What is Bookmaker’s Over-round?
Another way of putting the question contains in this article’s title is: How do bookmaker’s make money? Once you understand this, you can see why betting exchanges claim to offer better value than bookies. (You can also put this to the test by using odds comparison sites as your betting site interface.)
For bookmaker’s to remain in business they need to make money from betting over the long term.
To make money from betting over the long term, it’s necessary to:
- Be lucky, and use a huge one-off win to fund a cautious, systematic betting approach.
- Have access to more information about participants in the sporting event than other bettors.
- Use numbers and probability to make sure that the odds are in your favour.
The first two points are relevant to bookmakers. There are "nightmare" results for bookmakers where say an outsider wins, which could be classed as bad "luck". Also bookies do employ specialist odds setters whose in depth knowledge about a particular sport it is hoped give them the edge over punters. However, it is numbers and a grasp of probability that allow bookies to profit from betting.
The key example of this is the bookmaker’s over-round (also known as "vigorish", "vig" or "juice"), which is the margin they build into their odds to ensure they make a profit on an event. Here is a definition of over-round, which provides a very simple example to illustrate the underlying concepts.
To reflect the combined probabilities of the various outcomes in an event, the odds for each outcome when converted to a percentage should total 100%. For example, if the event was the toss of a coin, the probability of a head or a tail is 50%; the probability of either a head or a tail being tossed is 100%. To reflect the probabilities in this event, the odds offered when laying either heads or tails should be 2.0. When these odds are converted to a percentage and added together the total is 100% (100/2.0 + 100/2.0 = 100). This is known as a "round" book. By adjusting the odds so that the total exceeds 100%, it is possible to build a profit margin into the prices offered, which, assuming an equal number of layers for either outcome, guarantees a profit not matter what the outcome. The amount by which the prices exceed 100% is called the over-round. For example, if heads or tails was layed at 1.9 rather than 2.0, the book over-round would be 5% (100/1.9 + 100/1.9 = 105). Assuming both heads and tails are each backed with a stake of £10, £1 is guaranteed (£20 taken with a total payout of £19).
For a more real world example of an over-round, here follows an over-round from a sample race card taken from the Racing Post.
|Horse||Fractional odds||Equivalent decimal odds||Percentage|
|Gran Canaria Queen||20/1||21.00||4.76|
|Another Wise Kid||16/1||17.00||5.88|
One rule of thumb to bear in mind with over-rounds is that the larger the race the larger the total over-round will be. You can use an online over-round calculator to check this. Just type in the selections and the odds and the calculator will show you the total over-round.
The fact that a margin was built into bookie’s odds was one of the initial differentiating benefits that betting exchange marketing highlighted. Not only were prices better value on exchanges because of the lack of over-round, but to replicate one lay bet on an exchange would mean placing multiple bets on a bookie, each with a built-in profit margin to overcome. Whether this is still as true now, with the transparency that odds comparison sites bring, is something you can investigate on oddschecker and the like.
However, the fundamental point is that to be successful in betting over the long term, you need the odds to be wrong in your favour. With an over-round, you are giving the bookies a head start.