Preventing Losses
In order to achieve this he has to artificially lower the coefficient for the favourite. The bookmaker does not know in advance how the bets will be spread, but the thing he knows for sure is that the players will put the ‘load’ on the favourite; therefore, he exaggerates the favourite’s chance to win to stay on the safe side. Here two kinds of options are possible: either raise the win probability, so that it would turn out to be a greater percentage than that of the bets on the favourite, or make the win probability smaller on the contrary. Let us assume that the bookmaker has decided to place the following coefficients:
Then, having the same distribution of bet amounts we get:
As we can see, here the bookmaker is left with a profit irrespective of the outcome of the match! In case the favourite’s wins and losses are distributed ‘as planned’, it will constitute $138 225, in case of the worst scenario (100 wins by the favourite out of 100) – $115 000, whilst the best outcome (100 losses out of 100) will result in $170 000 out of every million the players bet!
Hedging the Outcomes
Now let us examine what happens in case the favourite’s win probability percentagewise has still turned out to be smaller than the corresponding bet share. Say, it looks like this:
What profit distribution of the bookmaker do we face in such a case keeping bet proportions the same?
As we can infer from the table, an outcome with the bookmaker’s loss has emerged. That is exactly why bookmakers ALWAYS prefer overvaluing the favourite over undervaluing, not even based on his real chances, but based on the coefficient distribution that the players set by their bets, who always bet more on the favourite than they really should judging by the realistic probability of his win. Coefficients and probabilities corresponding to the bet proportions used in our example, adding the profit margin, should have looked like this:
It does not matter how the teams’ chances are really spread, the bookmaker still gets a profit of 6.25% of all the money the players have bet. So, at the end of the day the most important thing to know is how the players are going to distribute their bets!
In reality, neither realistic chances, nor player means’ distribution can be calculated exactly, there will always be an error factor. Therefore, as it has been said already, bookmakers try to lower the coefficients on the favourite initially, in order to guarantee profit for themselves, i.e. determine the teams’ chances and add to the calculated favourite’s win probability an extra 15-20%. Then, when the bets start piling up, they play with coefficients judging by their current real distribution in order to maximize profit.
