Bookmakers are traditionally known as turf accountants which probably describes their role better. They take money on a number of different outcomes in an event and then pay money out to those who predicted the result of the event correctly.
The aim of a turf accountant would be to balance their book so that a profit is made whatever the outcome of the event. In order to achieve this, they will attempt to offer odds which are less than the real probabilities of an event taking place.
The result would be a book which is over-round. This means that they will offer odds which exceed the combined probability in an event. In other words their odds will add up to more than 100%.
How Bookmakers Use Odds
Lets take the example of a toss of a coin. We know that there is a 50% chance of the coin landing on heads and a 50% chance of it landing on tails. Convert these chances to odds and we have Evens for each possible outcome.
If the bookmaker took bets at evens then assuming he took equal amounts on each outcome, he wouldn't make a profit. Say someone bet £50 on heads, someone else £50 on tails, the bookmaker would take in £100 and whatever the outcome, would give out £100.
To make the book over-round, the bookmaker will offer less than evens, say 4/5 for example. In this case, the bookmaker would take in £100 but whatever the result, would only pay out £90. Therefore taking a nice £10 profit for the hard work!
If the bookmaker offered odds of say 6/5 on each out come, then the book would be in favour of the bettor. The bettor could have £50 on heads and $openbets[50 on tails and be guaranteed a return whatever the result. Bookmakers are far too clever to let this happen with the odds they quote, but by comparing odds of different bookmakers, this situations can often arise.
See How The OverRound Changes the Odds
When the overround = 100 then this is a fair market. The odds reflect the probabilities of each chance and if you backed each outcome with the right level of stake then you would be able to get your stake back whatever the outcome
Bookmakers and Odds Compilers
Bookmakers don't have it that easy. They don't just set the prices on the toss of a coin! Because they take bets on sporting fixtures for which the outcomes are difficult to predict, they need to work hard at getting those odds correct.
The major bookmakers employ a team of odds compilers to set their prices. A horse racing odds compiler may have a number of contacts or helpers ranging from private handicappers and form experts to gallop watchers at various stables. Once they have analysed all the information available, they will set about converting this into the percentage chances of each runner winning the race.
The odds compilers will work to certain profit margins or over-rounds. They may decide that they want to make £10 for every £110 they take and set their over-round on that market at 110%. To build this into the odds they take their calculation of each runner's chances and shorten some or all of their odds. Bookmakers are often criticised by bettors for making the over-round too high. In other words making it too difficult for the bettor.
Bookmakers and The Betting Market
Others might be more cautious and look at other bookmaker's odds first so they can go longer on selections they don't fancy and they want to 'lay' and shorter on selections they might feel strongly about. They may also consult the betting exchanges to see what selections are being supported.
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