How to Calculate Bookmaker Margins
In the same way a shopkeeper marks up prices on his goods in order to make a profit, every sports betting company has a margin built into its prices.
These margins differ greatly between bookmakers so it is important to shop around - in just the same way you would shop around if you were buying new clothes or a smartphone.
The purpose of this article is to teach you how to ‘shop around’.
To illustrate the concept of bookmaker margin, let’s look at a simple example where there are 2 possible outcomes, say a tennis match where either Djokovic or Murray will win
If the two players are evenly matched, the probability of each winning is 50% and this translates to a price of 2.00 on each player. Now, if the bookmaker took bets on both players at a price of 2.00 and there were equal numbers of bets placed on both players then his ‘book’ would look like this:
Contest | Price | Amount Bet (100,000) | Potential Payout |
Novak Djokovic | 2.00 | 50,000 | 100,000 |
Andy Murray | 2.00 | 50,000 | 100,000 |
As you can see, the bookmaker would take bets of 100,000 and payout 100,000. So over time he would clearly go broke! Because he has to pay staff, office, etc.
His solution is to build a margin into his prices. So, using the above example, with changed prices his ‘book’ would look like this:
Contest | Price | Amount Bet (100,000) | Potential Payout |
Novak Djokovic | 1.90 | 50,000 | 90,000 |
Andy Murray | 1.90 | 50,000 | 90,000 |
As you can see, in this example the bookmaker would take bets of 100,000 and payout 90,000. A profit of 10,000.
Of course, there will not be equal betting on every match but the bookmaker takes a long-term view and believes that with a margin in his favour he will make a profit over the long-term.
For you, the sports bettor, the issue is which bookmaker offers the best prices? All the bookmakers are government-licensed and the product is the same (eg Arsenal vs Manchester United) so price is very significant when deciding where to bet.
Let’s use a typical Premier League match as an example and calculate two bookmaker margins on home-draw-away (1X2) prices.
The conversion of a bookmaker price to a % is achieved by dividing 100 by the price.
For example, 100 ÷ 2.00 = 50%, 100 ÷ 5.00 = 20% and so on. Using this logic we can now check how competitive bookmakers are when compared to each other:
Selection | Bookie #1 | % | Bookie #2 | % | Bookie #3 | % |
Leicester | 2.00 | 50.0% | 2.10 | 47.60% | 1.95 | 51.30% |
Draw | 3.00 | 33.3% | 3.00 | 33.30% | 3.00 | 33.30% |
Liverpool | 4.00 | 25.0% | 4.05 | 24.70% | 4.00 | 25% |
108.3% | 105.60% | 109.60% |
As you can see, the smaller the bookmaker percentage (margin) the better the prices.
This same simple calculation logic can be applied to sports betting prices on any event to compare one sports betting company with one another to find out which is more competitive on prices!
So be sure to shop around, do some simple calculations and ensure you’re not being ripped off by your sports betting provider!
Remember, always bet responsibly