How are Sports Betting Odds Calculated?

With sports betting being the most popular form of gambling in many corners of the world, it’s only logical to ask about the way bookies calculate the odds. It’s critical for every person betting on sports events to understand this in order to determine whether a certain bet is worth pursuing or not.    

Calculating Betting Odds – Step-by-Step Guide

Sports betting is a $205 billion dollar a year industry (and growing rapidly), so you can be sure the betting odds for any sports event are calculated carefully in order to make a profit regardless of the outcome but still be appealing to punters.

Step 1: Calculating the Betting Tissue

Casinos that specialize in sports betting generally employ a team of elite sports statistics analysts known as “traders” in Europe and “odds compilers” in the US, with different analysts focusing on different sports.

The analysts know absolutely everything about the current state of their sport, from the injuries and “hot streaks” that affect every individual player’s chances to the behind-the-scenes situations that could affect the matchups. They also know everything about the history of the sport, so that they can factor past trends into their knowledge.

Through careful calculation, the traders decide on a percentage chance for each event occurring. This process is known as the “betting tissue”. 

Step 2: Computer Analysis

Every tiny event that takes place in a sports game is recorded in a database, from scoring opportunities to player tendencies to the color of Gatorade poured on the winning coach’s head once the final whistle blows.

And when the traders’ odds are fed into a computer, they are all checked against these ultra-in-depth statistics. The odds will be tweaked just a little in either direction, and the result is what’s known as the “true odds” – the closest possible likelihood that the event in question will actually happen.

Step 3: Setting the Margin

If bookies offered the “true odds” on all of their bets, they would not make any money. So to make bets profitable for bookies, the odd compilers subtract a bit from the odds. The amount deducted is known as “the take”.

For events with a lot of data available that help form the probability, the take is usually fairly low with an average figure of 5-10%. However, when there are fewer data available, as the debut of a new Olympic event, the analysts tend to be more cautious and the take is considerably higher; often 20-25% or more. Because of that, it’s a good idea to bet on very well-established events like football league  matches rather than rarer events like celebrity football matches or prop bets.

Once the margin is set, the money that sports bettors will receive for a winning bet in any situation will be slightly less than what they should receive according to the true odds. This adjusted figure will actually appear as the opening line for the bet.

Step 4: Moving The Line

After the opening line has been set, people are free to bet on the event. Although the amount each person can win is locked in at their time of betting, each bet made will “move the line”. In other words, if lots of people are betting on Norwich City F.C. to win, the bookkeeper in charge of the bet will take that into account and adjust the odds so they are a bit less favorable towards Norwich. This will not affect anybody who has already bet on the Norwich game, but any punters to bet on that game need to incur a bit more risk if they bet on Norwich.

The reason bookmakers move the line is to mitigate their own risk. Ironically, bookies try to make sure they’ll make money no matter what way a bet goes. And that means ensuring their take from each bet will cover the line in either direction.

Bookmakers might also move the line as a result of events that will directly affect the sporting event, such as player injuries or trades. This process remains active until the time of the predetermined “final line”, which is usually at the start of the sporting event.

How to Read Betting Odds

Sports betting bookmakers are not the only ones who need a thorough understanding of betting odds; sports bettors need to be able to read them and know exactly what they mean.

Four Types of Odds

Sports betting sites and bookies express odds in three ways. They all mean the same thing, but you need to be able to read each and convert between them. They are:

Fractional Odds

The most popular way for odds to be expressed, especially in the UK. They tell you, in the fraction form,  the proportion of your bet you will win if your team/athlete is victorious. This can also be viewed as the number after the “/” in the fraction being the amount you need to stake to win the number before the “/.”

For instance, a 120 euro bet on Manchester United with 1/2 odds would win you 60 euros if Manchester was victorious – bet two units of 60, win one unit of 60. If the odds had been 5/2, the win would’ve returned 300 euros plus your original stake – bet two units of 60, win five units of 60.

American Odds

An odds system is also known as “moneyline” is the standard in most American sportsbooks. These odds are written as ‘a +’ or ‘a -’ sign and then a number. If the sign is a +, the number is the amount of money you will win if you stake 100, meaning that the associated team is an underdog. If the sign is a -, the number is the amount you need to stake to win 100, meaning the associated team is a favorite. The higher the number after the sign is, the more of a favorite or more of an underdog the team is.

For example, if you stake 150 euros on VfL Wolfsburg when Wolfsburg’s winning odds are +150 (a 150% return on a winning bet), a win will net you 225 Euros plus your original bet. If Wolfsburg’s odds had been -150, a win on a 150 Euro bet would net you 100 euros plus your original bet.

Decimal Odds

In this system, the odds are expressed as a number that is the multiplier for a winning bet.

For instance, a bet on FC Metz with fractional odds of 2.25 means that a winning bettor will receive their original stake plus another 125% of that if they win, meaning Metz is a slight underdog. A 70 euro bet with 1.50 odds means a winning bettor will walk away with 105 euros, their original bet plus 50%. A fraction below 1 is impossible since that means the bettor would lose money on a winning bet.

Implied Odds

When odds are expressed as a percentage. This system is not very frequently used by any sportsbooks, probably because it looks less flashy than the fractional, American, or decimal odds systems.

It is very important to understand implied odds, though, because converting all your bets into implied odds before you place them helps with bankrolling and can lead to an overall more strategic approach to sports betting. A simple percentage chance of a certain outcome happening is much easier to understand than other types of odds. It is easier for a bettor to decide if their own assessment of the likelihood of a certain outcome is higher or lower than the percentage.

The formula for calculating implied odds is simple:

Initial stake + (initial stake + how much you stand to win). Multiply the result by 100 to convert it into a percentage.

Let’s say that A.C. Milan was playing a game where they were favored to win such that if you bet 50 euros on Milan, you could win 20 euros in addition to your stake. That means the implied odds of Milan winning are 50/(50+20), which equals 0.714. Multiplied by 100, that’s 71.4%. It’s now easy for you to decide whether you think there’s a higher or lower chance than 71.4% of Milan winning.

Odds Payout Chart

The table below lists four odds assigned to bets and how each of those odds can be expressed in fractional odds, American odds, decimal odds, and implied odds.

If you’re interested in sports betting, this info about calculating odds will make things much clearer for you and ensure you have a much more stable position. Although it might appear to be a bit confusing at the beginning, just don’t give up and it will definitely pay off in the end!