How Do Betting Odds Work?
It is crucial that bettors understand how betting odds work in order to prevent potentially costly mistakes caused by misinterpreting those odds. In this guide, we will provide a clear explanation of betting odds, their different formats, how to interpret odds and how to use them to place bets.
What Are Betting Odds?
Betting odds are a way sportsbooks use to represent the likelihood of an event turning out in a particular way. Betting odds also determine how much you could potentially win. If you're wondering how do odds work in betting, read on.
If a team is considered likely to win, the odds of them doing so will be lower. For example, 1/10. In that case, you would need to bet £10 in order to win £1. If, on the other hand, a team is considered an underdog, the odds might be reversed. For example, 10/1. In which case, you would win £10 for every £1 you wager.
Bookmakers use betting odds to set prices that 1) reflect the probability of an outcome and 2) ensure a profit for them no matter the outcome. For bettors, the odds indicate the likely outcome so that they can make an informed wager.
How Are Betting Odds Calculated?
Betting odds are the result of careful calculation on behalf of the bookmaker. Here is a step-by-step guide illustrating the process bookmakers typically use to calculate odds.
Step 1: Estimating the probability of a given outcome
Bookmakers typically use statistics, historical data, the injury situation and betting market trends to calculate the odds on a gambling platform.
Step 2: Converting probabilities into odds
Once they determine the probability of an outcome, the bookmaker converts that into one of the standard odds formats (fractional, decimal and moneyline). The formula is expressed like this: odds = 1/probability. The result of this formula is the true odds, devoid of profit margins.
Step 3: Adding the bookmaker's margin
In order to ensure they make a profit on each bet the bookmaker increases the implied probability a bit until it exceeds 100%.
Step 4: Convert Adjusted Probabilities into Final Odds
Because circumstances change in the leadup to a given event, bookmakers are constantly adjusting the odds to reflect the new reality.
Example of How and Why Betting Odds May Shift Prior to an Event
Here are some reasons why and how the odds might change in the leadup to the Kentucky Derby. We'll use a fictional horse named "Chained Lightning" and baseline odds of 10/1. These reasons should help answer the question "How do sports betting odds work?"
Reason 1: Chained Lightning starts attracting money
A lot of people suddenly start betting on Chained Lightning to win in the days leading up to the Derby. In order to protect their margins, bookmakers lower the odds, let's say to 7/1.
Reason 2: New information emerges
If, in the lead up to the big race, new information emerges on Chained Lightning (like he's looked strong during the week) or a strong competitor is scratched, the odds on Chained Lightning may drop to 6/1, 5/1 or even lower.
Reason 3: Changing track conditions
If the forecast calls for rain on Derby day and Chained Lightning is a mudder, it could significantly improve his chances of winning, particularly if the favourites struggle in mud. So again, what were 10/1 odds may be adjusted down to 7/1 or 5/1 or lower.
Reason 4: A change of jockey
If the owner of Chained Lightning replaces the so-so regular jockey with a proven winner, that would likely cause money to pour in on Chained Lightning pushing the odds down.
Understanding Betting Odds: Odds vs. Probability
Probability is the mathematical likelihood of a given event outcome, typically expressed as a percentage. For instance, there is a 10% chance of golfer X making the cut at The Open Championship.
Odds, on the other hand, compare the probability of golfer X making the cut with the probability he will not make the cut. So, odds of 1/10 mean there is a 1 chance in 10 that golfer X will make the cut.
How to Read Betting Odds
Here is a primer on how to read odds in the different formats.
Fractional Odds
Fractional odds - favoured in the UK - of 5/1 mean that for every £1 you wager, you would win £5. If the fractional odds are 1/5, it means you would need to wager £5 in order to win £1.
Decimal Odds
Decimal odds, used widely in Europe, express your total return based upon a £1 wager. So if the decimal odds are 5.00, you can expect to win £5 on a £1 bet.
Moneyline Odds
Moneyline odds are used extensively in the US. If you want to know how to read odds though, you need to understand moneyline odds. If the moneyline is +500, it means a £100 bet would net you £500. If, on the other hand, the moneyline odds are -500, it means you would need to bet £500 to win £100.
Betting Odds Formats Explained Further
Bookmakers use 3 different ways to express odds. They are the fractional method (British), the decimal method (European) and the moneyline method (American).
Fractional Odds Explained
Fractional odds - common in the UK and Ireland - are 2-sided. The left side represents potential winnings while the right side represents your stake.
Fractional betting odds explained using examples
If the fractional odds are 5/1, then a £1 wager would yield a £5 win. If the fractional odds are 1/5, that means a £5 wager would only yield a £1 win.
If the fractional odds are 4/3, then a £3 bet would yield a £4 win. Flipping those odds (3/4) indicates a £4 bet would yield a £3 return.
And if the fractional odds are 1/4, that indicates a £4 wager yields only a £1 win, while 4/1 indicates a £1 bet would yield a £4 win.
Decimal Odds Explained
Decimal odds - commonly used in Europe - are the simplest type of odds when it comes to indicating potential payouts. The number displayed indicates how much you could win with a successful £1 bet.
