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 Bookmakers Explained

Making a book is the process of creating prices for the possible outcomes of an event, most often a sporting event but can be anything with defined results. People who do this are known as bookmakers.

For a bookie to make a living they must be able to evaluate the true odds of an event. This means understanding, experience and having good sound calculation ability. If a bookie is unable to do this the smart gamblers will pick on him until he changes or fails completely.

Having worked out just how likely the possible results are, say for instance horses winning a particular race, the bookie will then take a few points from every horse's odds. Further more if there are any horses fancied for sentimental reasons then they will have their odds shortened still further.

Example Horse Race
Horse True Odds Shortened Odds Sentiment Odds
#1 2-1 7-4 7-4
#2 3-1 5-2 5-2
#3 4-1 7-2 3-1
#4 6-1 11-2 9-2
#5 20-1 16-1 16-1
#6 50-1 33-1 25-1
Bookie edge % -0.7% +11.4% +17.8%

The hope of the bookie is to get money bet on all the horses so that which ever horse wins, the amount paid out is less than the total of money bet on all the horses. If this happens then the bookmaker will be guaranteed a profit no matter what happens. This situation of evenly distributed betting does not occur often but if the bookmaker continually takes bets on horses at lower odds than the true ones, then a profit is inevitable.

The key thing for a bookmaker is never to take on a large liability on a particular result such that if that thing happens they will be unable to pay out. To take on such a liability would be akin to gambling against the result. Big bookmakers resolve all of these problems by having hundreds or thousands of shops taking small bets that even out the book.

Having said that bookies want a balanced book, this is generally not the case at big race meetings or big football matches. Because of competition offering a choice of prices bookmakers still need to take volumes of money in bets and will often try and 'get the favourite beat'. This means offering good prices on the favourite so as to take a good amount of trade, or bets. Obviously this will cause big swings in results but this is inevitable with stiff competition.

Prime examples of this happening are the big festivals like Cheltenham and Ascot and football tournaments like the European Championships. These events will make a good year or bad year for even the biggest bookmaker.
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