Initial Odds Setting:
Bookmakers start by setting initial odds for each horse or participant in a race. These odds are determined based on a combination of factors, including the perceived abilities of the participants, historical performance, and public opinion.
Monitoring Betting Patterns:
Bookmakers closely monitor betting patterns as wagers are placed. If a significant amount of money is being placed on a particular participant, the bookmaker may adjust the odds for that participant to attract bets on other options......
Odds Adjustment:
Bookmakers adjust the odds dynamically as betting progresses. If a lot of money is being placed on one participant, the odds for that participant will be shortened to make it less attractive to bettors. Conversely, the odds for other participants will be lengthened to attract more bets.
Spread of Liability:
The goal is to spread the bookmaker's liability across all possible outcomes. By adjusting the odds, the bookmaker aims to ensure that, regardless of the race's outcome, they will have taken in more money in total bets than they will have to pay out in winnings.
Balancing the Books:
A well-balanced book means that the bookmaker has laid off enough money on each possible outcome so that, regardless of the result, they make a profit. This is achieved by adjusting the odds and encouraging bets on the less popular options.
Risk Management:
Bookmakers employ risk management strategies to limit their exposure. This may involve limiting the maximum bet a customer can place or using technology and algorithms to detect and manage unusual betting patterns that may indicate insider information or manipulation....
Reacting to Late Bets:
As the race approaches and more information becomes available (e.g., late injuries, changes in track conditions), bookmakers may further adjust the odds to reflect the latest developments and to balance their books.
Building in a Margin:
Bookmakers also factor in a margin to ensure they make a profit. The odds offered by a bookmaker will typically be slightly less favorable than the true probabilities of the outcomes, ensuring the bookmaker makes money over the long run.
In essence, bookmakers use a combination of adjusting odds, monitoring betting patterns, and managing risk to ensure that they create a balanced book. This approach allows them to minimize their exposure to potential losses while maintaining a profitable business model.
Photo: J. Coote (2023)