The margin is inside the price

Frame 01Every price contains a margin

Decimal odds are a multiplier: stake times the price is what is returned if the selection wins. That multiplier can be turned into a probability by taking one divided by the price. A price of 2.00 implies a 50% chance. A price of 4.00 implies 25%. Do that for every outcome in a market and add the results, and you will find the total is above 100%. The amount above 100% is the margin the operator expects to retain.

That is the whole mechanism, and it applies to every gambling product in existence. What differs between products is only the size of the margin and how often a stake passes through it. In a generated event the margin is applied to a fresh set of prices every few seconds, which is why the frequency matters at least as much as the headline percentage.

Frame 02Reading an overround in one minute

The arithmetic is small enough to do in your head with a calculator. Take the decimal price of each outcome in a market. Divide 1 by each price. Add the results. If the total is above 1 (that is, above 100%), the difference is the margin. If a market totals 1.05, the margin is roughly five points, and across a balanced book the operator expects to return about 95% of what is staked.

1. 1Write down the decimal price of every outcome in the market.
2. 2Divide 1 by each price to get its implied probability.
3. 3Add the implied probabilities together.
4. 4Subtract 1 from the total. The remainder is the margin, as a share of the money in play.
5. 5Compare markets by that number rather than by how friendly a single price looks.

Frame 03Why short favourites and long outsiders are structural

Because the engine makes some outcomes common and others rare, a market has to price a wide field unevenly. The favourite carries a short price and the outsiders carry long ones. A temptation that survives from real sport is to read a long price as an opportunity, on the theory that a rare outcome, if it happens, pays well. It does pay well, and it happens rarely, by design — the engine that makes it rare is the same engine that makes the price long.

That is not the same as saying every long price is bad value, which would be an overstatement. It is saying that the shape of the market is set by the distribution rather than by anybody judgement, so the long price and the low probability are two descriptions of the same fact. The margin is applied across that shape, not corrected by it.

• Short favourite
• Wide field
• Long outsider
• Margin across the book
• Implied probability adds up

Frame 04What a price can and cannot tell you

A price can tell you the probability the operator has attached to an outcome, and by subtraction from 100% it can tell you roughly how much margin the whole market carries. What it cannot tell you is that any individual selection is good value, because value is a comparison between a price and a true probability, and on a generated event the true probability is the engine distribution, which the operator prices against directly.

So the honest use of a price here is descriptive rather than predictive. Convert it, understand the cut, and treat the number of cycles per hour as the real cost multiplier. A player who does that is not being told they cannot enjoy the product; they are simply being told what the product is, which is the only thing a page like this can honestly offer.

• Convert, do not guess Turn each price into an implied probability rather than judging it by its size.
• Add before you decide The sum of implied probabilities is the only reliable read on the operator cut in a market.
• Count the cycles The margin applies per settled market, so the schedule matters as much as the price.
• Expect no edge from research On a generated event there is no information a player can hold that the operator does not.