Understanding The Overround Beting Market Lessons by Niall O'Connor

Understanding the Overround (The Betting Market's Pricing Mechanism).
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Understanding the Overround
In a five horse race, a bookmaker may choose to price up each horse at odds of 4/1 (5.0). In such a scenario, were he to take an equal amount of money on each runner, he would break even, as each horse would have a 20% chance of winning. In that the five runners have combined implied "probabilities" of winning of 100%, we are dealing with a "round" book.
Horse Odds Percent 5.0 A 20 B 5.0 20 C 5.0 20 D 5.0 20 E 5.0 20 over-round 100
If however, he were to price up each runner at 3/1 (4.0), the implied probabilty of each runner winning will change to 25% from 20%. If he were again to take an equal amount on each runner, he would receive five units and pay out four. The profitable extra unit amounts to 25% and 25% x 5 = 125%. His book would be 25% "over-round".
Horse A B C
Odds Percent 4.0 25 4.0 25 4.0 25
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D 4.0 E 4.0 over-round -
25 25 125
The over-round (Vigorish, or simply "vig", or "juice") is what gives the bookmaker his profit, his sun tan and his cigars. If the over-round is 120% the bookmaker will expect to pay out 100 pounds for every 12o pounds he takes in, yielding him an expected profit of 20/120 = 16.7%. Our first example below, focuses on the 2006 Coral Eclipse Stakes, a Group One race run at Sandown Park on July 8 2006. We compare the over-round on Betfair, the world's leading betting exchange with that available with two of the main traditional bookmakers, Ladbrokes and William Hill. It can be seen that in every instance the price on offer on Betfair is better compared with the two traditional bookmakers. No surprise, therefore, to see that the over-round on Betfair is 107.6 (including 5% commission) compared with an over-round of 118.1 at Ladbrokes. Particular attention should be paid to the three outsiders in the betting market, where it can be seen that the prices being offered up on the Betfair exchange are significantly better than those available with the traditional bookmakers. This reflects the fact that betting exchanges tend to provide the punter with a better estimation as to the chance of longshots compared with traditional bookmakers. Evidence of this fact is also supplied in our other examples below on the 2007 November Handicap and the 2007 Paddy Power Chase.
Coral Eclipse Stakes
Teams Ouija Board David Junior Aussie Rules Notnowcato Blue Monday Snoqualmie Bay Notable Guest Hattan
Betfair William Hill Ladbrokes 3.10 2.50 2.62 3.30 3.25 3.00 7.20 6.50 6.00 11.5 10.0 11.0 11.0 10.0 11.0 23.0 21.0 17.0 38.0 26.0 26.0 100.0 67.0 67.0
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Royal Alchemist 300.0 Over-Round 107.6
251.0 116.6
201.0 118.1
In the world of football betting over-rounds of anything between 101% and 125% may be still seen. Our analysis of outright betting on the 2006 World Cup revealed that Betfair's book on the top twelve teams in the betting market was betting to an over-round of 100.92 against an average over-round of 112 elsewhere.
World Cup 2006
Teams Svenskaspel William Hill Ladbrokes Betfair Brasil 3.50 3.25 3.50 3.85 England 9.0 7.0 8.0 8.6 Germany 9.0 9.0 8.0 9.8 Argentina 7.50 9.9 9.0 10.0 Italy 9.00 9.0 9.0 12.0 France 13.0 15.0 13.0 14.5 Holland 12.0 13.0 13.0 18.0 Spain 15.0 15.0 15.0 18.5 Portugal 20.0 23.0 23.0 27.0 Czechs 30.0 34.0 26.0 40.0 Sweden 30.0 41.0 41.0 42.0 Croatia 75.0 67.0 51.0 110.0 Mexico 50.0 51.0 41.0 60.0 Over-Round 112.9 111.6 112.9 100.92
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Prices were downloaded from the respective websites at 23.00 on 05/06/06. The Betfair over-round includes the 5% top-rate commission charge. Were we to have used Betfair's average commission charge of 3% the market would actually have been betting to 98.92. Our analysis of the World Cup Final and the third place play off match between Germany and Portugal highlights the extent to which the leading betting exchange Betsson offers the punter value compared with the prices on offer from the German monopolist betting provider Oddset. A common feature in recent times has seen the development of a trend in cross betting exchange arbitrage, as shrewd punters take a price on Betfair and seek to lay it off on the Betsson exchange.
