Sports betting is one of the fastest-growing global industries and is set to continue this dramatic growth for many years to come, as more nations around the world liberalise their betting laws and technology enables ever more imaginative ways to offer bets on sport.
But have you ever wondered how the whole thing works? When you log onto your favourite sportsbook, choose your sport and scan the array of markets to bet into, do you ever wonder to yourself who sets those odds? How are they decided upon?
How do odds work in sports betting?
Before we get into the way that odds are set up, a quick refresher on odds and sports betting. Odds are effectively like prices in a supermarket. You look at the odds on all the available selections in a market and if you think a particular price offers value, you take it.
The primary function of odds, therefore, is to tell you your potential reward if your selection is a winning one. For instance, if you bet on a football team at 3/1, you could stand to make a profit of three multiplied by your stake if they win the game.
Odds, however, can also represent probabilities. Fractional odds of 3/1 (which translate to decimal odds of 4.0) also stands for a probability of 25%. Effectively, then, if you bet at those odds, you are saying that you believe that the ‘true’ probability of that team winning the game is higher than 25%.
How are betting odds set up?
When sportsbooks set the odds initially, they are focused on the probability aspect of the prices, and on ensuring that the total of probabilities for all selections in a particular market add up to more than 100%. The additional percentage over 100 represents the bookmaker’s profit margin.
So how do those odds get there in the first place? Most sportsbooks initially price up their markets using odds that are produced by odds compilers. Some sports betting companies use their own odds compilers, while others pay for outside compilers to put together their prices.
The odds compilers will usually be highly experienced and skilled in one particular area of a sport. So, for example, a sports betting company may have a small team of odds compilers working on Premier League setting football odds and individual compilers covering the other main divisions. For markets in which the bookmaker is expecting a lot of business, there may be a team producing odds on the same matches, which are then compared and tweaked.
The odds compilers, whether they are working on their own or in a team, will attempt to bring together all of the information available on a particular event and turn that information into a list of odds. They may benefit from statistical analysis and number crunching, but few bookmakers will allow for their odds on the main markets to be produced entirely by automated systems.
Do odds change once they are set?
Once the initial odds have been published on a sportsbook’s website, the company will start to take bets, and as the event draws near, the odds will start to change. Those changes can be led by a range of different factors:
- New Information. Between the time that the initial set of odds are published and the start of the event, new information can lead to a change in the odds. This information includes factors such as team news, weather changes and last-minute injury updates.
- Weight Of Money. Bookmakers don’t simply set out their list of prices and wait to be proven right. Their aim is to ensure that they make a profit whatever the outcome of the event they are taking bets on. That means they have to be prepared to shorten the odds on a selection if they get a lot of business on that selection, to avoid being exposed to a big loss.
- Betting Exchanges. The advent of the betting exchanges, where prices are essentially set by the ‘wisdom of the crowd’ has also factored into the way that betting companies adjust their odds, and few sportsbooks can afford to completely ignore what is happening on the exchanges. Betfair is one of the most popular exchanges in the UK.
Know your odds
When you look at a set of odds on a sporting event, whatever bookmaker you use, it is important to remember that, although the betting company will likely have access to wide resources, their odds are ultimately set by humans.
Those odds can be further compromised by the need for the bookmaker to ensure a profit margin and by the weight of money, which forces a sportsbook to change its prices, even if the odds compiler doesn’t think the probabilities have changed.
The result can mean opportunities for the shrewd sports bettor. By getting to know how odds are calculated and even taking the trouble to practice calculating your own, you can give yourself a better chance of recognising when the bookmaker’s odds are wrong and swooping to take a profit.