Thursday, August 8, 2024

# Understanding Odds – A Beginner’s Guide to Sports Betting

Sports betting represents a genuine growth industry in 2023, with global expansion in this marketplace being largely driven by North America.

Here, well in excess of 30 US states have moved to legalise sports betting since the Supreme Court struck down the controversial PAPSA legislation in May 2018, with this having previously prohibited the practice at federal level.

While a significant number of US citizens now have access to various sports betting markets, however, it’s important that you first strive to understand how odds work and the impact that they have on both your selection of markets and potential returns. I’ll explain all of this and more in greater detail below!

## Getting Started – How to Odds Work?

Firstly, I’m going to explore the basic functionality of odds, using the example of betting on Manchester United to win the English FA Cup at an average price of 2/1 (3.00).

If we use fractional odds, we see that these describe the ratio that exists between the two potential outcomes in play, with the knockout nature of the game meaning that either United or City will win on the day. The sportsbook is the first party listed, and a price of 2/1 suggests that it’s willing to lay twice the amount you stake as a punter (the second party) that a United win won’t occur.

In this instance, you’re placing a traditional ‘back’ bet at odds of 2/1, with this automatically countered by the sportsbook’s ‘lay’ bet at the same odds.

So, if United do win and your wager is successful, the sportsbook will pay out at odds of 2/1 while also returning your original stake. However, if City wins and your bet is unsuccessful, your stake money is lost and you’ll bank no return at all.

## How Do Odds Suggest Implied Probability?

This basic odds structure is integral to how sportsbook pricing works, while you can also use fractional odds to calculate decimal alternatives. To do this, you simply need to add the two fractional odds together, which in this case would convert into a decimal price of 3.00 on Manchester United to win the FA Cup.

You should also note that the odds published by sportsbooks include a so-called “vig” or “vigorish”, which translates into a sportsbook transaction fee that’s usually fixed at a flat rate of between 5% and 10%.

However, odds are also calculated in a way that reflects the probability of a particular outcome occurring, so as to offer a viable incentive to customers. This is also represented by a recognised equation, which can be used to identify value in odds and set your stakes accordingly. This reads as follows:

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

If we use the aforementioned example to explain this in context, we see that the ‘A/B’ symbols refer to the outcome’s published odds (or 2/1). So, the calculation in this instance reads ‘1/(2+1) =0.33. If we then multiply this value by 100, we see that there’s an implied probability of 33.33% that Manchester United will win the FA Cup in 2023.

This affords you far greater insight into the published odds and their core value proposition, while helping you to understand how much you should stake on a Man United win at Wembley.

## How to Calculate Your Winnings`

Interestingly, the same formula used to calculate implied probability can also be leveraged to work out your potential returns, with this process much easier when dealing with fractional odds.

For example, fractional odds highlight that you’ll recoup the ‘A’ value for every ‘B’ that you stake. So, when betting on a Manchester United FA Cup final win at odds of 2/1, a nominal wager of £1 will see you earn a £2 return if you’re successful. If you increase your stake amount to £5, you’ll win £10 while recouping your initial stake amount, essentially enabling you to double your money as a punter.

In terms of regulating your stake, it’s important to measure the implied probability value against your potential returns. This helps you to develop a greater understanding of value and the risk-reward balance associated with every single bet, so that you can ultimately commit a stake amount that looks to optimize returns while also minimizing loss.

You should also factor the potential number of outcomes in play before betting. After all, the FA Cup final is contested by just two sides, so an implied probability of 33.33% is competitive but suggests that Man United are the underdogs. However, if you uncover the same implied probability when betting outright and picking from a larger field of competitors, you’re likely to be backing a shorter priced favorite.

Of course, this will also depend on the size of your starting bankroll, but you can work more generally by calculating stake amounts as a percentage of your total bankroll when placing multiple wagers simultaneously.

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