Germany vs Portugal
Bookmakers * Germany Draw Portugal Over-Round(%) Oddset 1.65 2.90 3.75 120.4 Betsson 1.82 3.65 5.00 102.4 Betfair 1.86 3.70 5.10 100.4
Italy vs France
Bookmakers * Italy Draw France Over-Round(%) Oddset 2.30 2.60 2.60 121.8 Betsson 2.66 2.90 3.45 101.1 Betfair 2.68 2.90 3.50 100.4
Monopoly rights have led to the Scandinavian betting market becoming distorted, such that punters in the Scandic countries are being openly ripped off. The worst culprit is the Swedish monopolist operator Svenska Spel, which consistently bets to an over-round of 125% on football matches. Our first example, concerns the fixed odds betting being offered on the Germany vs Italy 2006 World Cup semi final match.
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The Swedish monoply provider Svenska Spel offered consumers the least value on the match, trading to an astonishing over-round of 125% (compared with an over-round of 104.4% on the Swedish leaning betting exchange Betsson. Foreign companies are prevented from competing in the Swedish betting market. In June, for example, Sweden's Gaming board reported the editors of four Swedish newspapers and magazines (Expressen, Metro, Slitz and Spray) to the police for publishing adverts from foreign gambling companies.
Germany vs Italy
Bookmakers * Germany Draw Italy Over-Round(%) Svenska Spel 2.15 2.25 2.95 124.9 Norsk Tipping 2.25 2.65 2.85 117.8 Veikkaus 2.10 2.80 3.30 113.7
A further analysis of the fixed odds betting being offered on the Portugal vs France World Cup 2006 semi-final match, sadly, reveals a similar picture. The table below, which highlights the prices available on the match at 11.00 CET on the 05 July 2006, reveals that once more the Swedish monoply provider Svenska Spel offers its consumers the least value on the match, trading to a typical over-round of 125% (against a best-price over-round on the betting exchanges of 101.5%).
Portugal vs France
Bookmakers * Portugal Draw France Over-Round(%) Svenska Spel 3.45 2.25 1.95 124.7 Norsk Tipping 3.25 2.70 2.00 117.6 Veikkaus 3.85 2.85 1.90 113.7
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The disgrace of the Irish Horseracing betting market
In the UK, the profit margin built into starting prices fell from 2.07 per cent per runner in September 2000 to 1.45 per cent per runner in September 2006. To some extent this can be attributed to Betfair, which curtailed the ability of the big bookmarkers' to manipulate starting prices, through blowing money back into the on-course market. Then, there were the odds-checking sites such as Oddschecker, which placed the big bookmakers on the same footing as numerous small entrants, and served to put pressure on industry margins by making prices more visible and encouraging a greater intensity of competition. Despite the arrival of internet betting and the betting exchanges, the same situation has not been mirrored in Ireland, where the over-round per runner continues to operate at well over two per cent. In the 2:25 at Clonmel, run on 1 November, the Powerstown Desmene Handicap Hurdle, the over-round per runner was 3.38. The 18 runner race was run by the VP Donoghue trained Jamie's Boy at 10/1. The favourite was Asian Royale trading at 7/1, with the outsider of the field, Deep Spell, trading at 33/1. In the www.punchestown.com Handicap Hurdle (4yo+,81-116), run over 2m run at Punchestown on 31 October, the over-round per runner was 2.73. The 15 runner race was won by the Willie Mullins trained Viso at 6/1, with the biggest price on offer being shared by three horses at 25/1. In the 4:15 at Down Royal, run on 2 November, the Archie Watson Memorial INH Flat Race (4-7yo), over 2m, the over-round per runner was 3.0. The eleven runner race was won by the Even money favourite Chateau D'eau. The outsider of the field Mr Forgetful, traded at 50/1, and finished a distance last. In the 12:45 BetChronicle.com Fillies Maiden (2yo), run over 1m, at Leopardstown on 3 November, the over-round per runner was an astonishing 3.81! The field comprised of eleven runners. The race was won by the heavily backed favourite Simawa, returned at 11/10. The outsider of the field Zennu traded at 66/1. Six of the eleven runner field traded at 8/1 or less. Whilst Irish bookmakers have managed to convey an image of being great risk takers, the truth is, that the huge over-rounds pertaining on almost every horse race run in Ireland, characterise them as being infinitely risk averse. They seemingly spend their entire time shielding against real or imagined insiders, who they believe to be better informed than they are. The existence of such uncompetitive offerings, would, one would imagine, drive bettors towards the betting exchnages in their numbers, but strangely, this has not been the case to date. It would seem that the informed insiders are happy to play in betting markets exhibiting huge over-rounds, rather than reveal their hands on the betting exchanges. Accordingly, it is the punters in the Irish betting shops who suffer; many of whom know no better than to bet at SP.
