Bookmakers are traditionally known as turf accountants which probably describes their role better. They take money on a number of different outcomes in an event and then pay money out to those who predicted the result of the event correctly whilst keep a little edge for themselves.
The video below shows, in the most simple form, how this edge is applied
The aim of a turf accountant would be to balance their book so that a profit is made whatever the outcome of the event. In order to achieve this, they will attempt to offer odds which are less than the real probabilities of an event taking place.
The result would be a book which is over-round. This means that they will offer odds which exceed the combined probability in an event. In other words, bookies odds will add up to more than 100%.
How Bookmakers Use Odds
If the bookmaker offered odds of say 6/5 on each outcome, then the book would favour the punter.
The punter could have £50 on heads and 50 on tails to be guaranteed a return whatever the result.
Bookmakers are far too clever to let this happen with the odds they quote, but by comparing odds of different bookmakers, these situations can often arise.
How do Bookies Set Odds?
Bookmakers don't have it that easy. They don't just set the prices on the toss of a coin!
Because they take bets on sporting fixtures for which the outcomes are difficult to predict, they need to work hard at getting those odds correct.
The major bookmakers employ a team of odds compilers to set their prices.
A horse racing odds compiler may have a number of contacts or helpers ranging from private handicappers and form experts to gallop watchers at various stables.
Once they have analysed all the information available, they will set about converting this into the percentage chances of each runner winning the race.
The odds compilers will work to certain profit margins or over-rounds.
They may decide that they want to make £10 for every £110 they take and set their over-round on that market at 110%.
To build this into the odds they take their calculation of each runner's chances and shorten some or all of their odds. Bookmakers are often criticised by punters for making the over-round too high. In other words, making it too difficult for the punter.
To help to set their odds, bookmakers may apply factors such as which selections are likely to receive the most support.
A popular trainer or jockeys' runner may be well supported even at low odds. There might be a dark horse in the race from a known gambling stable and the odds compiler might want to be particularly careful about getting stung!
Some firms are well known for being the first to price up events and they may make their odds available at this stage.
Bookmakers and the Betting Market
Others might be more cautious and look at other bookmaker's odds first so they can go 'longer' on selections they don't fancy and they want to 'lay' and shorter on selections they might feel strongly about.
They may also consult the betting exchanges to see what selections are being supported.
It's the different opinions of the odds compilers which cause the different prices you see on odds comparison charts such as ValueChecker.
The odds will usually be fairly similar from bookie to bookie but will vary slightly depending on their opinion, existing liabilities and other factors.
How Bookmakers Approach Different Events
Davidg3907 shared some information on the OLBG forum about how bookies approach pricing up horse races and how their approach can differ between types of race, with their approach always favouring their own needs:
|"Let's take 2 races of similar field size at the same course, Kempton.
Firstly, the King George on Boxing Day.
Likely field size 6-9. Form etc is well known and bookmakers can be fairly confident pricing up as there will not be a major gamble on anything and a few ( even fairly substantial ) bets will not cause great head scratching with them all rushing to amend their prices.
Secondly, an 8 runner seller or maiden with little or no form and unlikely to be more than a fraction of the money wagered on this race as the previous.
A few grand on a favourite may not disturb the market too much but a similar amount on a 10/1 chance in this race will have much greater impact than in the first example. As a result bookies will tend to build in a higher % to act as a bit of a cushion. This may or may not dwindle closer to the off time when more control of the market is possible."
The Next Step
Once you become more confident with the way bookmakers price up events try pricing up the event yourself before looking at the bookmaker odds.
It will help you pinpoint value bets.
Football fans should find this process fairly easy with only three outcomes to price up whilst horse racing punters will probably find it a little more complicated.
There is a thread in the horse racing forum with a detailed discussion on this called Value Betting & Personal Tissue Pricing and anyone looking to learn more about pricing up a horse race should take a look.