Traditional Bookmaker Margins
In sports betting, “margins” are the amount of money the bookmakers expect to make from taking bets. It is the way bookmakers ensure they stay profitable over time. The odds in each betting platform are set by the bookmakers and they determine how much the players can win compared to their stake. Odds of 2.00 mean the players can win double their stake.
For every event there are fair odds. Fair odds are the odds expected if there were no profit margins for the bookmakers. In a match where the odds of winning are even, the fair odds would be 2.00 for both sides. Bookmakers need to adjust fair odds in order to make a profit. They offer slightly lower odds than the fair odds. In a game where the fair odds would be 2.00, they might offer 1.91. This difference is the margin of the bookmaker.
How to Calculate Bookmaker Margins
For every set of odds there is an implied probability expressed in percentage. This tells how likely the bookmaker thinks an outcome is to happen. Bettors need to convert the odds to probabilities. The implied probability from decimal odds is calculated with the formula
Implied Probability = 1 / Odds
Upon converting the odds into probabilities bettors need to add the percentages. They need to add up the implied probabilities of all possible outcomes for a given event. The final step is to compare to 100%. If the total is more than 100%, the amount over 100% is the margin of the bookmaker.
Example
In a tennis match there are two possible outcomes and a bookmaker gives for each player to win the odds of 1.91. The first step is to convert the odds to percentages.
Implied probability for player A = 1/odds = 1/1.91 = 0.523 = 52.3%
Implied probability for player B = 1/odds = 1/1.91 = 0.523 = 52.3%
The second step is to add the percentages.
Total Implied Probability = Implied Probability A + Implied Probability B = 52.3% + 52.3% = 104.6%.
The final step is to compare to 100%. The total is 104.6%. Anything over 100% is the margin of the bookmaker.
Bookmaker’s Margin = Total Implied Probability – 100%
104.6% – 100%
4.6%
This percentage is the profit the bookmaker expects to make from each bet on this event.
Why it is Important to Know How to Read Profit Margins
By setting margins the bookmakers ensure they make money from any event no matter what the outcome is. Knowing how to calculate and interpret margins, the players can better understand the fairness of the odds. This way they can find better betting opportunities and they can also apply advanced betting strategies, such as value betting.
The Role of a Betting Exchange Commission
Margins work differently in betting exchanges compared to traditional bookmakers. In betting exchanges the odds are not set by the exchange, but by the players themselves. The platform allows players to bet against one another. The players offer odds and they place their bets waiting for other players to take the opposite side of the bet and accept them. This model is known as peer to peer betting with users forming matched back and lay bets. Betting exchanges do not build into the odds a margin as bookmakers do. In order to ensure a profit for any event regardless of the outcome, they charge a commission rate on the net winnings of the players.
How Betting Exchange Commission Works
In betting exchanges there is no margin in the odds themselves. A commission fee will be charged on the net winnings of a bet.
Example
In a tennis match there are two possible outcomes and a player in the exchange offers a back bet for player A to win at odds of 2.00 and stake of 50 euros. Another player in the platform does not believe player A will win the game and is willing to take the opposite side of the bet and places a lay bet on player A at the same odds and amount of stake. The betting exchange charges both bettors a commission rate of 4% on their net winnings.
If player A wins, the bettor who backed 50 euros on player A to win at odds 2.00 will make a profit of 50 euros. In order to calculate their net profit, bettors need to deduct the commission rate charged by the exchange from their profit sum.
Net profit = bet profit – betting exchange commission = 50 – 4 = 46 euros
The 4% commission rate is the profit the exchange expects to make from each winning bet on this event.
Key Differences between Bookmaker Margin and Betting Exchange Commission in terms of Profit
Traditional bookmakers include a profit margin in the odds and the players get slightly less favorable odds. Betting exchanges offer odds set by the users and they take a commission only on winning bets. The players get better odds.
In a tennis match bet placed on player A to win at bookmaker odds of 1.91 and stake of 50 euros, the bettor would make a net profit of 45.5 euros. In a same match bet placed on player A to win at betting exchange odds of 2.00, stake of 50 euros, and 4% commission rate, the bettor would make a net profit of 46 euros. The bettor could even calculate the commission rate and offer a back bet on player A to win at odds of 2.05 and wait for a layer to match it, in order to ensure that the net profit would be double the original stake.
Bookmaker Margins Or Betting Exchange Commission?
In this comparison, betting exchange commission has an advantage. In betting exchanges like Orbit Exchange bettors can find odds closer to the true probability or even more attractive, because the odds are set by the users. With bookmaker built-in margins bettors usually find less favorable odds.
After accounting the betting exchange commission, the odds are still better than those usually provided by bookmakers. Betting exchanges like Orbit Exchange allow bettors to set and match odds with other users. This flexibility leads to better value bets. With fixed pricing odds bettors have less flexibility as they are limited to the odds set by the bookmakers.
In Short
Traditional bookmakers set the odds themselves. They build a margin into the odds in order to make a profit regardless of the outcome. They set odds lower than the fair odds. Betting exchanges do not set the odds. They allow users to bet against one another. In order to make a profit regardless of the outcome of any event, they charge a commission on winning bets. Understanding margins and betting exchange commission is very important for bettors, because it helps them understand fair odds better and search more effectively for better betting opportunities.