Understanding betting odds

If you suspect that betting odds are probably saying something you’d find interesting, but you don’t understand what it is, bear with us and we’ll explain it. Let’s imagine a fictional betting market on a TV talent show final with three contestants. The odds are as follows:

1/2 Geraldine McQueen
3/1 R Wayne
7/1 2Up2Down

Suppose you have £1 to bet. If you bet your £1 on Geraldine McQueen at odds of 1/2, you’d get back £1.50 if she wins – that is, your £1 stake back plus a profit of 50p. Your profit is half (1/2) of what you bet.

If you bet your £1 on R Wayne at 3/1, you’d get back £4 if he wins – your £1 stake back plus £3 profit. Your profit is three times (3/1) what you bet. If you bet on 2Up2Down at 7/1, you’d get back £8 – your stake, plus £7 profit.

These are called fractional odds, because they’re expressed as fractions. Sometimes, like on Betfair, you see decimal odds. These are even easier to understand. The same odds would be expressed as follows:

1.5 Geraldine McQueen
4.0 R Wayne
8.0 2Up2Down

Here the numbers represent the total you’d get back for each pound bet: £1.50 for Geraldine McQueen, £4 for R Wayne, £8 for 2Up2Down.

That is, of course, if your bet wins. If it loses, you lose your £1.

Now, what do these odds imply in terms of an act’s chances of winning? They mean that bookmakers and punters collectively think that Geraldine McQueen has a 66.67% chance of winning, that R Wayne has a 25% chance of winning, and that 2Up2Down have a 12.5% chance of winning.

How do we work that out? All betting odds imply a percentage chance of winning – the amount you’d have to bet to get a return of £100.

At odds of 1/2, you’d have to bet £66.67 on Geraldine McQueen to get £100 back (your £66.67 stake, plus £33.33 profit). This tells us that, according to the betting markets, she has a 66.67% chance of winning.

At odds of 3/1, you’d have to bet £25 on R Wayne to get back £100 if he wins (your £25 stake, plus £75 profit). Hence a 25% chance.

At odds of 7/1, you’d have to bet £12.50 on 2Up2Down to get £100 back (your £12.50 stake, plus £87.50 profit).

Understanding these probabilities makes it easier to work out if you think something is a good bet. Suppose you’re 90% sure that Geraldine McQueen is going to win, you’d put R Wayne’s chances at 10%, and you think 2Up2Down have no chance. Then, in your opinion, that would make Geraldine McQueen a “good value” bet and the other two “bad value” bets.

One last thing. You may have worked out that the percentage chances of winning implied by these example odds add up to more than 100%.

That’s the bookmaker’s profit margin. If you want to guarantee getting back £100 on an event whoever wins, then you’ll always have to bet more than £100. In this fictional example you’d have to bet £104.17.

The size of this profit margin varies from event to event, but there’s always a margin. That’s why you have to be significantly smarter (or consistently luckier) than average to make any money from betting.

Now read on to learn how to use betting exchanges, which have given punters a new option for betting.