What are Bookmaker Margins?
When a bookmaker sets the odds for a market they first estimate the probability of each possible outcome. For example, in a market on a coin toss winner, the bookmaker will assume the probability of Team X winning is 50%. When using decimal odds, the fair odds for the wager equal the reciprocal of the bookmaker’s estimated probability, in this case 1 / 0.50 = 2.00. To fund their operation, the bookmaker adjusts these odds downward to create a profit margin for the market. For example, typical bookmaker odds on Team X winning a coin toss are 1.91. The difference between the published odds (1.91) and the fair odds (2.00) is the bookmaker margin.
The bookmaker margin is a measure of the bookmaker’s profit margin for an event and is a hidden transaction cost for punters. This profit is how bookmakers finance their services but bookmakers vary in the margins they apply. From a punter’s perspective, the lower the margin, the better. The difference between 1.90 and 1.92 line odds may not seem significant for a single wager, but when betting repeatedly this difference has a compounding effect. This can easily make the difference between winning and losing money.
Below are calculation examples using two-outcome and three-outcome events.
Interpreting Bookmaker Margins
The margin measures the bookmaker’s profit if they were to receive wagers on each outcome in proportion to the odds. Suppose a bookmaker offers decimal odds a on outcome A and odds b on outcome B. If proportion b/(a+b) is wagered on outcome A and a/(a+b) is wagered on outcome B, then the bookmaker will receive the same profit regardless of the result.
For example, recall that the bookmaker margin for the two-outcome event above was 3.5%. Suppose $100,000 in total is wagered on the market, with:
(1.64/(1.64 + 2.35)) x $100,000 = $41,102.76 wagered on Oklahoma City and
Depending on the outcome, the bookmaker will pay out one of the following two amounts:
If Oklahoma City wins: $41,102.75 x 2.35 = $96,591.48
The bookmaker accepts $100,000 in wagers but only pays out $96,591.48 to the winners. The profit margin is ($100,000 – $96,591.48)/$96,591.48 = 3.5%, as calculated by the margin earlier.
A bookmaker will rarely receive wagers that are perfectly in proportion to the odds, but over a countless number of events the bookmaker margin will equate to the average profit margin across all events.
To provide perspective on how odds relate to margins, the table on the right compares equal line odds (bets with a 50% chance of winning) to their respective margins. Note that 2.00 odds equate to a margin of 1.00 (100%), where the bookmaker makes no profit on the market.
Bookmaker Margin Srvey
Australia Sports Betting has conducted a survey of margins used by popular bookmakers. The summary table is shown below. View the full margin survey results.
<< Previous topic: Depositing & Withdrawing Funds
Next topic: Multi Betting >>