The Science of Betting Markets: How Odds Are Calculated

Betting odds are the result of a combination of statistical analysis and economic market analysis. These odds give us a rough estimate of the likelihood of an event occurring, or not occurring, during a sports game. But who is to say how a sports game may turn out? Even precise scientific research and data analysis cannot predict exactly what will happen, and there is a lot of room for error.

Despite all the uncertainties of betting on sports, you can bet your bottom dollar that sportsbooks are not going to go bankrupt selling sports bets. They have meticulously calculated the odds and created a small edge that ensures they will make a profit in the long run. This small edge is virtually invisible to the untrained eye, but experts who make their livelihood on sports betting can easily spot them for you. Here, we will delve into the science behind this edge, and the way that sportsbooks come up with their odds. Understanding these procedures is key to knowing how to spot a good deal, and can make all the difference between making a profit and losing money.

Understanding Odds Formats – the Basics

First off, we need to define how odds are represented, as they vary depending on which country you are in. In the US a unique odds format is used, called American odds or Moneyline odds. You can instantly spot American odds on a bet when the odds have a plus or minus sign in front of them. A plus sign (positive odds), is a more risky bet. The maths behind it is that the odds represent how much you stand to win when wagering $100.

For instance, odds of +100 mean that if you bet $100, you can win $100 – making a grand total of $200. Negative odds, denoted with the minus sign, are less risky bets, like betting on the favorite in a moneyline wager. The negative odds symbolize how much you need to spend to win $100. For example, you need to bet $200 on a -200 odds wager to make $100 ($300 total returns).

Decimal odds, which are used in Canada, Australia, and most of Europe, are a little easier to understand. These are simply numbers by which you multiply your stake to get the potential returns. A bet with odds of 1.5 will mean you can win $150 from a $100 bet. Should the odds be 3.2, you would win $180 from a $50 bet.

The UK uses fractional odds, which denote the profit you can make. For instance, when you see a bet of 1/2, this means that you would make a $50 profit off a $100 stake. In total, that is $150 in winnings.

It is really quite simple, but if you ever need to quickly convert fractional to decimal, or American to fractional, you can use our Universal Odds Converter calculator.

Science Behind Calculating Odds

Oddsmakers use a complex set of algorithms and data processors to generate their odds. The systems can process vast sums of statistical information and crunch out the odds in a matter of seconds. Speed is an essential part of providing odds – just think about live betting markets. During a game, the betting markets constantly fluctuate, and the best sportsbooks leave little time between these alterations. They won’t leave you hanging with “live bets temporarily suspended” messages, unless something really important occurrs during the game.

Sportsbooks must make odds that measure the likelihood of something happening. In a game of football, the oddsmakers need to generate the chances of either team winning in a moneyline wager. In totals bets, they must calculate the margin of points that would bring these two teams to a balance. For example, if the Tampa Bay Buccaneers are the favorites to beat the Cleveland Browns, the spread would favor the Browns. The larger the point spread, the bigger the perceived difference between the two teams. Larger spreads will also result in longer moneyline odds on the underdogs and shorter odds on the favorites.

Everything needs to be kept at a balance. Generally, because oddsmakers offer bets on the opposite event occurring. Even for NFL player props, you may have a bet for a quarterback to throw 212.5 passing yards or more, and a contrasting bet on them to throw under 212.5 yards.

Now if you were a hedge bettor, you would place bets on the QB to throw over and under that betting line. But you wouldn’t make a profit either way. This is because of the juice, or house edge.

Juice in Sports Betting

Juice goes by many names, including vigorish, vig, or house edge. It is a small percentage that is skimmed off the odds to give the sportsbook an edge. If you were to bet in proportion to the odds and cover every outcome, you wouldn’t make a profit. Here is an example using moneyline odds on a soccer game between Arsenal and Chelsea.

• Arsenal Moneyline = 2.05
• Draw = 3.6
• Chelsea Moneyline = 3.4

To find the juice, we need to calculate the implied probability of these bets. You can calculate the IP individually by dividing 1 by the decimal odds. You will need decimal odds for the formula, so if you don’t use them, be sure to quickly convert odds of any other format with our calculator mentioned above.

Implied Probability = 1 / Decimal Odds

Therefore, the IP of each of those wagers is the following:

• Arsenal Moneyline IP = 1 / 2.05 = 48.78%
• Draw = 1 / 3.6 = 27.78%
• Chelsea Moneyline = 1 / 3.4 = 29.41%
• Total IP = 105.97%

Adding all the implied probability percentages together, and the result is over 100%. The remainder, over 100%, is the juice. In this case, the juice is around 6%, which is quite average for a betting site. But if you browse around, you will find that some betting sites apply juice as low as 4%, whereas others may have rates of up to 10%.

