Calculating 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.
And it varies from bookmaker to bookmaker and even from event to event with bookmakers offering special 'reduced commission' on particular leagues or tournaments to attract bettors, offering them higher odds and greater returns than at competing bookmakers.
But what exactly is bookmaker commission? How do you calculate it?
It's sometimes thought that the odds a bookmaker offers 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. However, 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. A risk taker is exactly what a bookmaker is not.
When framing odds for a particular event, bookmakers are attempting to compose 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 bookmaker's commission.
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, the commission 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.
So what's an example of such a betting 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 commission, 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 anywhere between 1.85 to 1.99 as 'even money.' They take out their percentage. This is the business of calculating bookmaker commission
As we noted, 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 market than the probability of 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 calculate the commission? 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 div 2.00 = 0.500
Team 2 probability: 1 div 3.90 = 0.256
Draw probability: 1 div 3.50 = 0.286
Total = 1.042
Overround = 104.2%
There are a number of ways to calculate the commission on specific odds. A popular way is the following:
(1 subtract (1 divided by overround)) multiplied by 100.
So let's take our example of the football game further to calcute the commission.
(1 - (1/1.042)) * 100 (1 - 0.96) * 100 = 4%
So the odds for that particular football game have a commission of 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.
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 the full implications of.
And with our ability now with online betting to play one bookmakers odds off against another, the opportunity to reduce the impact of commission is greater than ever, particularly with the advent of betting exchanges. It may seem like a slight percentage, and it may seem like the difference between a 1.90 even money offer is only 5 cents less than a 1.95 offer, but over the long run it makes a huge difference to your overall chances of success as a sports bettor.