As we’ve looked at before… if you want to make money on the punt, you must find value.

Value is when the odds you get are greater than the actual chances of your horse (or player, or team) winning.

If you can continually beat the odds, you’ll end up in front in the long-term.

So how does this relate to the odds you see from the bookies?

In theory, bookmakers make a profit by accepting bets on a market that has a built-in edge in their favour, and then adjusting their odds to attract the right mix of bets to secure a profit regardless of the outcome.

Well, increasingly these days it’s more about just banning anybody who doesn’t lose constantly… but we’ll try not to get sidetracked here!

The profit is achieved by offering odds that are higher than the actual probability of the outcome occurring. This difference represents the bookmaker’s margin, (also known as their cut / vig / juice / over-round).  It’s what a bookmaker is charging punters to take their bets: they have to make a profit too.

The most basic of bets…

Let’s start with a simple example: you and a friend bet each other \$10 on the outcome of something: we’ll use a coin-toss to illustrate as it’s a perfect 50/50 contest.

If it comes up heads, your friend pays you \$10.  Tails, and you pay up.

That’s a perfectly even market, and the odds for each of you is \$2.00: you’ll either double your stake or lose it completely.

In bookmaking terms, it’s a 100% market: there’s no advantage to either party and no additional margin to be made by anybody.  A bookmaker fielding such a market would make no money.

If the market between you and your friend was being hosted by a bookie, they’d need a margin.

Calculate the bookie’s margin

To calculate the bookie’s margin, you just need to work out what the market percentage is.

You do this by dividing the odds of each outcome into 1.  This gives you the percentage offered for that outcome, and you just add them up to get your market percentage.

The coin toss:

Heads: 1 / 2 (odds) = 50%

Tails: 1 / 2 (odds) = 50%

Total market percentage = 100%

Now let’s take a more realistic example, a basketball game.

LA Lakers: \$2.61

Boston Celtics: \$1.52

The real odds:

Lakers: 1 / 2.61 = 38.3%

Celtics: 1/ 1.52 = 65.8%

Total market percentage = 104.1%

The bookmaker’s margin is 4.1%.  That’s actually quite low in the grand scheme of things, and illustrates how much less money bookmakers make on most forms of sports betting, compared to racing.  Many fixed-odds racing markets have a market percentage of 120%.

The impact on the punter is obvious: lower market percentages = lower outcome percentages = higher odds.

Just to illustrate this on a basic bet example, let’s look at your coin toss with a 120% market percentage.

Heads: 1 / 1.66 (odds) = 60%

Tails: 1 / 1.66 (odds) = 60%

Total market percentage = 120%

An unrealistic example, as no two-horse race would be framed to 120%.  But the difference in odds (\$2.00 vs \$1.66) illustrates what a huge impact the market percentage, and the size of the bookies’ margin, has on the prices you get.  In this example, if the bookie hosted the coin toss between you and your mate, the winner wouldn’t get \$20… he’d get \$16.60.

It’s more and more relevant today as we deal with corporate bookmakers.  Forgetting license product fees for a moment, your traditional rails bookmaker had pretty low costs: he paid himself and perhaps a clerk or runner, and maybe did a spot of advertising.  Modern-day corporates are large (sometimes huge) organisations that have huge overhead costs to cover before they make a profit.

Keep it in mind, and pay attention to the market percentage when evaluating bookmakers.