Betting Odds : Not That Odd?

 BY CHINMAY NARANG

As we already know, investing your money in any avenue comes with an element of risk. Betting, too, does not fall far from this statement. Betting and Investing checks almost all of the same boxes when it comes to risk and return. The only difference remaining is of transparency of things. While winning a bet totally depends upon happening of an outcome, making gains on an investment can depend upon a number of factors. Bookmakers offer different odds for different events which determine the rate of return. These odds basically reflect the likelihood of happening of those events. That likelihood then tells us how much we could potentially win if that particular outcome were to happen. These odds are generally expressed as either fraction, decimals or whole numbers. Out of all, decimal odds (aka European odds) is the most commonly used method. A higher odd means a higher pay-out and higher risk (low Probability of the outcome happening). Whereas a lower odd means a lower pay-out and lower risk (High Probability of the outcome happening). For example, if odds of an event taking place are 1.45 and the same event not taking place are 2.50, it means there is a high probability in favour of the event taking place. Further, there is a 45% return related to happening of the event and 150% return related to not happening of that event. One can say it seems like an easy way to get rich quick with that kind of returns. But in reality, it is quite the opposite. Firstly, and mainly because the downside of making such bets is losing your whole capital. Let’s be real here, the number of billionaires who made their fortune by betting till date stands at 0. Risking all your capital for similar amount gains, if anything, is more of a get poor quick scheme. Secondly, and arguably, the house always wins. Gamblers mistakenly believe that a sportsbook’s only goal is to create equal action on each side of a bet. Mostly they would guarantee themselves profits when their cut is factored in. The cut of the house is always present in the equation. Hidden, but present. Let us take an example of a coin toss. A simple, plain and fair coin toss would render a probability of 50% chance of winning for either of the 2 sides. This should ideally make the odds for choosing either sides equal to 2 (i.e. 100% capital of the losing side in the pocket of the winning side). But in reality, that is not the case. A Bookmaker generally takes a cut (often known as juice) from the both sides. Hence, bookmaker would offer the odds of (say) 1.8 to both of the sides where 0.2 accruing from both parties will be his own profit. Moreover, bookmakers are some of the world’s most-knowledgeable people when it comes to sports. They excel at analysing given information for any matchup and crafting sharp lines. Of course, oddsmakers are not trying to predict who will win. Instead, they devise the odds in such a way where a person is monetarily incentivized to put more money on a bet for which the chances of getting favourable outcome is far less.

So the next time when you think you just won a bet, think again.