It’s a question that many of us must often ask ourselves: are betting odds accurate in the real world, and if so, how are they calculated? Do the odds offered at the likes of the SugarHouse sportsbook reflect the actual likelihood of a team or player winning, scoring or reaching the championship? In other words, how often do betting odds get it right – and what does the answer tell us about the betting business as a whole?
It’s important to remember at the start that betting odds are not a prediction of the outcome but a statement of the probability of a certain outcome. If a horse is the favorite to win a race, then the bookmakers are not actually predicting that said horse will definitely win. They are just saying that it has a better chance of winning than the other horses in the race. However, the fact that they give odds on all horses reflects the truth of the matter: any of the horses could win. Some are more likely to win than others, and, of course, only one of them actually will win. This is what the odds try to reflect.
With this in mind, we can’t really measure the accuracy of the odds by looking at how regularly a favorite has won. It’s true, however, that technically if the odds on a certain outcome were consistently 2-1, then that outcome should occur 50% of the time. Such ‘laboratory conditions’ only really occur in casino betting, however, and in such cases it does seem that the odds given are reasonably accurate.
The profit margin
There are a number of qualifiers to this statement, however. First of all, the odds offered by a bookmaker or a casino are not the true odds, and nor do they claim to be. The odds as given will always include a profit margin (or in the case of casinos, a house edge), which will vary depending on the provider and the circumstances. With major sporting events, the margin is typically around 5%.
You’ll notice also that unlike casino odds, the odds offered on sporting events will often change over time. This may be because more information is available, or because circumstances have changed – for instance, a team is playing better than expected. However, often it is because a bookmaker is adjusting their margins in response to widespread betting on a certain outcome. To a large degree, betting odds reflect not so much the likelihood of a certain event occurring, but what most people think is the likelihood of a certain event occurring.
Get the balance right
Profit margins are built into the odds in order to balance the books so that profits will outweigh losses across the board. Individual punters can still do well out of betting, and in some cases the odds may be stacked very much in the punters’ favor, especially if you go against the tide of public opinion. However, long odds will fall pretty quickly if too many people start betting on them.
How odds are calculated
Bookmakers will use a variety of sources to calculate the true odds on an outcome. These will include statistics; form; history; and a range of opinions from experts, the general public and others within the gaming industry. The more data is available, the more accurate the odds are likely to be. They then take into account how their customers are most likely to bet.
With sports betting, this will factor in regional team loyalties. A bookmaker in the UK taking bets on the soccer World Cup knows that more punters will back England than the team’s actual likelihood of winning should dictate. They may increase or decrease the profit margin on different bets in order to discourage or encourage people from betting on a certain outcome.
In some ways, bookmakers don’t want to be right about the outcome, in the sense that if the favorite wins, this could be disastrous for them. The favorite will be the most-backed option, and so this means that they have to pay out to the largest number of people. Their hope is that they will be covered by the number of losing bets they’ve also taken in.
In the final say, the odds generally reflect probabilities pretty accurately, provided that there is enough data to go on. Other factors do come into it, however, which is why it’s always worth shopping around if you can in order to find the best odds before placing a wager.