How bookmakers calculate their odds

Bureau avec une calculatrice et des papiers représentant des graphiques et des tableaux

We’re here today for an article to continue to understand bookmakers. We will see that the mechanics are quite simple at first but also complex to implement. We will then see that once the odds are calculated the bookmaker’s work is not finished, it keeps evolving until the beginning of the game. At the end of the article, we will discuss the live coasts and why they evolve so much.

Calculate market opening odds

If you are a regular gambler, you have an idea on the issue. For beginners, it may be more vague but you will see that the answer is quite logical, they analyze the same data as all punters: statistical data and news.

Through this analysis it determines what is called a probability of occurrence of the event. For example, he will calculate that each team’s chances of victory (to simplify the further calculations, we will assume that there cannot be a draw). Let’s say he determines that Team A has a 70% and 30% chance of winning for Team B. This means that the bookmaker thinks that if the game is played 10 times, Team A will win 7 times the game and 3 times out of 10 it is Team B that will win the game.

Now that he has put a percentage on each outcome of the bet, he will transpose it to the odds thanks to the following formula: odds = 1/ probability. For our example, 70% chance of winning thus becomes 1.42 and 30% chance of winning becomes 3.33. And that’s it? Not quite …

If you remember our first article about bookmakers, we saw that the bookmaker has to manage to be sure to win money regardless of the outcome of the match. Therefore, it must change the coasts so that its pre-redistribution margin is equal to its wish: 5%, 10%, 15%, 20%, etc. As a reminder, to do this he must calculate what is called the Player Return Rate (PRR).

Reminder of the formula :

100 / (( 1 / cote1 ) + ( 1 / cote2))

Either for our case : 

100 / (( 1 / 1,42 ) + ( 1 / 3,33)) = 99,5%

a margin of 0.5% … Not much …

The bookmaker must therefore change the odds to ensure a larger margin. The simplest way is to lower both coasts of the margin he wants to make. For example, if he wants to make 15% margin on this bet, it would give the following calculations:

Odd 1 : 1,42 – 15% = 1,21 / Odd 2 : 3,33 – 15% = 2,83
PRR linked : 100 / (1/1,21 + 1/2,83) = 84,61%

It becomes much more interesting for the bookie! He will now be able to publish what is called the market opening coast or the “open odd” in English.

Once the rating is calibrated, the bookmaker will change it (up or down) according to 2 types of information:

  • a news about a player or one of the teams has just appeared and changes the analyses carried out previously
  • the bets of the gamblers

The latest news

Pile de papier

Bookmakers publish the opening odds of bets about 1 week before the match.  When they calculate the odds for the first time they rely on the information available at the time t. But there is still information published in the week preceding a match or a competition.

Starting goaltender injured in training, player who gets sick 3 days before the game, coach fired after another defeat, tension in the locker room, etc. a lot of information can come out and change the probabilities.

Like sports punters, bookmakers collect this information as it is published and check the odds already offered. They ensure that they are always close to the recalculated probabilities and change the coasts if this is not the case.

The bets of the punters

The other information that changes the odds are the bets of the punters and especially the players identified as winners.

Let’s say that the bookie has a bug in one of these algorithms or that he has not taken into account a current event. It will probably offer a higher-than-desired rating. Therefore, some punters will identify this badly positioned side from their point of view: they have found what is called a “value-bet”. These poorly positioned (too high) odds are of interest to sports gamblers because they are the ones that will make them the winning gamblers in the long run (we will come back to the value-bet in a future article).

If the bookie does not pay attention to the bets of the gamblers on this error, he may have many more bets than he thought. Therefore the balance between the bets on the different issues will no longer be there and the TRJ will no longer be enough to guarantee him to win money regardless of the outcome of the game. The bookmaker must therefore analyze the evolution of the players’ bets to, for example, lower the most played odds and raise the least played odds to encourage more gamblers to play the other in order to rebalance the bets.

The case Pinnacle

As we have seen, Pinnacle is a special bookmaker among its competitors. Indeed, it does not limit the bettors who are winners but it identifies them and follows very closely their wagers.

As soon as a punter tagged “winner” places a bet, Pinnacle will launch a check set on the odds that was played: Did he find any information that I don’t have yet? Did he interpret a statistic differently than I did? Did I make an error in my odds calculation? Maybe we have to lower it to avoid losing too much money because other punters will find that mistake as well.