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An interesting aspect of the Irish betting market over the past eight years, has been the reluctance of bookmakers to embrace online betting; a fear of margin depletion being the most likely reason. Cashmans of Cork, one of the most high profile Irish bookmakers, shows no sign of making the leap online. Sean Graham came online and then went back off again. Eastwoods remain offline. Terry Rogers recently entered the fray, and Hacketts are coming back online, having dipped their toes in the water some time ago. BetChronicle now also have an online presence. The betting exchanges Betdaq and Betfair both operate in the Irish betting market. The extent to which Irish punters are being ripped off when it comes to betting on horse racing, has been one of the great untold stories of recent times. Until now, something akin to a conspiracy of silence has reigned. Everybody knows the shocking over-rounds in operation in the Irish betting market, but everybody just puts up with it for fear of rattling the boat. Even Betfair and Betdaq seem somewhat reluctant to capitalise upon the issue. And as for the irish journalists..... In the tables below we look at four recent horse race meetings in Ireland. In the first table we look at the over-round per race. In Table two we break this down further and look at the key metric over-round per runner.
Table One:Over-round per race Race First Second Third Fourth Fifth Sixth Seven Average Punchestown 119 151 137 140 143 142 136 137.2 Clonmel 139 146 161 128 148 131 151 143.4 DownRoyal 139 146 131 117 132 133 133 133 Leopardstown 149 142 131 150 116 148 163 142.7
Prices were taken from the Punchestown meeting held on Wednesday 31 October 2007. Clonmel prices were from the meeting on 1 November 2007. The prices for Down Royal were collected from the meeting there on 02 November 2007. The prices for Leopardstown were collected from the meeting there held on 03 November 2007.
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Table Two - Over-round per runner
Race First Second Third Fourth Fifth Sixth Seven Average
Punchestown 2.11 2.31 2.31 2.73 2.38 1.95 1.95 2.24
Clonmel 2.30 2.70 3.38 2.33 2.66 2.58 2.83 2.68
DownRoyal 2.05 2.30 2.82 2.42 2.66 2.75 3.00 2.57
Leopardstown 2.88 3.21 2.21 2.38 2.28 2.18 2.86 2.66
Prices were taken from the Punchestown meeting held on Wednesday 31 October 2007. Clonmel prices were from the meeting on 1 November 2007. The prices for Down Royal were collected from the meeting there on 02 November 2007. The prices for Leopardstown were collected from the meeting there held on 03 November 2007.
The case of Betfair
In the table below we look at the November Handicap run at Doncaster on November 10 2007, and compare the official SP with the "Betfair SP". The horses are listed in market order and not order of finish. The first thing to note is that the SP over-round on Betfair, including commission, totalled 108.5 against an official SP over-round of 127.9.
