Why Only The Best Odds Are Worth Your Money
How do bookmakers make money? How much bookmaker commission should you pay? And how do we calculate bookmaker commission? Today Andrew Brocker tells us how bookmaker commission can impact your betting bankroll.
It goes by many names: the Juice, the Vig, the Margin, the Commission, The Take, The Percentage, The Cut, The Snitch, The Brick, The Handle (Ok, I admit, I just made up those last three) But whatever you want to call it, it's that slice of action every bookmaker takes out of the odds so as to make their business worth their while.
And it varies from bookmaker to bookmaker and even from event to event with bookmakers sometimes offering special 'reduced juice' on particular leagues or tournaments to attract bettors, offering them higher odds and greater returns than at other competing bookmakers.
But what exactly is Juice? How do you calculate it? And what is the impact can it have on your betting bank?
Juicing The Market
I once read on a forum a innocent poster suggest that bookmakers are 'risk takers', that the odds bookmakers offer are more a reflection of who the bookmaker thinks will win a particular contest and that in affect, bookmakers have a preferred winner in any given contest. Unfortunately for that particular forum poster, this understanding is only half true.
Yes, bookmakers might have a preferred winner in any given contest, but it's not in any way a result of favouring one side when framing the odds. And a risk taker is exactly what a bookmaker is not.
When framing odds for a particular event, bookmakers are attempting to set odds that they think will attract betting on both sides of the market, therefore balancing the bookmakers liability given the possible outcomes. But if the bookmaker's liability is equal given any outcome, how does a bookmaker make a profit themselves? The answer is of course, the Juice.
Bookmakers take this slice of the full value of the odds offered, resulting in a profit, or 'commission' once their liability is balanced on either side of the odds. This is also known as the Theoretical Hold. In other words, it's the percentage of money taken from bettors that the bookmaker will claim should they balance their liability perfectly. And although it's unlikely that a bookmaker will achieve that perfectly balanced liability on each side of a specific event, by offering hundreds of markets each day on a wide range of sporting events, they can be confident that their overall liability will even out and they can take their cut of the money put down by bettors.
So what's an example of a juiced market. Well, the clearest example to offer is on so-called 'even money' events. This is where it is deemed by the bookmaker that both sides of the market will attract equal action from a betting public that considers each outcome as an even probability, 50-50.
So let's use the example of tossing a coin. We can expect that over enough tosses, it is 50% as likely that a coin will come up heads as it will tails. Now if they were offering a full market without any Juice, the odds would of course be an even 2.00 on both heads and tails. i.e. you bet 1.00 to win 1.00. This is what is known as a '100% market' or 'fair odds'. In other words, you're getting full value on your return. But bookmakers want their slice of the action. And so they offer us odds of anywhere between 1.85 to 1.99 as 'even money.' They take out their percentage. They do not offer full price. This is the business.
Assessing The Market
As I said, a 100% Market is where 'fair odds' are being offered. It is where there is no advantage for either the bettor or the bookmaker. When the market is assessed as less than 100%, this places the advantage with the bettor, meaning there is greater value in the odds than the probability of all possible outcomes. And on the other hand, when the market is greater than 100%, as it typically is, this means there is less than full value in the market.
So how do we assess the market?
Well, it's a fairly simple calculation. Firstly, we need to convert the decimal odds to the percentage probabilities that they represent. So let's take an example, the odds of 1.65. We convert these odds simply as 1 divided by 1.65 which equals 0.606. We do this for each possible outcome in the event, add them together, then multiply that by 100 and we get the market percentage also known as the 'overound'.
Here's an example. Let's take a football game, with 3 outcomes - either team wins or there is a draw.
Team 1 odds: 2.00
Team 2 odds: 3.90
Draw odds: 3.50
We make our conversions and we get -
Team 1 probability: 1 divided by 2.00 = 0.500
Team 2 probability: 1 divided by 3.90 = 0.256
Draw probability: 1 divided by 3.50 = 0.286
Total = 1.042
Overround = 104.2%
Calculating The Juice
There are a number of ways to calculate the Juice on specific odds. My preferred way is the following:
So let's take our example of the football game further to calcute the juice.
(1 – (1/1.042)) * 100
(1 – 0.96) * 100 = 4%
So the odds for that particular football game have been Juiced 4%.
Of course, you’re not going to want to have to do this each and every time you wish to make a bet, especially if you’re trying to calculate the value in a horse racing market of 12 or so runners. Fortunately, betting exchanges such as Betfair display the Overound on each market. There are also a number of calculators on the web that will do it for you.
Who Pays The Juice?
There are two schools of thought here. The first is that the losers pay. The reasoning here is that the winner not only claims the money he originally put down, but also a certain percentage of the losers money, with the remainder of the losers money going to the bookmaker. The second school of thought is that the winners pay. The reasoning here is that the winner doesn't receive the full value return for the money they originally placed on the bet.
This reasoning extends further to suggest that the more you win, the more juice you will pay. For example, if I win 50% of 100 single unit bets at odds of 1.90, I will pay 5% juice. (or Average Juice). But let's say I win 80% of my bets. Well, in this case, if I were betting with fair odds of 2.00 winning 80 of 100 would give me a return of 160. But with odds of 1.90, I gain a return of 152, which is 8 less than 160. I pay a commission then of 8 units for a total of 100 units bet, leaving me to pay 8% rather than 5% juice. In other words, this reasoning suggests that the more you win, the more commission you pay to your bookmaker.
What's The Price Of Juice?
We hopefully now have an understanding of what bookmaker commission is. Let's then have a look at the value of shopping around for the best value markets. We'll do this via a simple comparison of various 'even money' odds and see the impact a slight reduction or increase in juice can have on your betting bank. He we bet 100 bets at varying 'even money' odds.
We can see here that the difference between betting on a market with Juice of 2.5% and 5% results in 2.75% greater return. And when we are talking slight percentages between being a successful bettor and a failing bettor, assessing the Juice in the markets you choose to bet on is so very crucial. And that's winning at a 55% rate on 'even money' odds. Let's consider the what impact a reduction of Juice can have on a 53% winning strike rate.You can see here that the impact is significant. With just 2.5% Juice, a 53% strike rate on 100 'even money' bets will gather a return of 3.35%. But with 5% Juice, the return is just 0.7%.
Consider this chart below. Starting with a bank of 1000, we will bet a unit of 1% of our increasing bank on each bet and will complete 1000 bets. We are betting 'even money' bets and hitting a strike rate of 53%. Over the course of those 1000 bets, the difference between 'even money' with 2.5% and 5% Juice is immense. After 1000 bets, betting with 2.5% Juice, our bank has grown to 1397, a return of 39.7% while betting with 5%, sees our bank rise to just 1072, a return of 7.2%.
Find Your Markets
While the conclusion is obvious, that it is far more beneficial to bet with bookmakers who offer better value markets, it's something that many novice bettors don't quite understand. And now with online betting, the ability to play one bookmakers odds off against another, the opportunity to reduce our juice is greater than ever, particularly with the advent of betting exchanges.
It may seem like a slight percentage, and it may seem that odds of 1.90 are only slightly less than odds of 1.95, but over the long run it makes a huge difference to your overall chances of success as a sports bettor.
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