Explored – The Maths Behind Odds and Implied Probabilities
Posted by Harry Kane on Friday, May 31, 2024
The global sports betting market is currently worth around $45.43 billion, while it’s poised to showcase a CAGR of 7.47% over the course of the next five years. So, by 2029, it will be worth an impressive $65.14 billion, with this largely influenced by double-digit growth in the fast-expanding US marketplace.
You can bet virtually on your favourite sports and wagering lines, but before you do, it’s important that you understand the functionality of odds and the maths that underpin them. So, how exactly do sports betting odds work online, and how can they be used to calculate the implied probability of a particular event?
Getting Started – What are Sports Betting Odds?
When sportsbooks set odds for individual betting lines and outcomes, they do so by using a surprisingly technological approach. In fact, they collate historical data (pertaining to form, team and player performance) and analyse this using advanced algorithms. This helps them to understanding how likely each potential match or tournament outcome is.
Bookmakers then apply a vigorish or ‘vig’, which equates to a nominal commission and is usually around 5%. This applies to each betting line and helps to ensure that sportsbooks are able to secure a viable profit. It’s this that also creates a house edge on each betting line, and you must take steps to overcome this if you’re to maximise the return on your bankroll.
When you wager on these odds, you’re effectively laying a back bet on a specific outcome occurring. The bookie will then lay this wager at the exact same odds, which means that they’re backing the same outcome not to occur. You can also lay your own back bet with a free wager at a betting exchange, with this particular strategy referred to as ‘matched betting’.
If your bet is successful, the operator will pay out at the published odds. If not, the wager will be lost along with your initial stake. This is the fundamental transaction and wager that takes place when engaging in sports betting, and it’s the odds that play a key role in incentivising punters, dictating returns and influencing picks.
The Maths Behind Sports Betting – How Odds Imply the Probability of Specific Outcomes Occurring
Not only are odds calculated using algorithms and capable of dictating how much you’ll win in relation to your stake, but they also imply the probability of specific outcomes occurring. This enables you to determine precisely how likely a specific outcome is in clear statistical terms.
There’s even a dedicated equation to help you calculate implied probability: (1/ decimal odds) * 100 = implied probability.
For example, let’s say that Spaniard Carlos Alcaraz is priced at around 3.00 to win the US Open later in 2024. In this instance, you’ll divide 1 by 3.00 and multiply this by 100, revealing a 33.33% probability of the four-time Grand Slam winner adding to his haul. This is a competitive value given the number of competitors in the US Open and may encourage you to wager on the current French Open and Wimbledon Championship.
Understanding the implied probability of the outcomes that you wager on is key. After all, this helps you to make more informed selections in real-time, while enabling you to set the optimal stake and tread the fine line between risk and reward too. This is particularly important if you don’t operate a flat betting strategy, and instead use methods like the Kelly Criterion to adjust your stake from one wager to another.
Using Implied Probability to Identify Value Bets
When you bet online, some sportsbooks have in-built features and algorithms that enable you to create predetermined rules and parameters pertaining to your wagers. From here, prospective bets are automatically executed when such conditions are met, although this relies on you setting effective criteria and having in-depth knowledge of specific sports and markets.
You can also manually use implied probability values to identify so-called “value bets”. But what does this mean? Well, value bets occur when the implied probability values don’t necessarily reflect the true nature of a particular sporting event or the listed outcomes. More specifically, you may find that a team or player is more likely to win than the odds suggest, allowing you to more easily pursue enhanced returns.
Unearthing and actioning value bets can be highly effective, although it’s rare to find such opportunities online. However, you can increase your chances by betting on alternative sportsbooks using different accounts. There’s also another formula in play here, which combines odds and implied probability values to inform your selections. This reads as follows: Value = (Odds * Odds) – 1
If the resulting value in a specific instance is greater than zero, you have unlocked a ‘value’ bet in which the implied probability values don’t necessarily reflect the true nature of a particular sporting event. In this case, you may be able to leverage more favourable odds to optimise your returns without compromising your chances of winning.
The maths here is clear and easy to calculate, while there are overt rules and guidelines that can help you to identify the highest value bets. Once again, comprehending and analysing implied probability values is key here, especially if you want to maximise the short, medium and long-term impact of this strategy.
In Summary
So, there you have it: a brief guide to the maths that underpin sports betting odds and their implied probability values. By following these rules and applying them to your sports betting strategy, you can improve your selections and set optimal unit bet values at all times!