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It is notable that not in one instance did the offical starting price returned on each runner, beat the "Betfair SP". On only one occasion, the case of Lundys Lane, did the official SP match the "Betfair SP". The biggest discrepancy of all, can be seen with regard to the six outsiders in the field. Taking the six runners collectively, we get an average over-round per runner on Betfair of 0.74, compared with an official over-round per runner of 1.48.
Table One:Betfair SP vs Official SP
# Horse Betfair SP Official SP 1 Pippa Greene 5.7 5.5 2 Malt or Mash 6.6 6.0 3 Sanbuch 7.6 7.50 4 Heaven Knows 8.8 7.50 5 Tropical Strait 15.5 13.0 6 New Guinea 17.5 17.0 7 Heron Bay 21 15.0 8 Bandama 24 17.0 9 Dzesmin 25 17.0 10 Philantrophy 29 17.0 11 Akarem 34 21.0 12 Rampallion 34 26.0 13 Inchloch 36 26.0 14 John Terry 36 23 15 Lundys Lane 34 34 16 La Estrella 75 51 17 Night Crescendo 95 51 18 Chicken Soup 120 51 19 Turn of Phrase 200 101
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20 Realism 21 Bazart 22 Over-round
220 410 108.5
101 101 127.9
In the table above we look at the November Handicap run at Doncaster on November 10 2007,The "Betfair SP" was the final price available to back from within the last minute before the event closed. The Betfair over-round includes the average commission paid on Betfair of 3%.
Paddy Power Chase Cheltenham November 17
# Horse 1 Granit Jack 2 Lantartique 3 Vodka Bleu 4 Copsale Lad 5 Knowhere 6 Private Be 7 Bob Hall 8 Crozan 9 Idole First 10 Ponmeoth 11 Three Mirrors 12 Palarshan 13 Il Duce
Betfair SP Official SP 4.2 4.0 8.4 7.50 11.5 9.0 11.5 9.0 13.0 11.0 15.0 13.0 16.5 12.0 16.5 13.0 20 17.0 27 21.0 28 17.0 44 26.0 50 34.0
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14 Ballyagran 46 15 Black Hills 60 16 Patman Du Charmil 66 17 Bambi de L'Orme 80 18 Kings Brook 120 19 Too Forward 150 20 Billyvoddan 170 22 Over-round 107.8
34 34 67 51 67 67 67 130.0
In the table above we look at the Paddy Power Gold Cup Chase run at Cheltenham on November 17 2007,The "Betfair SP" was the final price available to back from within the last minute before the event closed. The Betfair over-round includes the average commission paid on Betfair of 3%.
Odds and Probabilities

Amidst the hype currently surrounding the prediction market industry, some commentators have called for betting exchanges like Betfair and TradeSports to translate their odds into probabilities. Behind this call, one suspects, lies the common error of misinterpreting bookmaker and betting exchange odds as win probabilities. In practice, bookmakers and betting exchange odds do not sum upto one. The sum of the odds is called the over-round and the sum exceeding one reflects the bookmaker's/market maker's margin. Let us look at one of the markets most favoured by the prediction market advocates - The 2008 US Presidential Elction Democratic Candidate market. Betfair's market on this event is currently trading as follows;
Candidate Hilary Clinton Barack
Current Odds 1.55 2.86
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Obama Al Gore John Edwards Others Over-Round 70.0 110.0 1000 103.2
To go along with the odds into probabilities camp, we have in the table below translated the current odds straight into probabilities. Surprise, surprise, the odds do not sum upto one! This is because there is "excess probability" whenever a book is over-round.
Candidate Probabilities Hilary Clinton Barack Obama Al Gore John Edwards Others Total 0.6451 0.3496 0.0142 0.0090 0.014 1.0319
In order to obtain normalized fair probabilities, we must return to the over-round. We saw that the market on Betfair was trading to an over-round of 103.2. The task that we now face is how to allocate the excess probabilty across our range of prices so as to obtain normalized fair probabilities. To achieve this, we must divide each of the probabilities in the table above by 1.032 This leads us to obtain the following probabilities.
