An Introduction To Odds And Value
Imagine that we are acting as bookmakers. You are one of our clients who, for the sake of this illustration, knows nothing of obtaining value in your bets. Now we offer to toss a legitimate coin in the air 100 times, and you will place a £1 bet on each toss. Every time the coin shows heads, we will pay you odds of 4/5 - that's your £1 stake back plus 80p profit. If the coin shows tails then you lose.
Over 100 spins the chances are that heads and tails will show in approximately equal numbers - let's say we show 50 heads and 50 tails over the sequence. You would have staked £100 in total and received back a total of £90 DESPITE HAVING NO LESS THAN FIFTY PERCENT WINNING BETS!
It is vital that you grasp this concept. As bookmakers, we have loaded the true odds in our favour by offering you odds which are less than the actual chance of the event taking place.
A tossed coin can land either heads or tails. Therefore the true odds for a coin showing heads or tails are EVEN or 1/1. By offering you only 4/5 for a successful bet we have ensured that with the normal run of results we will make an average profit of 10p for every bet you place!
But now let us re-run the scenario. This time WE, the 'bookmakers' are in the dark when it comes to the science of calculating odds, and in order to attract people to place their bets with us, we offer 5/4 whenever the coin shows heads. You, as a knowledgeable gambler, realise that the true odds of this happening are 1/1 and thus with the normal run of results you will win an average of 10p for every bet you place with us at odds of 5/4!
You are now bound to win over the medium to long term because you have spotted a VALUE betting opportunity and have taken advantage of it!
This explanation of value may sound simplistic, but it is one of the most powerful and effective tools which a professional gambler has at his disposal. He is free to place his bets only when he spots a value opportunity, thus ensuring long-term success and the generation of wealth.
Let us now imagine a ten runner horse race where, for the sake of argument, each runner has precisely the same chance of winning. The true odds for any horse to win the race are 10 percent, or 9/1. The bookmaker would not offer such true odds. Instead, he will offer say one horse at 5/1, two at 6/1, three at 7/1, three at 8/1 and one horse - the 'outsider' -at 11/1.
Now despite the true odds of any horse winning being 9/1, the bookmaker has ensured himself a profit UNLESS THE 'OUTSIDER' WINS. You, as a professional seeker of value, rush to place your stake on the 11/1 shot, because the odds being offered are greater than the true odds of the horse winning.
Now of course the 11/1 shot may lose. But if you managed to find 100 such races and backed the value 'outsider' each time, then on average you would find ten winners. You would have staked £100 in total and from just ten winners received a return of £110, making a modest £10 profit simply by being able to recognise a value betting opportunity when you see it.
More about odds and the maths of bookmaking can be found here.