While mathematically the total probabilities of all participants in an event must be 100%, it is ideal for a bookmaker to price up a "book" (adding total percentages) to over 100%, incorporating the bookmaker's overround, or vigorish or sportsbook juice, thus its profit margin.
To calculate the bookmaker's overround, convert the odds of all participants in the event to percentages and then add them together.
Using as example a soccer game:
Home Win: 1.80
Away Win: 4.50
(100 / 1.80) + (100 / 3.30) + (100 / 4.50) = 108.08
An overround closer to 100% traduces in better value of the odds for the punters. Furthermore, a bookmaker must set odds, and therefore form opinions on, a whole range of sporting events, while a punter can concentrate on identifying the good prices on few events. If, in your opinion, the bookmaker is offering odds that you believe to be longer than the true odds, you have found what we refer to as a Value Bet. Value bets are one of the ways to beat the bookmakers in the long term.
Because sporting events are never conducted under the same conditions, the true odds (odds based on the statistical probability) are always a matter of opinion. The idea is to find odds that are way off the mark with the true probability, after taking into account the bookmaker's overround.
To calculate the payout for the same soccer game:
----------------------------------------- = 0.925
1 / 1.80 + 1 / 3.30 + 1 / 4.50
As shown in the calculation above, the payout percentage is 92.5% or 0.925, meaning that the bookmaker has a profit margin of 7.5% for a balanced "book".
- To determine the bookmaker's probability estimations use the formula: Payout% / Odds
- The bookmaker's probability estimation of the Home Win is: 0.925 / 1.80 = 0.5139 or 51.39%
- The bookmaker's probability estimation of the Draw is: 0.925 / 3.30 = 0.2804 or 28.04%
- The bookmaker's probability estimation of the Away Win is: 0.925 / 4.50 = 0.2056 or 20.56%