Odds & The Pursuit Of Value

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Finding the winner of an event is really only half the battle when having a bet, writes RTÉ Sport's Barry McEneaney. Unless punters obtain value in their betting activity, long-term profit is almost certainly unachievable.

Percentages, Odds & Prices

A basic grasp of odds and percentages is vital to understanding how betting markets work. The individual participants in any event, or 'book', make up a percentage of 100%. The chance any participant has can be converted from percentage to odds form and back again very quickly, and is an integral part of successful gambling in the long term.

The easiest example to use involves an event with two outcomes, although the principle is the same regardless of the number of competitors or outcomes in any fixed field. I used the term 'fixed field' because sometimes that number is unknown, the best example of this being antepost markets for events that evolve over time.

Roger Federer is playing Novak Djokovic at Wimbledon. You believe Federer has an 80% chance of winning, while Djokovic has a 20% chance of coming out on top. To arrive at the true odds divide each of the percentages into 100 (which is the total percentage of all outcomes). Federer's figure is 1.25, while Djokovic's is 5.0.

Both these figures are expressed as decimal odds, which users of betting exchanges will be well acquainted with. Bookmakers still express their prices using fractional odds (although many offer the decimal odds option online), but the decimal option has many advantages.

The most important point to remember when working in decimal odds is that the unit stake is always included (1), so every price must be bigger than 1. These decimal odds represent the potential return from every bet. The bigger the number, the bigger the return.

If we use a €100 stake in the Federer v Djokovic example, we see that €100 x 1.25 = €125 for the return on the Federer, while €100 x 5 = €500 for the return on Djokovic.

Unlike decimal odds, fractional odds express the profit and not the return. Djokovic's 5.0 becomes 4 when the unit stake (1) is taken away. Expressed as a fraction, a fraction 4.0 is 4/1 and a €100 bet at 4-1 earns a profit of €400. The payout, which obviously includes the stake, totals €500 which is the same return from the decimal example.

Federer's 1.25 becomes 0.25 when the unit stake (1) is taken away. Expressed as a fraction, 0.25 is 1/4 and a €100 bet at 1-4 earns a profit of €25. The payout, which includes the stake, totals €125 which is the also same return from the decimal example.

The example used fractional odds (1/4 and 4/1) where profit can be calculated instantly. But many don't want to calculate what the profit on a 15-8 or 2-11 shot is.

With a new generation of gamblers embracing exchanges and the growth of sports betting to the detriment of horse racing's market share, it's easy to envisage a time in the not too distant future when fractional odds will be replaced permanently by their decimal equivalent.

The Federer v Djokovic example used represented the true odds of a 100% book. In any sporting bet these odds can only ever be approximated, and are by their very nature subjective, as the factors influencing the outcome are too great and variable to assign an exact value or weight to, unlike cases involving a dice or a deck of cards.

Bookmakers never bet to 100% (bar the very occasional PR stunt for a high-profile event). And why would they? They need to bet over the 100% threshold to ensure a margin that provides them with profit and allows them room to make adjustments to manage their risk.

Our tennis match was an example of a head-to-head market with only two possible outcomes (factoring out retirement). In such markets, bookmakers generally bet to 106-109%. That margin explains why blindly betting on hunches or fancies will result in losses in the long run.

Bookies margins are influenced by a number of factors including the number of possible outcomes (eg runners in a horse race), the amount of information available on the event, live TV coverage, the volume of trade anticipated and the perceived integrity of the product.

This explains why the margins in a live Premier League match are so low and why margins in a mid-table end of season non-league game are so big.

Bookmakers also manipulate the odds to create a favourite/outsider bias whereby they lengthen the price of the favourite and contract the price of the outsider in an attempt to diffuse and limit liabilities. They are more concerned by what the punter considers the true odds to be than what the odds actually are. This is one of the main reasons why outsiders can be backed at much bigger prices on the exchanges - the medium is often a more accurate reflection of the chances of outsiders. Conversely, bookies can rival exchanges on favourites on a frequent basis.

