The bookmaker keeps 10% of the stake. Obviously the odds would be higher without the purely capitalistic intentions of the bookmakers – but whether they would exist without them at all is another question. 😉

Nevertheless: betting is worth it. Because in contrast to some classic games of chance like roulette, betting requires not only chance, but also skill. So it is quite possible that some people (just by their know-how) have a higher probability of winning a bet than the multiplication of their stake expressed by the odds.

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