Behind the scenes: How do betting odds (really) work?
If you are a fan of sports betting, you have no doubt come across the term ‘odds’ at some point in time. Arguably, this is the most important term to understand for sports betting, as odds are far more than just a number alongside a specific betting market. We’ve addressed exactly what odds are in this post, along with how to interpret them, and how they actually relate to the amount of money that you decide to wager, along with a hidden gem at the very end!
Without wasting any more time, let’s jump right into it.
An overview of what odds reflect
When you hear people talk about the ‘odds’, they are actually referring to the probability of an event happening. This is fundamentally what odds are – a numerical representation for the probability of an event happening. Now, you’ve probably used probability at some point in life, everybody has, yet most people usually express probability in percentage terms. For example, there is a 20% chance of rain this afternoon.
With sports betting, odds are never given in percentage terms. They can be given in fractional, decimal, and American terms. However, whichever way they are displayed, they still represent an underlying probability. If you see an odd of 1.2 for a sports market, this shows that the probability of this happening is extremely high.
The lower the odds, the greater the chance of that particular outcome occurring. The higher the odds, the less likely it is that this outcome will occur. This is how you can quickly assess who is the favorite in any sports game too – just like at the odds and they will tell you the general expectation for that event.
Odds are not just created on some random assumption anymore either. Betting companies now use complex algorithms to create the odds that we ultimately see in a sportsbook. Pretty cool, right?
How to interpret the odds in the betting markets
As you become more and more familiar with sports betting, especially with how odds work, you’ll be able to interpret information quickly. We mentioned above that the lower the odds the higher the chance of an outcome, and the higher the odds the lower the chance of an outcome, but now let’s get into it a little more.
The odds don’t just represent the chance of an event happening, they represent the amount of money that you could win if you back this market correctly. This is how to truly interpret the odds that you see, and this will dictate everything to do with your sports betting decisions. To illustrate this point, let’s work through a quick example.
Let’s say that Juventus are playing Liverpool in a Champions League soccer game. The odds are as follows – Juventus to win, 1.5, Liverpool to win, 2.1, and for a draw, 3.2. This is just a hypothetical example, but it will show you how the odds do actually work. Based on these odds, you can see that Juventus are the favorite, as the odds are the lowest for this market.
However, when you’re deciding how much you should bet, it’s important to understand the calculation. If you bet $10 on Juventus to win at this price, you’d receive $15 back if they did then go on to win, giving you a profit of $5.
If you had bet on Liverpool to win however, and they did, you’d enjoy a profit of $11. Let’s now explore why this can be so pivotal when deciding how much to bet.
The wagering decision process
Okay, now we have a thorough understanding of how the odds work, it’s time to illustrate the final point – how to decide how much to wager?
Working from the same example given above – Juventus at 1.5, Liverpool at 2.1, and a draw of 3.2, we can start to understand just how vital this actually is. If you had bet $10 on Juventus to win and they did, you'd have won $5, but if you had bet that $10 on Liverpool and they won, you’d have won $11 – more than twice the amount.
Now, here’s where odds get really interesting, as you need to apply the principle of ‘risk’. To get the same profit of $11 by betting on Juventus, you would have needed to bet more than twice the initial amount. This is why it’s often not the best strategy to constantly back the favorite, as eventually, they will lose, and you’ll have suffered a greater loss than if you had tried to get the same profit, but by betting less on the underdog.
That’s why you must do your research and assess the chances of an outcome in your own head, and then see if your opinions match up with what the sportsbooks have listed the odds at.
As we’ve stated previously, sportsbooks use complex algorithms to come up with the odds for sporting events in the first place. This has always been the case, but with today’s technology, you’d think that the odds provided are now much more accurate. This is true to a certain degree, although of course, sport is random, so the odds are merely an indicator based on a set of constraints.
Here’s where things can get really interesting. Sportsbooks will adjust the odds based on the interest of punters in the market. For example, if Federer was listed to win a tennis match at 2.0 odds, and there were a ton of sports bets that flooded in, the sportsbooks will then reduce the odds to reflect the market’s opinion of the event.
It’s not just that however, it’s so that they reduce their own risk decreasing their overall exposure in the market. It’s truly fascinating, and we’ve seen it time and time again with major events like the Mayweather – McGregor boxing fight in Vegas a few years back.
It has always gone on like this, and it will continue to do so!