Shaded Lines and Juice Mechanics

It goes without saying that you should look for sites with lower juice. But it is not that simple unfortunately. The size of the juice may vary according to the popularity of the wager and the sport. In mainstream betting sports, the juice is generally a little lower. Niche sports do not attract as many bettors, and therefore the sportsbooks occasionally add a little more juice. They do not apply the juice evenly though.

Sportsbooks don’t just calculate the probability of a sports event happening and then slap on the juice. They also analyze where the public is likely to bet and pick out the wagers with the best selling potential. Let’s look at an MLB moneyline bet. Say that the New York Yankees play the Tampa Bay Rays at Yankee Stadium. The public is leaning towards betting on the Yankees to beat the visitors at home, and the betting interest is massive.

Assessing the scenario, the oddsmakers give the Yankees an 80% chance of winning and a 20% chance of the Rays pulling off a major upset. The sportsbook will apply 5% juice onto its wagers, but it will not simply cut out 2.5% from either wager. No, the oddsmakers will add a little more juice to the Yankees moneyline bet, as this one is going to sell more.

Example of Shaded Lines

Here is a quick runthrough of how the odds would look:

NY Yankees

• Probability = 80%
• Decimal Odds (without Juice) = 1.25
• Decimal Odds (2.5% Juice) = 1.21
• Decimal Odds (3.5% Juice) = 1.197

Tampa Bay Rays

• Probability = 20%
• Decimal Odds (without Juice) = 5
• Decimal Odds (2.5% Juice) = 4.44
• Decimal Odds (1.5% Juice) = 4.65

This is called shaded lines. The sportsbooks have added a little more juice, not based on probabilities in the game, but based on where they think you are most likely to bet. After all, most bettors who pick the Yankees will not care about the 1.3 cents to every dollar that is skimmed off the total. As for betting on the underdog, the difference is far more palpable, but the lengthy odds will scare off the majority of bettors. When the odds are too long, it can help build the fallacy that the Rays cannot win the game.

Why Sportsbooks Have House Edge

The house edge is not specifically designed to make you lose, as sportsbooks have absolutely no control over what may happen in a sports game. Instead, it is a form of guarantee, that over the course of countless bets, the sportsbook will always be in a profit.

Think of it like a bet on a game of heads and tails. The sportsbook will not give you even money on either bet (heads or tails). Instead, it will provide odds of around 1.9.

This means, if you win 5 from 10 coin flips, betting $1 per flip, you will be short $0.50. Even though you won half the number of times – which is mathematically the most likely scenario.

To make a profit, you will need to win around 52.63% of the time. You may win 6 from 10 or even more flips, and make a profit. But the chances of thousands of players getting over 52% of their bets right is highly unlikely, and the house will make its profit across all those bets.

Importance of Odds in Betting Strategies

Good value of odds are contingent to all betting strategies, and the difference between profit and loss hinges on the smallest margins. You may not feel it at all when placing straight bets, but in parlay bets the gap is quite noticeable. Just say you make a parlay of 5 point spreads, and at one sportsbook they are priced at -110 (1.91 decimal odds), and -115 (187) at the other.

A 5-selection spread parlay at the first sportsbook is valued at odds of +2435 (25.35). At the second, it is just +2186 (22.86). That is, an extra $24 return for every $10 wagered. Betting value boils down to numerous things. While there are sportsbooks that generally have lower juice, the value can vary based on the popularity of the game (shaded lines), how many bets have been placed already, and loads more. But if you want a quick window into what prices different books are putting out, be sure to head on to our Sports Odds pages below:

• NBA
• NCAAB
• NFL
• NCAAF
• NHL
• MLB

These difference does add up in the long run, even if you were just placing straight bets and winning an extra $0.30 for every $10 spent.

Betting Against the Crowd and Taking Riskier Wagers

In other cases, you may look for bets that come at inflated prices. When an underdog is underestimated, or the house cannot pick a winner between two evenly matched teams, odds tend to stretch quite long. These are riskier bets, and are in danger of losing. But if you think the oddsmakers have made a mistake, you can capitalize on the mistake. Kelly criterion betting is a key betting strategy that observes these kinds of discrepancies. It, along with numerous other betting strategies, can give you a great edge over the house. But you need to analyse the odds carefully, and never overestimate your chances of winning.