What do we mean by odds, percentages and the overround?

To a betting man, the odds are everything. This may appear obvious but believe me it is often ignored in practice. I suspect this is because our grasp of odds, the implied percentages and our assessment of whether they offer value is somewhat intuitive. But try taking a more analytical approach and you may be surprised at what you find.

Start with the simple match bet between two contestants of equal ability on level terms. Any fool knows they should start at even money, reflecting a 50% chance each. Put up a third equally matched candidate and the odds become 2-1 (33%); a fourth makes it 3-1 (25%) and so on.

Since it is useful to be able to convert odds into percentages and vice versa, try to familiarise yourself with a few key conversions. Tables are available on some betting sites or you can do as I do and memorise a few simple ones plus some of the more common awkward fractions – 6/4 = 40%, 7/2 = 22% etc. Sometimes however I really need to sit down and do it properly. This could be for a number of reasons

It may be that it helps put a price in perspective. Somehow, to me, viewing a 4-1 on shot as only 80% likely to win makes it appear less invincible.

It also helps evaluate percentage swings. Compare for example a price drop from 20-1 to 10-1 with a drop from 6/4 to evens. The former may look more impressive but it is actually much less in percentage terms – approximately 5% as against 10%.

The main reason however is to assess value. Take an event with five equally matched contestants who have a 20% (4-1) chance each. If the market were efficient, the punters logical and the bookmakers altruistic, the odds might stay that way but of course none of these circumstances apply in the real world. For starters, the market would probably not exist without the bookmaker and he will want some margin to cover his costs, risk and a little profit. He can create this by reducing the prices a fraction – say, half a point for each contestant so that they all open at 7/2 (22.2%). The total percentages now add up to 111%. The margin, in this case 11%, is known as the overround. The size varies, mainly according to the type of event, turnover, the degree of risk and the bookmaker’s skill. You might find an overround of something like 50% for The Grand National or as little as 3% for the Boat Race. Try calculating it for yourself in any event you like. It is a first step towards working out the potential value in a bet. If the overround is 10% for example, you could say that any selection you make needs to be at least 10% better than the odds available if there is to be any value in it for you.

One of the best ways of finding value in any event is through the elimination of no-hopers. The trouble with most no-hopers from a betting viewpoint is that they are mostly offered at very long odds (i.e. low percentages) so you have to eliminate a lot of them before you even wipe out the overround, never mind about getting some value for yourself. But supposing you could eliminate one of the five entries in our hypothetical contest? You would be eliminating 22% of the risk. In theory you could back the other four and be guaranteed a small profit whichever won. More likely though, you would take a chance on one of the others knowing that you had a value bet, which you could quantify as a very useful 11%.

With a little bit of practice you get good at spotting value and it turns out to be a lot more common than you might think. A month or so ago a regular PBer, Jan from Norway, pointed out these odds available on Tony Blair’s resignation date:

2006 4-1 (20%) Ladbrokes
2007 2-5 (71.4%) William Hill
2008 20-1 (4.8%) Paddy Power

In fact you could probably have eliminated 2008 with negligible risk but even without doing so, the prices add up to only 96.2%, shy of the bookmaker’s break-even point by 3.8%. OK, the effect is created by combining three different bookies. Individually they would not have been betting below 100%, or ‘overbroke’, as it is known. But from the punter’s point of view it matters not a jot. If you placed your bets pro-rata to the odds on offer, you had to win.

Now that’s what I call value.

Peter Smith (aka Peter the Punter) writes occasional articles on betting matters