Decimal betting odds explained using examples
If the decimal betting odds are 1.50, it indicates you would win £1.50 for every pound wagered. If the decimal odds are 3.00 it means you would win £3 for every £1 you wagered. And so on…
Moneyline Odds Explained
Moneyline odds are mainly used in the US. A negative moneyline number indicates how much you need to bet to win £100. While a positive number indicates how much you could win if you wagered £100.
Moneyline betting odds explained using examples
If, for example, the moneyline is 150, that means a £100 bet will pay out £150. If the moneyline is -300, you would need to bet £300 to win £100.
Converting Between Betting Odds Formats
Not every betting site uses the same odds format. You may even find variations in format within a single sportsbook. Therefore, it pays to know how to convert odds from one of the primary formats to another.
| Fractional | Decimal | Moneyline | Implied Probability |
|---|---|---|---|
| 1/1 | 2.00 | 100 | 50% |
| 1/2 | 1.50 | -200 | 66.7% |
| 2/1 | 3.00 | 200 | 33.3% |
| 7/2 | 4.50 | 350 | 22.2% |
| 1/5 | 1.20 | -500 | 83.3% |
| 4/1 | 5.00 | 400 | 20% |
How Do Odds Work: Converting Odds
Fractional Odds to Decimal Odds
Convert fractional odds to decimal odds by dividing the numerator (the 1st number) by the denominator (the 2nd number). Example: If the fractional odds are 6/5, divide 5 into 6 and you will get 1.20. Those are the decimal odds.
Decimal Odds to Fractional Odds
Sometimes, converting decimal odds to fractional odds is simple: For example: if the decimal odds are 5.0 subtract 1 to get your fractional odds: 4.1. In other cases, the conversion is not straightforward.
For instance, if the decimal odds are 3.5, subtract 1 and you're left with 2.5/1. Unfortunately, betting sites will not use fractional odds containing decimal points. In such cases, the resulting numerator and denominator (2.5/1) are multiplied by 2, resulting in fractional odds of 5/2.
Moneyline Odds to Decimal Odds
To convert positive moneyline odds to decimal odds, divide the moneyline odds by 100, then add 1 to the result. Example: divide moneyline odds of 300 by 100 to get 3.00, and then add 1. The decimal odds are 4.00.
To convert negative moneyline odds to decimal odds, ignore the negative symbol and divide 100 by the remaining number. Example: if the moneyline odds are -130, drop the "-" and divide 130 into 100 to get 0.76. Then add 1. The decimal odds are 1.76.
Decimal Odds to Moneyline Odds
Convert decimal odds to moneyline odds by subtracting 1 from the decimal odds and multiplying the result by 100. For example: for decimal odds of 3.00 subtract 1 to get 2.00, then multiply by 100 to get the moneyline odds of 200.
Moneyline Odds to Decimal Odds
To convert moneyline odds to decimal odds, divide the moneyline odds by 100 and add 1. Example: if the moneyline odds are 250, divide 250 by 100 to get 2.50, then add 1. The decimal odds are 3.50.
Common Betting Odds Examples
The number of different odds associated with betting markets is staggering. But there are some that appear more often than others. Let's discuss some of them.
- What do 1 to 2 odds mean: 1/2 odds indicates the choice is a favourite with a 66.7% chance of winning, so the bookmaker is protecting their margins. As such, you would need to bet £2 just to win £1.
- What do 3 to 1 odds mean: These odds mean the selection is not a favourite but could pull out a win under certain circumstances. The probability of a win is 25%, and you will win £3 for every pound wagered.
- What do 10 to 1 odds mean: 10 to 1 odds mean the bookmaker is willing to risk offering a £10 payout for every £1 wagered. In this case, the win probability is 9.01%.
- What do 20 to 1 odds mean: 20/1 odds indicate a major underdog with virtually no chance of winning. But if you do win, you will collect £20 for every £1 you wager. Implied probability of winning here is just 4.8%.
- What do 7 to 1 odds mean: This means the selection is, again, an underdog. With the implied probability of winning at 12.5%, betting on this selection is risky but could lead to a generous payday where you would receive £7 for every pound wagered.
- What do 8 to 5 odds mean: 8/5 odds mean the selection is only a slight underdog. Changing circumstances might even push them into the favourite category before game or post-time. The implied probability of winning is 38.5%, and a win will yield £8 for every £5 wagered.
Important Considerations When Betting
Before you place a bet with a sportsbook, it's important that you research the odds they offer to see how they compare with other sportsbooks. It's also in your interest to analyse the line on a particular market to see if it's moved and if so, how much. You also want to make sure the bookmaker holds a valid UKGC gambling license and to check out their UKGC page to see if they have been sanctioned recently and for what reasons.
Summary: How Do Odds Work in Betting?
How do betting odds work? Betting odds are the result of the bookmaker researching each market, calculating the true odds for that market and then increasing the implied probability to ensure they make a profit. Keep in mind that there are different types of betting odds (fractional, decimal and moneyline) and that odds can change right up to game time or post time.