How To Calculate Bookmaker Commission?
It goes by many names: the Juice, the Vig, the Margin, The Take, The Percentage, The Cut, The Commission. 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.
It goes by many names: the Juice, the Vig, the Margin, the Commission, The Take, The Percentage, The Cut. 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 customers, offering bettors higher odds and greater returns than those on offer at competing bookmakers.
But what exactly are bookmaker betting margins? How do you calculate them? How much commission are you paying with each bet and what impact can it have on your betting profits?
What Are Bookmaker Margins?
Some believe that bookmakers are 'risk takers', that the odds offered by bookmakers 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. This is only half true.
Yes, bookmakers may 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 bookmaker's 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 margin.
Bookmakers take this slice out of the odds they offer, resulting in a profit, or 'margin' once their liability is balanced on either side of the odds. In other words, the margin is 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.
What Is A Fair Market?
So what's an example of a market with the bookmaker margin taken out? 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 bookmakers were offering a fair market without a margin, 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. They're in business to make money after all. To do 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.
So for example, if we were being given fair odds of 2.00 for a coin toss, essentially a 50-50 event, over a sample size of thousands of £1 bets, it is likely that we will not lose any money. Half the time we will win, giving us a profit of £1, half the time we will lose, giving us a loss of £1. But a bookmaker will not offer us these odds. They want to make money so they are more than likely to offer us odds in the range of 1.90 for a coin toss. This then means that for every £1 that we bet, we will on average only see £0.90 returned, averaging a loss of £0.10, which of course, the bookmaker claims. This is how they make their money, by not offering fair odds on a given outcome.
Calculating Betting Market Margins
As we 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 (You can read how to exploit these situations in order to make a sure profit here). 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. The advantage is with the bookmaker.
So how do we calculate the margin for a given betting market?
Well, it's a fairly simple calculation. Firstly, we need to convert the decimal odds to the percentage probabilities that they represent, what is known as their 'implied probability'.
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 'overround'.
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
- Market Margin = 104.2%
Now to calculate the average commission you pay on each bet, given the margin. There are a number of ways to calculate the commission on specific odds. Our preferred way is the following:
So let's take our example of the football game further to calculate the margin:
- Commission = (1 – (1 / Market Margin)) * 100%
- Commission = (1 – (1 / 1.042) * 100%
- Commission = (1 – 0.96) * 100%
- Commission = 4%
So in this example, for every £100 that you bet, you are paying an average of £4 to the bookmaker. Or in other words, at a commission rate of 4%, you would be offered odds of 1.92 on a coin toss.
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 Market Margin on each market. There are also a number of calculators on the web that will do it for you.
Bookmaker Commission Excel Calculator
The bettingexpert Market Commission Calculator will tell you just how much commission you're paying on any particualr market. Are you getting a fair price or are you paying too much to bet with your bookmaker?
Here's how the calculator works:
Step 1 - Choose your preferred odds format. The bettingexpert Market Commission Calculator can assess the amount of commission for a particular betting market in three popular odds formats – decimal, American and fractional.
Step 2 – Enter the odds offered by your bookmaker for each possible outcome in a given event.
Step 3 – Once you've entered your bookmaker's odds, the Market cell will display the total value in the market, while the Commission cell will tell you exactly how much you're paying in commission on that market. Unless you really have a sharp angle on a market, we wouldn't recommend betting on market with a commission greater than 5%.
How Do Bookmaker Margins Impact Your Profits?
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 commission can have on your betting bank. Here we bet 1,000 bets at varying 'even money' coin toss odds based on market margins.
|Market Margin||Commission||Coin Toss Odds||55% Win Rate Return||53% Win Rate Return|
We can see here that the difference between betting on a market with a commission of 2.5% and 5% results in 2.75% greater return with a winning strike rate of 55%. And when we are talking slight percentages between being a successful bettor and a losing bettor, assessing the margin in the markets you choose to bet on is so very crucial.
And that's winning at a 55% rate on 'even money' coin toss odds. Let's consider what impact a reduction of margin can have on a 53% winning strike rate. You can see here that the impact is significant. With a commission of just 2.5%, a 53% strike rate on 1,000 'even money' coin toss bets will gather a return of 3.35%. But with a commission of 5%, the return is just 0.7%.
Take Best Odds Available Always
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 bookmaker's odds off against another, the opportunity to reduce our commission is greater than ever, particularly with the advent of betting exchanges.
Let's consider this example. We have a range of odds on offer from a 5 different bookmakers for an upcoming Premier League match between Manchester United and Arsenal.
|Man Utd Win||2.50||2.60||2.55||2.44||2.55|
We can see that from bookmaker to bookmaker, Pinnacle Sports is offering the best odds with a commission of just 2.19%. That's a very low commission rate. But we can improve it even more by only taking into account the best odds available for each outcome, highlighted above in red. By considering only best odds available, our overall commission rate improves from a 2.19% betting only with Pinnacle Sports, to 1.01% when taking into account the best odds available across every bookmaker.
|Man Utd Win||BetVictor||2.60||38.46%|
Again, the point should be clear. It's incredibly important to take the best odds available in order to reduce your commission rates as much as possible. So make sure you have a portfolio of bookmakers that allows you to take the best odds available more often than not.
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.
How Is Betting Commission Calculated?
It's really not that difficult.
Let's say you are being offered odds of 1.95 on a betting exchange in an Asian Handicap market. Traditional bookmakers such as Ladbrokes typically offer odds of around 1.91 on most Asian Handicaps. At first glance, the odds being offered to you on your chosen betting exchange of 1.95 seem far better value.
But let's calculate the commission you will be charged. Let's say the commission rate for your Asian Handicap market is 5%. Your chosen bet stake is £100. What will your profit be? We may assume that our profit will simply be £95 (£100 * 1.95). But what will our profit be once we take the commission into consideration?
