With WorldCup 2015, visits to Ladbrokes would have possibly gone up! In my teens, I used to wonder how does online betting work? One weekend I sat down to understand the mathematics of bookmaking.
I stumbled on this article on Gizmodo about online betting and it seems it’s quite a phenomenon these days, where a lot of people all over the world eager to make a few bucks while watching their favorite sport. Thanks to technology, betting on your favorite team is easier since winnings are deposited directly into a user’s bank account.
What’s interesting is – being a bookmaker may look like a simple job, since what they do is just get the money out of people and wait for the results of the game. However, in reality, it is a very complicated job that requires a lot of studying and statistics. Also, patience.
For example, in horse racing events such as the Grand National, each coach makes sure that their horses are in top condition. The coaches ensure that they’re knowledgeable about the other horses, the jockeys that ride them, and the possible weather condition of the date of the race. For sure, each coach has done hours and hours of research just to gain an advantage over the other. The same rules apply when it comes to bookmakers and their competitors. I won’t call it an easy job!
Bookmakers are like clients inside an auction house. Everyone’s waiting to make the first bet, or in this case odds, for an event. Taking baby steps, bookmakers will try to set odds for certain betting markets based on collected facts about a horse’s performance history, current condition, jockey’s information, and a lot more. They will also make their team of math experts formulate the prices based on the punter sentiment. The opinions of sports experts are also considered since they have the capability to sway the minds of the public. Well, that’s how it is with every other game though, no?
The bookmakers’ margin (the window where their profits will be determined) is actually the net return that they’d get over the long term. The odds change as the date of the event draws closer.
Let’s take a look at an example.
Horse Paul 1.67
Horse Marquez 2.44
The bookmaker’s margin here can be obtained by adding the reciprocal of the odds. (1/1.67 + 1/2.44 = 100%)
For example, if a $6,535 bet was placed on Horse Paul and a $4,219 bet was placed on Horse Marquez, no matter the outcome, the bookmaker would earn around $752. Since a total amount of $10,754 was bet on the event, the bookmaker’s total revenue at the turnover would be 7% ($752/$10,754).
This is how bookmakers make money, and the prices for each betting category can change when they reduce or increase their prices based on factors that may affect the outcome of the event. Interesting, isn’t it? Well, something to pick my brain on a weekend.