How odds are created at bookmakers
Initial odds at bookmakers, as far as the time of listing of events is concerned, are set depending on the attractiveness of the match, league and event. Highly popular bets reflect the personal investment of people; in particular, “commercial” favorites often receive significantly higher total bets than the real probability would suggest (we speak of so-called Public Bets). Valuable bets are then often found in the odds of betting on outsiders at a specific time.
As the amount of bets on a specific event increases, bookmakers push their odds closer to the real distribution of probability, naturally reduced by the margins that are included in the odds. This is reflected by the so-called KEY factor, or more specifically its inverse value (1/KEY), for which the odds are offered. In general it holds that the better the bookmaker, the lower the KEY and the higher the “level” (1/KEY); similarly, higher-quality and more popular leagues and sports have lower KEY values. Let us consider a few illustrative examples:
Let say that the bookmaker has a margin of 5% for the given match; in this case, an evenly matched tennis game would have odds of 1.90-1.90 => the above-mentioned statistics are KEY=105.263 and the “level” (1/KEY) = 0.95 (95%). In another example, a coin toss with completely fair odds would have odds 2.00-2.00 and a KEY value of 100. In practice, completely fair odds can be found on sports betting exchanges (with full liquidity), which offer the best odds; however, here too there is a margin in the form of a % from the win, which is paid to the provider and may depend on the quality of the player.
The best bookmakers maintain the lowest KEY in the long term; these have high-quality risk management, use good models for predicting the development of odds, and have attractive limits which grow as the event nears allowing them to prepare the best odds with the lowest margin. Popular matches are offered many days in advance, and their odds are initially determined by statistics, comparing with the competition, and taking into account information such as current form, absences, importance of the match, program of previous and following matches, environmental effects etc. As the event nears, the odds for popular matches are carefully compared to those on sports betting exchanges (Betfair, Betdaq, Matchbook, Smarkets), where also the liquidity of odds for individual popular matches grows up towards the resulting KEY = 100, i.e., 1/KEY = 1.00. In practice this means that an equally matched soccer game will have the odds 3.00-3.00-3.00 with 1-x-2 bets, while an equally matched tennis game will have the odds 2.00-2.00 with 1-2 bets. These are precisely the odds which serve as a kind of guide for other bookmakers and professional sports betters, allowing them to determine when the given odds are fair (“FAIR"), valuable ("VALUE") or undervalued (“UNVALUE”) at a certain time; they can also use these odds in their own analyses, models and bets.
Explanations of these terms are also available in the articles “Tools for betting” and “Betting terms”. We will also take a detailed look on certain specific betting strategies which accept value as it is.