It's calculated as:
Commission charged = ((Stake * Odds Offered) - Stake) * Commission Rate
So in our example:
Commission charged = ((£100 * 1.95) - £100) * 5%
Commission charged = (£195 - £100) * 5%
Commission charged = £95 * 5%
Commission charged = £4.75
So in our example you will be charged a total commission on your bet of £4.75, meaning our profit will be £90.25.
Calculating Our True Odds
So are our odds of 1.95 being offered on the exchange better value than the odds of 1.91 being offered by a traditional bookmaker? What are our true odds?
Once we've calculated the betting exchange commission we will be charged, it's very easy to calculate our true odds. It can be calculated as:
((Stake * Odds Offered) - Commission Charged) / Stake
So in our example:
True Odds = (£195 - £4.75) / £100
True Odds = £190.25 / £100
True Odds = 1.9025
Given the 5% commission we will be charged on this bet, our true odds are 1.9025. If we made the same bet at a traditional bookmaker at odds of 1.91, we would have made a profit of £91 as opposed to £90.25 on the exchange. It may seem only a slight difference, but over the course of hundreds or even thousands of bets, this slight difference will begin to add up to be a considerable amount of money.
The importance of considering and calculating betting exchange commission rates should be clear. While odds offered on an exchange may initially appear attractive, once commission charges are taken into account, the odds being offered may not be the value you are looking for.
Combining Our Two Calculations
Taking our odds offered and commission rate into account, our true odds after commission charges can be calculated as:
1 + (1 - commission rate / 100) * (odds offered - 1)
Let's consider our odds of 1.95 on the exchange:
True odds = 1 + (1 - 5/100) * (1.95 - 1)
True odds = 1 + (1 - 0.05) * (0.95)
True odds = 1 + (0.95) * (0.95)
True odds = 1 + (0.9025)
True odds = 1.9025
Betting Exchange Commission Calculator
If you're not keen on doing the maths yourself, fear not. We've created the bettingexpert Commission Calculator. It's easy to use.
Simply enter your bet stake (or lay stake), the odds your are being offered, the commission rate (and discount rate if applicable). Click the Calculate button and the bettingexpert Commission Calculator will return the commission you will pay, your profit minus commission charged and the true odds you are being offered. It's that easy.
How Exchanges Charge Commissions
As discussed in our detailed guide to betting exchanges, betting exchanges make money by charging a 'commission' rate on matched bets with varying commission rates charged depending upon the market. How is this different to a traditional bookmaker? Well while a more traditional bookmaker will make money the more you lose, betting exchanges make money the more that you either bet or trade. The way commissions work varies from exchange to exchange and from market to market. For full details, go to the betting exchange of your choice, whether it be Matchbook, Betfair or Betdaq.
How Betfair Charges Commission
Let's start with the most popular and longest serving betting exchange Betfair charges commission. Firslty Betfair charges commission on your net winnings in a given betting market. This means that if you make a loss in a given market, Betfair will not charge you any commission.
So what if you are making a profit in a given betting market? How does Betfair calculate the commission you will pay? Betfair does this by multiplying your net winnings by their 'Market Base Rate' minus your 'Discount Rate.' What is the Betfair Discount Rate? Well, the more that you bet or trade with Betfair, the more Betfair Points you earn. The more Betfair Points that you earn, the higher your Discount Rate will be.
For example, if the Betfair Market Base Rate is 5% and your Discount Rate is 20%, how much commission will you pay on net winnings of £500? This is how it is calculated:
Commission = Net Winnings x Market Base Rate x (100%-Discount Rate)
Commission = £500 x 5% x (100%-20%)
Commission = £500 x 5% x 80%
Commission = £20.
Further, you will earn 200 Betfair Points on this transaction (£20 x 10).
How Matchbook Charges Commission
Matchbook charges only 1% commission on each bet placed (But please note that his rate is now 1.15% in the UK and Ireland). At Matchbook, if you win your bet, the commission is charged on your profit. If on the other hand, you lose your bet, the commission is then charged on the lesser of either your bet stake or the potential profit of the bet.
Let's look at an example. You backed Chelsea to win a Premier Legaue match, a stake of £100 at odds of 2.50. If Chelsea should win the match, you win the bet. You will then pay 1% on your winnings. In this example it would be 1% of £150, a total commission payable of £1.50.
What if Chelsea lose and you lose your bet? In our current example you will pay 1% of £100 as your bet stake of £100 on Chelsea to win is the lesser of your stake and your potential profit of £150. So if Chelsea failed to get the victory, you would pay £1 in commission. But let's say your stake was £200. Then your commission of 1% would be charged on your potential winnings of £150, a total commission payable of £1.50.
How Betdaq Charges Commission
Betdaq will charge commission on each of your winning bets. However, as opposed to Betfair and Matchbook, the Betdaq charge structure depends on how your bet was matched on the exchange. So for all winnings bets that come from offers that you made on the exchange, you will be charged commission of 2%. On the other hand, for all winning bets that came from you matching an offer from another exchange user, you will be charged the regular Betdaq commission rate of 5%. Why do Betdaq do this? Well it's simple. This is an attempt from Betdaq to encourage exchange users to initiate betting and trading activity.
So let's consider an example. Let's say you request odds of 3.00 for West Ham to win a Premier League match. If your offer is matched, you will pay 2% on winnings if West Ham wins the match. If on the other hand, you took odds of 2.90 that were being offered by another Betdaq user, if West Ham wins the match you would pay the regular Betdaq commission rate of 5%.
How Smarkets Charges Commission
Smarkets charges a flat 2% commission on net market winnings. It's also worth noting that Smarkets make the claim that this commission rate of 2% will never increase.
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