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Candidate Probabilities Hilary Clinton Barack Obama Al Gore John Edwards Others Total 0.6250 0.3387 0.0137 0.0087 0.0135 1.000
Of course, in the case of Trade Sports and Betfair, the situation is complicated further, by the fact that market commissions should actually be factored into the over-round. In the case of Betfair, commission rates vary from between 2% and 5%. Any attempt to translate odds into probabilities, would of course, have to take into account the commission rates faced by each individual trader. The small matter of the favourite longshot bias also raises problems when one is attempting to obtain normalized fair probabilities.
Calculating the Over-Round

Decimal odds are quoted as a positive number greater than 1. It represents the number of pounds returned if the bet wins, including the initial stake. Hence, a one pound bet at decimal odds of 2.0 would return two pounds to the bettor; the one pound initial stake plus one pound in winnings. Decimal odds of 6.0 imply that if a one pound bet were to win, six pounds would be returned to the bettor; the one pound initial stake, plus five pounds in winnings. Fractional style odds, which are still the most common used by traditional bookmakers in the UK and Ireland, are quoted as a fraction, and again indicate the amount that would be paid out relative to a given stake. Fractional odds of 1/2 infer that a winning bet would pay out one pound for every two pound risked, whilst fractional odds of 3/1 imply that the bet would pay out three pounds for every one pound risked. Under fractional style odds, an even odds bet is quoted as 1/1. To calculate the over-round we utilise the implied probabilities, expressed as percentages (%) in the table below. Let's take the example of Betfair's betting market on the African Nation Cup match between Ivory Coast and Guinea, played on 3 February 2008.
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Ivory Coast vs Guinea
Outcomes Ivory Coast Draw Guinea Over-Round
Implied Decimal Fractional Probabaility Odds Odds (%) 1.50 3.75 10.0 104 1/2 11/4 9/1 104 67% 27% 10% 104
Odds as Fractions and Probabilities
Fractional Decimal % Fractional Decimal % 1/10 1.10 91 11/8 2.37 42 1/9 1.111 90 6/4 2.50 40 1/8 1.125 89 13/8 2.265 38 2/15 1.133 88 7/4 2.75 36 1/7 1.140 88 15/8 2.875 35 2/13 1.154 87 2/1 3.0 33 1/6 1.166 86 9/4 3.25 31 2/11 1.182 85 5/2 3.50 29 1/5 1.20 83 11/4 3.75 27 2/9 1.222 82 3/1 4.0 25 1/4 1.25 80 13/4 4.25 24
Fractional Decimal % 16/1 17.0 6 20/1 21.0 5 25/1 26.0 4 30/1 31.0 3 33/1 34.0 3 40/1 41.0 2 50/1 51.0 2 60/1 61.0 2 66/1 67.0 2 80/1 81.0 1 100/1 101.0 1
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2/7 4/13 1/3 4/11 2/5 4/9 1/2 8/15 4/7 8/13 4/6 8/11 4/5 9/10 EVENS 10/9 5/4
1.285 1.30 1.33 1.364 1.40 1.444 1.50 1.533 1.571 1.615 1.66 1.73 1.80 1.90 2.00 2.11 2.25
78 7/2 76 15/4 75 4/1 73 9/2 71 5/1 69 11/2 67 6/1 65 13/2 64 7/1 62 15/2 60 8/1 57 9/1 56 10/1 53 11/1 50 12/1 47 14/1 44 15/1
4.50 4.75 5.0 5.50 6.00 6.50 7.0 7.50 8.0 8.50 9.00 10 11.0 12.0 13.0 15.00 16.0
22 125/1 21 140/1 20 160/1 18 200/1 17 250/1 15 330/1 14 400/1 13 500/1 13 660/1 12 1000/1 11 5000/1 10.0 7500/1 9 10000/1 8 50000/1 8 7 6
126.0 141.0 161.0 201.0 251.0 331.0 401.0 501.0 661.0 1000.1 5001.0 7501 10001 50001 -
1 1 1 100/1
To cite this article: Niall O'Connor "Beting Market Lessons No 1: Understanding the Overround." (All Rights Reserved).
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