How do bookmakers set odds, and what is the overround?
With a book of 120%, a bookmaker can take £120 in bets and pay out at most £100, whoever wins.
A bookmaker sets odds by starting with the chances it thinks each outcome has, then shaving the price so that all the prices together promise more than 100%. That extra slice is called the , and it is the bookmaker's built-in profit.
Here is how it works. In a football match with three outcomes, home win, draw and away win, imagine the fair odds are evens, 2-1 and 5-1. Turn each into an implied probability (what the price suggests about the chances): 50%, 33 and a third percent, and 16 and two thirds percent. Add the up and you get a total "book" of 100%, a fair book. A bookmaker strives to accept bets in the right proportions in order to make a profit regardless of which outcome prevails, and to get there it adjusts the true odds downward. The shortened prices might be 4-6, 6-4 and 4-1, which imply 60%, 40% and 20%. Now the book is 120%.
Implied probabilities in the football example
| Fair odds | Bookmaker's odds | |
|---|---|---|
| Home win | 50% | 60% |
| Draw | 33.3% | 40% |
| Away win | 16.7% | 20% |
| Total (the book) | 100% | 120% |
The amount by which the book exceeds 100% is known as the , bookmaker margin or , and it represents the bookmaker's expected profit. In the example, if bets arrive in the right proportions, total stakes received are £120 with a maximum payout of £100 whatever the result. The bookmaker keeps £20 without having to know who wins.
This is why bookmakers do not generally attempt to make money from the bets themselves. They act as , profiting from the event regardless of the outcome. When one big bet comes in, they can the risk by buying bets from other bookmakers. Their approach resembles that of an balancing financial outcomes for the insurance industry.
The margin is not fixed. A study of six large bookmakers found the average margin in the Premier League fell from 9% to 4% between the 2005/06 and 2017/18 seasons.
Try it
How much of the stakes the bookmaker pays back
y = 1x + 0
Challenge · In the lesson's example, £120 of stakes meets a £100 payout. Lower the share until £120 of stakes pays out £100: what share of the stakes comes back?
Quiz me
0/3
Recap
Add up the implied probabilities: whatever they total above 100% is what the bookmaker charges.
💡 A trick to remember it · A fair book is a full glass of 100; the bookmaker pours 120 and keeps the foam on top.
Surprising fact · With a 120% book, £120 of stakes can meet a maximum payout of just £100 whatever the result.
Sources (2)
No source, no claim. Every fact in this lesson (13 claims) cites at least one of these.