Being a Bookmaker

I will use a dice in an effort to explain value and how a book or market is created and re-balanced according to the fluctuations in betting patterns.

A standard dice obviously has six numbers so when you roll that dice there would be one chance of any one given number coming up to every five chances of it not which relates to the fact that 5-1 would be the equivalent of fair odds. Fair odds are where you will make no profit by backing all six numbers but lose no money ie if you say backed one pound on all six sides of the dice to come up as at the 5-1 on offer you would have bet six pounds and whichever number wins you would receive your one pound stake back on the winning number plus your five pounds profit meaning you would have neither won nor lost on the deal.

That was the simple part now we get to the tricky part fair odds are calculated to be a 100% market but a bookmaker contrary to popular belief does not care which number comes up as he or she will have formed his or her book or market at over 100% and assuming he can get his market to balance he will make a profit no matter which number comes up.

Hence using the example of six numbers at the fair odds of 5-1 each number has 16.666% chance of coming up which forms the market at 100% this is is simply done by dividing the percentage you are using by the number of options being bet upon ie in this instance 100 divided by 6.

The bookmaker however wants to form the market at about 110% which if he gets it right and balances his book will provide him with a 10% profit on each race or in this case each roll of the dice regardless of which number comes up.

To achieve this we now divide his target market of 110% by six giving us a 18.33% chance of each number coming up which equates to odds of 9-2 (4.5-1) for each number to come up to make things easier I have printed an odds to percentages comparison table which you can access by clicking the highlighted link where you would use the nearest price available to the percentage on offer. Now if you tried backing every number at the advertised odds of 9-2 you will lose and the bookmaker now makes his profit this may seem unfair but not really as his is a business and he takes all the liabilities involved which can be horrendous if he gets it wrong.

The reasoning behind this is that not everything is a simple as rolling the dice and not everyone bets the same amount on each horse or side of the dice. As an example of this supposing you were the bookmaker and the first four bets placed were £2 on number six and £1 on numbers 1, 2 and 3 this means your liabilities or losses would be higher on number 6 and lower on numbers 4 and 5. hence you would have to rebalance your book by adjusting the prices to try and attract more money to be placed on numbers 4 and 5 and less on number 6.

So let us start by leaving numbers 1,2 and 3 at 9-2 which as we no is 18.18% which we times by three to obtain 54.54% our target percentage is 110% minus 54.54% leaves us with 55.46% to use up between the remaining numbers. As we wish to avoid taking any further bets on number 6 we will shorten him to half the odds of numbers 1,2 and 3 which were 9-2 so we now have him priced up at 9-4 which by using the odds to percentages table works out at 30.77% deduct this percentage from the 55.46% we had left between the two remaining numbers of which neither have taken any bets leaves us with 12.345% for each number which again when you reference the aforementioned table works out at 7-1.

So from a starting position of 9-2 for all six numbers you now have a rebalanced book of number 6 at 9-4 numbers 1,2 and 3 are still at 9-2 and we have numbers 4 and 5 at 7-1. Now ask yourself which number would you back in the second round of betting I am hoping here you have said either number 4 or 5 at the now generous price of 7-1 which if everyone starts to do you can then balance your book again to obtain a profit.

As you can see from the above example a bookmakers life can be a complicated affair and a risky one especially if it does not go to plan but you rarely see a bookmaker on a bike.