How Do Online Betting Websites Set Their Odds? Here’s a Guide

Arsenal FC v Borussia Dortmund - UEFA Champions League

Whether you’re a beginner or an occasional punter, you have definitely seen these numbers or fractions on betting websites that they call ‘odds’. Odds are probability-based multipliers that let you determine the winning amounts you stand to gain on your bets.

While it is attractive to bet on outcomes with ‘high odds’ because they may yield the highest returns, that’s a terrible strategy, mostly because higher odds mean the outcome is that much more unlikely, while lower odds mean the outcome is more probable.

Let’s take an example:

You’d like to bet on a football (soccer) match between Manchester United and Arsenal in the English Premier League. You visit a popular betting website and look up the match. You’d like to bet on a simple outcome, say, the final result of the match.

The odds on Manchester United winning are 1.5, the odds on Arsenal winning are 4.5, while the odds on a draw between those two are 3.

Effectively, that means Manchester United winning the match is more likely than Arsenal winning, while the occurrence of a draw is somewhere in the middle.

While that means betting on Arsenal would be a risky bet, it’s not necessarily a losing bet since sports can be unpredictable. In that case, it’s important to know whether you’re getting the most value out of a bet. In order to determine that accurately, you have to understand how online betting websites and bookmakers set odds for every event on their website:

Determining the True Probabilities of All Outcomes of an Event

Prior to publishing a bet on their website, online betting platforms will first determine the true probabilities or odds of all the outcomes of the event, mainly through statistical analysis, historical outcomes, current form, and several other factors. Let’s take the example we took earlier:

Manchester United Wins = 1.5

Arsenal Wins = 4.5

Draw = 3

This means the probability of Manchester United winning is 50%, that of Arsenal winning is 16.67%, and that of a draw occurring is 33.33%. The total of all these probabilities adds up to an even 100%. Such odds are called ‘true odds’.

This is known as a ‘fair book’, and any website offering ‘true odds’ would have to pay out as much as it receives in bets from punters, gaining no profit and incurring no losses. And that’s not how a business works.

How Do Bookmakers Earn a Profit on Their Bets?

This is accomplished through a concept called the ‘vig’ or the ‘house edge’.

What is the house edge?

Let’s take a look at our example again: the betting platform has determined the true probabilities for the match between Manchester United and Arsenal to be 50%, 16.67%, and 33.33%. We already saw this is a fair book, and to gain a profit on these outcomes, the bookmaker would have to adjust the odds ever so slightly downwards. So now, the odds read:

Manchester United Wins = 1.25

Arsenal Wins = 4.25

Draw = 2.75

So, the match plays out according to its true probabilities. However, instead of paying punters 1.5, 4.5, or 3 times their bets, betting websites only have to pay out 1.25, 4.25, or 2.75 times the bets, pocketing 0.25 times the bets as profit. Here, 0.25 is the house edge.

While this is a rough example of how betting works, most online betting sites have fixed house edges that are indicated by percentages. For example, a betting platform with a 5% house edge would reduce the odds by 5% for every single outcome before publishing them.

Knowing this, you can pick out bets with the best value and gain the highest possible returns on your stakes. In the end, the house always wins, but that doesn’t mean you can’t win too.

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