Bookmakers Explained – The Principles of Bookmaking

Given that most people who bet on horses lose, it is likely that the reason is due to a fundamental issue rather than to the individuals involved or the methods that they employ.

This article, together with the next on betting exchanges, discusses the reason why this is the case.

Question: Did you ever meet a poor bookmaker?

Answer: No.

Question: Why is this?

Answer: The Overround.

The Overround ensures that the odds of each horse in the race are biased towards the bookmaker in such a way that, irrespective of the outcome, the bookmaker, in theory always makes a profit on a race.

The Overround is normally expressed as a percentage and is a measure of how much, on average, a horse’s odds have been reduced below its true value.

The calculation of the Overround is a four-part process:

• Conversion from fractional to decimal odds
• Add 1
• Divide into 100
• Sum the results.

Firstly, we must convert the bookmaker’s fractional odds on each horse in the race to decimal odds. Decimal odds are the ones used by the betting exchanges.

To do this, we must divide the first part of the fractional odds by the second part.

Here are some examples:

1/1 (evens) = 1
2/1 = 2
6/4 = 1.5
100/30 = 3.33

Secondly, we must add 1 to the result.

Thirdly, we must divide the result into 100. This will give us each runner’s implied percentage chance of winning.

Fourthly, we sum the implied percentage chance of winning that each horse has in the race. This will give the overround on a race.

If 100 is subtracted from the overround, it will give the average percentage by which each horse in the race has had its odds reduced by.

This reduction in odds is the bookmaker’s theoretical percentage profit on the race.

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By way of an illustration, let us take the following example of a 5-horse race.

In the above example, the sum of the implied percentage chance of each horse winning is 100%.

If the sum of the implied percentage chance of winning for all the horses in the race is 100%, then it is referred to as a perfectly ‘round’ book.

In this case, in theory, the bookmaker’s profit on the race will be 100 – 100 = 0. In other words, in theory, the bookmaker will break even.

Now let’s look at another example:

If the sum of the implied percentage chance of winning for all the horses in a race is greater than 100%, as it is in the above case (113.33%), it is referred to as an ‘overround’ book.

In this case, in theory, the bookmaker will profit by £113.33 – £100 = £13.33 for every £100 that is taken in bets.

The Overround on all races is in excess of 100% and provides the bookmaker with the profit on a race.

Normally, the bookmaker’s Overround is in the region of 120%.

This means that each horse’s odds in the race have been reduced by an average of 20%.

Therefore, in theory, the bookmaker’s profit will be 20% of his takings on the race.

In Irish racing, Overrounds in excess of 150% are not uncommon.

Not only does the Overround ensure that the bookmaker makes a profit, it causes the punter to profit less than they should when their horse wins. This is because a proportion of the punter’s profits ends up in the bookmaker’s pockets due to the Overround.

Although bookmakers reduce the odds of each horse in a race, they do not reduce all of the horses to the same extent.

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The reasons for this are two-fold: Firstly, there is less scope to reduce the odds of the shorter-priced horses than there is to reduce the odds of the longer priced ones.

Secondly, there is more competition for punters’ money on the shorter priced horses than there is on the longer priced ones.

Therefore, in order to remain competitive, bookmakers do not and cannot reduce the odds of shorter priced horses by as much as they reduce the odds of the longer priced ones.

By way of an illustration, let’s look at the following example:

Since the start of the new millennium to the present day, 23,883 horses running in UK races have started at odds of 100/1. On average, a horse at these odds should win once in every 101 races.

Therefore, if the number of horses (23,883) is divided by 101, it will provide us with the number of horses that should, theoretically, have won their races. 23,883/101 = 236 (to the nearest whole number).

Therefore, of the 23,883 horses whose starting price was 100/1, 236 of them should have won.

In fact, only 60 won. If 23,883 is divided by 60, it will determine what the true odds of these horses should have been.

So, 23,883/60 = 398 (to the nearest whole number). Therefore, the true odds of those horses whose starting price was 100/1
should actually have been 397/1.

What this means is that bookmakers are only offering those backing such horses approximately one-quarter of the odds that they should be.

Little wonder then that bookmakers make a profit when they reduce the odds of the longer priced horses by as much as 75%.

It should, therefore, come as no surprise that the bookmakers all cheer when a long-priced horse comes romping home in a race. They have much to be happy about because they pay out only 25% of the money that they should. The remaining 75% goes into the bookmakers’ already over-stuffed coffers.

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This also explains something else. Many people, who lay horses, complain that the odds of outsiders on the betting exchanges are very high when compared with the odds offered by the bookmakers.

Well, we now know why. Betting exchange odds, especially on the longer priced horses, more fairly reflect the horse’s actual chances of winning than the bookmakers’ odds do. That’s why the exchange odds on the longer-priced horses are much higher than the odds offered by bookmakers.

So, now we know why punters lose when they place bets through a bookmaker.

They lose because the odds offered by bookmakers are less than they ought to be.

Therefore, when punters win, they are paid out far less than they ought to be by bookmakers. As a result, punters’ profits will be insufficient to offset losses.

Therefore, over time, a punter’s losses will slowly increase. This is why the methods in these articles are required – to move the odds more in favour of the punter.

We have now learned a second important lesson:

If a long-shot (a horse with large odds) is to be backed to win, the bet should be placed on a betting exchange, rather than with a traditional bookmaker, since the betting exchange odds are likely to be much higher, as will be the profits.

It may appear from the above that I am anti-bookmaker. I wish to state, here and now, that this is not the case.

In fact, bookmakers should be treated the same way that one would treat a friend for, without them to accept our bets, there would be no profit for us.