What Is A Bookmaker?

Under normal circumstances the bookmaker is the only part in a bet that definitely comes out as a winner.

In order for the bookmakers to keep doing business they need to make bets that allow them to make money each time they offer a bet. Therefore, bookmakers don't set the odds just based on probabilities. They also incorporate a margin ensuring they earn a profit on each bet.

A Coin Toss Example

Let's take a basic coin toss for £100 as an example:

The outcome is either heads or tails, so it is a 50/50 chance. One person bets on heads and another on tails. No matter who wins, the bookmaker would have to pay out the £100, leaving no surplus for him.

That would be a rather bad business plan. So instead the bookie lowers the prize money.

Let's now say that the bookmaker lowers the payout to £90, instead of the fair £100. This is the equivalent of offering 1.90 odds instead of the fair 2.00. Since our two punters still wager the £100, the bookie will turn a profit whatever the outcome is, since he collects £100 from one punter and pays out £90 of those to the other punter, keeping £10 for himself.

This represents the bookie margin, also known as the commission, the “Vig” or “juice”, mostly in the US. And it is what makes betting such a challenge as you not only have to pick winners, but also do so at a rate of return that is greater than the bookmaker margin.

Beating the Margin

In other words, picking 5 winners out of 10 with each paying fair odds of 2.00 without any bookmaker commission would see you break even. However, receiving standard bookmaker odds of 1.90 with the 0.10 commission off of the fair odds of 2.00, picking 5 winners would see you make a loss of 5% on your total investment.

How so?

We outlay 10 units, picking 5 winners at 2.00.
5 winners x 2.00=A return of 10.
We break even on our outlay of 10 units.
But with standard bookmaker commission on odds of 2.00 at 5%, we receive a return of 1.90.
5 winners x 1.90=A return of 9.5.
We make a loss of 0.5. Or in other words, 5% of our outlay of 10 units.

As you can see, when people refer to “beating the bookmaker”, what they are really saying is that success in betting long term, means beating the bookmaker margin.

Betting without a bookie

For a truer indicator of how much a bet is worth you might turn your attention to the section about betting on exchanges such as Betfair and Betdaq.

On a betting exchange users bet against users, and the market is driven by supply and demand only, often resulting in better odds compared to those of the bookmakers. However, it is very important to take into consideration that exchanges charge 2-5% commission on winning bets, thus prices may look more attractive as they actually are when accounting for commission. The commission itself is actually not that different from the bookmaker's margin as a concept, but most bookmakers build in a bigger margin than 5%, so you're mostly still better off with a betting exchange.