Value Betting

Profit and loss. The difference between the two in the long run is often marginal and it's imperative that bets placed represent value.

Punters often describe something as a 'certainty' or 'worth a bet', others have 'no chance' according to the uninformed. Everything has a chance. Only a tiny percentage of horses in the betfair pre-race market go off at the ceiling price off 1000 (999-1) and I've never seen one start at the basement price of 1.01 (1-100). When you hear a mug remark that a 50-1 shot has no chance, remember that its chance of winning is around 2% and not 0%.

If you believe you have analysed a race correctly, one of the best ways of obtaining value is to act as a bookmaker yourself and price up that race. The guide prices you come up with for the event are often referred to in the trade as a tissue. Once you've allotted a percentage to each runner you can convert to traditional prices and compare them with the professionals' prices. If the 4-1 shot you fancied is trading at 6-4 the recommendation has to be no bet, or even a lay. But if your relatively unconsidered 16-1 selection is available at 40-1 then you have to bet it because it represents value. Both these examples are exaggerated, and if the discrepancy between prices is this big either the bookmaker, or the punter has got it wrong. But often the true price will be somewhere in between, which will still leave room to exploit a false price. Contrary to popular opinion, tissues aren't to be sneezed at. Sorry about that. I really am.

Implementing this price-sensitive approach requires incredible discipline, but the ability to resist backing the selection you believe will win under the odds, allied to the capacity to punt the long-shot you know is trading to big, should prove profitable in the long term.

Odds comparison websites such as Oddschecker.com are important weapons in the punter's armoury. They compare prices between all the layers in a simple grid format and highlight the best odds available. The importance of obtaining that top price can't be underestimated as it can make the difference between ending up in the red or the black. All other factors pale into insignificance. Price is always paramount.

Dare to be different. You need to be an iconoclast to survive in the betting jungle. The idea that you're betting against a bookmaker is a fallacy. You're betting against other punters. The original prices may be fixed by an individual or a small group of individuals, but the markets evolve until an equilibrium is reached. That equilibrium is established by the betting market and all those in it, namely the punters and the bookmaker acts as a broker to a greater or lesser extent. The image of a bookie taking a stand and laying a position to the hilt is a relic of the past thanks to the role played by computer software in creating a book and the more rarefied business environment in which bookmakers exist. No CEO is going to stand before his shareholders and explain away their paltry dividend with the line, 'we thought he wouldn't stay'.

Very often a victory isn't as good as it seems, just as a defeat isn't as bad as it first appears. If you explore this area you can develop an edge. The more comprehensive the victory or the defeat, the bigger the advantage you can cultivate. If something is too good or too bad to be true it probably is. Finding out why is the key.

If you resist the temptation to take form at face value opportunities to exploit the herd mentality will arise on a weekly, or even daily basis.

Did the winner's main rivals underperform? Does the runner have a preference for left-handed or right-handed tracks? Does your selection perform better on a speed track or is a stiff course required? Is your horse a good weight carrier? Will he perform better humping a big weight in a low-class race or a lighter one in a higher class race? How much improvement can be expected from your horse's first run over hurdles/fences (pay particular attention to runner that run good races having pulled hard)? Is the trainer in or out of form. The list of questions you could and should ask yourself is almost endless.

Whenever a strong consensus has been formed, oppose it. Betting has a strong ethnocentric bias, with Ireland and Britain the big players in Europe. The patriotic punt more often than not represents bad value.

The England soccer team are one of the most overbet sides in the world of sport and are towards the head of the market for almost every tournament they qualify for. Currently a clear third in the betting for the 2010 World Cup, every four years we're subjected to the same tripe. 'Football's coming home,' the masses cry. Only it doesn't. The trophy and the gamble always go west.

The ability to access information before your rivals is key. Those who follow a Premier League side will struggle to develop an edge in a market saturated by media coverage, but those who shun the bright lights and brave the depths of the Airtricity League can forge a rich seam.

If the system or edge you possess starts to become popular, you're in trouble. The big prices dry up and the value becomes non-existent as the market reacts to the new consensus.