How a bookmaker makes money!

Everybody likes a little bit of a flutter now and again, a bet on their favourite sporting event.

When we look at horse racing, it could be the colours of the jockey silks or maybe it’s the name of the horse? Having a bet on it adds a little bit of interest to that underlying sport and events like the continue to draw interest from punters of all walks of life.

But as we all know, bookmakers win in the long term, but why is that? Read this article or watch the video to learn how!

So do you want to be a mug or do you want to be amongst the clever people?

Bookmakers are great at getting you to place another bet with the anticipation of a big win. Now, the big question is how do bookmakers make money from your average punter?

I’ve got five coins here and these are going to represent a betting market.

These coins are like having five selections within the market. Tossing a coin is random and as everybody knows if we toss a coin or spin a coin, it will land heads or tails.

So what we’re going to say is if we get three heads, then we will win this particular bet. However, if we get three tails, then the bookmaker will win.

If we go into a market, or in our case, we randomised the coins by shaking them within the cup.

You can see here on this occasion, the bookmaker wins because they’ve got more tails than heads.

What we’re trying to do here is just randomise a situation, but we’re also trying to represent the market’s different selections. So we’re saying there are five selections within a market and we just need to pick a winning bet out of this.

Maybe if you do a strategy that involves backing more than one runner, but what we’re just trying to simulate is a market where there is a winner and a loser within a certain number of selections in that market.

So on this occasion, you can see it’s mainly tails meaning the bookmaker wins. However, if we repeat this process enough then over time it will all balance out, there will be an equal number of winners and losers.

Sometimes we will win and sometimes the bookmaker will win

If we work this into a spreadsheet and repeat this over many thousands of experiments, we will find that we win 50% of the time and the bookmaker wins 50% of the time. This is what we would call a fair market

Bookmakers present fair markets because obviously they have a market of maybe five selections and they offer odds on all of those selections.

Again, you would expect in a fair market that you would win an equal number of times that the bookmaker wins and therefore everything balances out.

So how do bookmakers make money?

Well, what we’re going to do here is do this again, but we’re going to change one thing and run it over a number of experiments.

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The longer we repeat the experiment the bigger that gap is getting between the punter and the bookmaker. In my experiment, the punters won five times, but the bookmaker won 11 times.

So can you see over time, the more and more we encourage the punters to play, the bigger the margin is for the bookmaker?

You must be thinking, well, hold on a second here. You’ve got five coins here which are completely random, and yet the bookmaker seems to be winning these bets more frequently than you could possibly imagine.

So why is that? Well, if I turn over these coins, you’ll begin to understand how that was possible.

You can see that this time when I was conducting this experiment that one of the coins has tails on both sides. This is more or less how a bookmaker makes money.

Let’s examine this in more detail.

The bookmakers false market

Now you understand how a bookmaker makes money, you can almost view this as the bookmaker creating a false market. How can you spot, as a punter, whether you are actually betting into a fair market?

Well, it’s actually quite simple!

If you use a betting exchange on the top of the screen you will see a figure represented as a percentage. This is what they call the over-round. If the round is low, then you’re betting into a fair market. However, if the open round is high then you’re betting into an unfair market.

Over round circled

Be smart – know your over rounds

So an over-round is very similar to what we looked at with the coins.

If we look at a football match, for example, you have three selections within the football match. The home team could win, the away team could win or the match could end in a draw. One of those three things is going to happen and therefore there is a 100% chance of a home win and away win and a draw.

Therefore the over round should equal 100%. The closer the round is to 100%, the fairer the market.

If you use a betting exchange, you will find the over round prominently displayed on the screen. If it’s not there, you can actually switch it on if you’ve accidentally switched it off.

So where can you find the overall round on a bookmaker or on a sportsbook? Well, the simple answer is you can’t, they hide it!

They do not display the over round and that is because they do not want you to know that you’re getting into an unfair market. An important thing to understand with the over-round is the more uncertain the event and the bigger the number of selections it generally gives the bigger over round.

That is why the Grand National is a key target for bookmakers and sportsbooks every year. There are 40 runners and it’s a very competitive handicap race.

So all of that uncertainty and a very large field size leads to very large over rounds. In other words, the bookmakers in theory have a massive edge against you.

What we did was we went and had a look at the Grand National to compare how big this number was. If you actually look at the data, you’ll find that on betting exchanges, the over-round was 1% or less.

In comparison bookmakers over rounds ranged from 26% to 50%. The amount of margin that was being lost (or you can say the number of unfair coins in the game) was absolutely huge on the Grand National.

As a consequence, this is why there’s so much focus on trying to get you to have a bet on the Grand National simply because the bookmakers cannot lose with over rounds on that scale.

That is why the bookmaker market is so unfair, you could actually place all five bets and completely go broke with no hope of return. The more you bet in an unfair game, then the more money you will lose over the long term.

That’s more or less how bookmakers make their money!

For bookmakers and sportsbooks, having a bet with them is not an intellectual exercise, it’s just a business transaction for some entertainment. Like most businesses that want to charge for that, and they do that through the over-round.

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