Understanding Over-Round

how to calculate over-round

Bookmakers obsess about something called the over-round, because it’s the thing that guarantees, in the long run, that they will make a profit.

The best way to explain how it works is to think about a two-horse race.

Horse A is the favourite at $1.50. To the average punter, these odds only mean that, if they were to put a winning bet of $10 on the horse, they would make $5 profit. To a bookmaker, though, the $1.50 represents the percentage chance of that horse winning.

Horse B is the second favourite at $3.00.

To calculate the over-round of a market, you must first divide 1 by each price in the market.

For example, using the market explained above, you would divide 1 by 1.5 and divide 1 by 3.

• 1 ÷ 1.5 = 66.67%
• 1 ÷ 3 = 33.33%

To get the final over-round percentage, add all of the percentages. In this example, this is a 100% market.

The example above is what is sometimes called a fair or perfect book, because adding the two percentages up totals 100%.  Or, in betting-speak, the over-round is 100%

In this example, if we assume that the percentage chance is accurate, and punters back each horse proportionate to its chance of winning, although individual punters will win, neither punters as a whole, nor the bookmaker, will win or lose money.

How do bookmakers implement over-round?

Bookmakers need to make money.  So what they do is offer slightly worse odds than the percentage chance says they should.  So in our example, the odds become $1.43 and $2.7.  The table below shows what this does to the percentage figure:

Whenever the over-round is more than 100% (and bookies always make sure it is), the bookmaker knows they will make a profit, as long as punters back each horse in proportion to its chance of winning – meaning, in the example above, that 66.6% of the money is bet on Horse A, with 33.3% bet on Horse B.

1/1.88=0.532
1/1.88=0.532
Total = 106.4%

106.4% head to head market = daylight robbery. https://t.co/1l45Zzy4ss

— Betfair Australia (@Betfair_Aus) March 25, 2020

Balancing the Book

Punters don’t behave exactly as probability suggests they should though, and more of them than expected might back Horse A. In this scenario, the bookmakers will offer lower odds on Horse A and lengthen the odds on Horse B.

Crucially, when changing the odds, the bookmaker will still make sure that a healthy over-round is retained, as this is their mathematical guarantee of profitability – their edge. With the new odds, though, more punters will start backing Horse B, and the bookmaker will balance their book.

If you’ve never stopped to think about it, this is why they’re called book-makers.

Identifying over-round in markets

The 2020 AFL Premiers market is a good example of how high over-rounds can be with bookmakers in comparison to Betfair. On the opening day of the season, major Australian bookmakers have their markets at around 120-125% over-round.

Below is a table highlighting Betfair’s prices and over-round percentage, compared with TAB and Ladbrokes as at 10am on 19 March 2020.

Download the table as an Excel spreadsheet here.

How is Betfair different?

Betfair does not make the book. Punters – backers and layers – offer their own odds on the horses they think will win or lose. As they have opinions on individual horses, rather than the race as a whole, they offer more generous odds than bookies. And if they don’t, someone will jump ahead of them and offer a better price.

As there are lots of punters betting, it creates what economists call a perfect market, which in turn means that the vast majority of races on Betfair operate a near-perfect 100% over-round, meaning better odds for backers, as they are not having to pay the margin added by traditional bookies.

There is a catch, though, as Betfair charges a small commission of between 2.5 and 10 percent on winnings, depending on the sporting code.

However, because that commission is charged on such a low over-round, and it is only charged on winnings, profits returned to punters are often better on Betfair.

Again using the 2020 AFL Premiers market as an example, a $10 bet on GWS on the Exchange at their current odds of $9.20 would return $82 profit if the Giants win the Grand Final. After removing 2.5% commission, the profit would be $79.95.

Comparatively, bookmakers are offering between $7.50 to $8.00 on GWS to win the flag. A $10 bet at odds of $8 would return just $70 profit, highlighting the advantage of betting on the Betfair Exchange.

It’s important to note that not every team, player or horse will be a better price on Betfair, but because of the way the Betfair market is created – with no one building in their own guaranteed profit margin – the vast majority of them will be.

Conclusion

Being able to spot over-rounds, or market percentages, is imperative to success as a punter. It helps you decide when to bet, who to bet with and whether an opportunity exists in the first place.