Odds and Implied Probability – What Do You Need to Know

Posted by Harry Kane on Friday, July 15, 2022

Whether you’re an avid online casino gambler or a seasoned sports bettor, you’ll know all about odds and how they affect your wagering experience. In fact, odds play a seminal role in all forms of betting, from impacting your choice of wagering markets to determining your potential return in relation to the amount that you stake.

However, determining precisely how odds works is a challenging pastime, albeit one that’s important if you’re to identify genuine value in published prices and negate the house edge boasted by operators.

In this article, we’ll take a look at how odds work and their relationship with ‘implied probability’. The latter point is particularly important, as it reflects the likelihood of a particular outcome (whether this is a casino bet or sports result) and the risk associated with each individual wager.

How Do Odds Work?

Let’s start by taking a closer look at how odds work. To do this, we’ll take a specific example pertaining to the ongoing Champions League, with Serie A side and betting underdogs Inter Milan priced at around 6/1 to win the 2022/23 iteration of the tournament and achieve their first such success in 2010.

In this case, fractional odds of this type describe the ratio that exists between two potential outcomes, namely the Italians to win this season’s UCL and them to fall short of this objective. So, when a sportsbook (the first party) offers a price of 6/1 on Inter Milan prevailing, this suggests that they’re willing to lay six times the amount staked by a bettor (the second party) that this eventuality won’t occur.

So, the traditional ‘back’ bet that you place is automatically countered by the bookmaker’s ‘lay’ wager, and if Inter do win the UCL at their published price of 6/1, the operator will payout at this ratio. If they’re ultimately beaten and don’t win the tournament, your stake will be lost, and the bet will prove unsuccessful.

Understanding Odds and Implied Probability

The ways they are structured is fundamental to how they work, while it should be noted that they’re also calculated in a way that simultaneously reflects the probability of a potential outcome and offers a viable incentive to customers. There’s also a so-called “vig” or vigorish of between 5% and 10% applied by the operator, which is effectively a fee that helps sportsbooks to maintain a profit.

When it comes to the relationship between odds and implied probability, it should also be noted that the former can be used to calculate the latter in real-time. There’s even a dedicated formula to help showcase this, and you can apply this to determine the statistical likelihood of the outcome that you’re betting on. This reads as follows:

Probability (%) = B / (A+B)

In this case, the A / B characters refer to the outcome’s odds, so if we use the previous example of Inter winning the 2022/23 Champions League, the calculation will read ‘1 / (6+1) = 0.14285’. We can then multiply this by a value of 100, meaning that there’s an implied probability of 14.285% that Inter Milan will ultimately succeed in this objective.

Calculating Your Stake and Potential Winnings

Fractional odds are often easier to comprehend and calculate, so even if you’re wagering with a site that uses decimal prices, we’d recommend converting these to provide greater clarity and understanding. You can then also start to calculate your potential winnings and desired stake amount.

Using the aforementioned formula referenced above, we can see that you’ll recoup ‘A’ for the value of every ‘B’ that you stake. So, when applied to Inter Milan’s odds of winning the Champions League, odds of 6/1 mean that an outright wager of £1 will see you win £6 (plus your original stake) if you’re successful.

At this stage, you’ll be able to consider both the implied probability of Inter winning and your potential return on any given stake amount. So, you can begin to tailor your bet to suit the risk-reward ratio in play, while also making allowance for the size of your bankroll and precise rules for managing this.

In general terms, an implied probability of 14.285% isn’t particularly high for an even-money betting market in which there are only four potential winners. So, you can ascertain from this that Inter are relative outsiders to win, with a starting price of 6/1 also reflecting this at first glance.

Because of this, you may want to commit a nominal stake amount when betting on this market, with a view to minimising the risk of loss without overly compromising your potential returns. Conversely, backing Manchester City to win this season’s Champions League at a price of 4/6 introduces an implied probability of 40%, so you should consider increasing your stake to optimise returns.

Such considerations all contribute to informed and generative wagering decisions, which help to identify value in published odds while setting reasonable stake amounts. Given that there’s no fixed way to generate returns when engaging in iGaming and sports betting markets, this strategy at least helps you to minimise the risk of loss on every single wager that you place.

The Last Word

As you can see, there’s a clear methodology behind the cultivation and publication of odds, while this information also showcases the implied probability of a particular outcome and how much you can expect to recoup in relation to your stake amount.

So, it’s crucial that you understand the data and how it impacts on each individual wager and your potential returns, as this will help you to make informed decisions in real-time. In theory,

it also reduces the risk of losing money over time, which should be your primary goal whenever you engage in games or markets of chance.