How to Understand Probability
16 May 2019
Probability is relatively easy to understand. The probability is the chances of something happening. But, it becomes more complicated with regards implied probability in sports betting and how to understand value bets and using this to your advantage.
As mentioned, probability is the chance of something happening or an outcome from a certain event. It is usually shown as a percentage, with bookmakers converting this percentage into betting odds for sporting events.
Lets take a coin toss to highlight our point of what probability is. A coin has two sides, heads and tails, and there’s a 50% chance of the coin landing on either when tossed. So, the implied probability is that if you tossed that coin 100 times it would land on heads fifty times and tails the other fifty.
Implied Probability in Sports Betting
Bookmakers will never offer a 100% fair market, otherwise they will never make a profit. If they offered even money on heads and even money on tails for the aforementioned coin toss, they would pay out the exact amount as they took in stake money.
So, a bookmaker will add a margin to ensure an overall profit.
Just by changing the odds slightly to say 5/6, the bookmaker ensures they will make a profit regardless of the outcome of the coin toss. Because, if ten people bet £10 they take an overall stake of £100. If five people bet heads and five people bet tails, only five people are going to win. At odds of 5/6, the payout will be £18.33 including returned stake. So, overall, the bookmaker will pay out £91.65. This means they make a profit of £8.35 every time the coin is tossed.
In terms of probability, odds of 5/6 is 54.64% which is a total of 109.28. This gives the bookmaker a margin of 9.28%, thus ensuring a profit for every bet.
Using Probability to Find Value
Many people believe that the art of sports betting is to simply correctly predict who will win a sporting event, but they’re only half right. Predicting the correct outcome of an event may give you a winning bet but it still may not give you a profit, and your predictions will not be right 100% of the time.
Lets take a look at it in terms of hit rate, or strike rate. Someone may have a strike rate of 70%, meaning they win seven out of every ten bets. But, that doesn’t paint the whole picture. What if the odds averaged 2/5 (1.4 in decimal odds)?
The total stake money placed, if betting £10 on each selection, is £100. The returns for each win, at average odds of 2/5, is £14 including the returned stake money. So, total winnings for the seven bets is £98. That’s a £28 profit for the winning selections. But, you also lost £30 on the three losing bets so your overall profit/loss is -£2.
In order to increase your profit potential you must find value in your sports betting.
To do this, you must be able to understand probability enough to work out your own odds and compete with the bookmaker. You also must understand value.
The bookie may give you odds 6/4 (2.5), which means you have a 40% chance of winning and for every £10 you bet you will receive £25 including your stake money. But, if you bet this ten times, you will stake £100 and only win £100 if you do indeed win four times out of the ten. So, you break even. There is no value in this bet whatsoever.
In order to find value, you must create your own odds by researching statistics available to you.
Looking at the odds of a recent football match. The home team were priced at 7/10 (1.7), the away team at 4/1 (5.00) and the draw was 14/5 (3.8). These convert into implied probability of:
• Home win – 58.82%
• Away win – 20%
• Draw – 26.32%
But, lets at the recent form by noting down the home teams last ten results as hosts and the away teams last ten results on the road.
• Home – W 6 D1 L 3
• Away – W1 D5 L4
We can work out probability by adding the home wins to the away losses (6+4), the away wins to the home losses (1+3) and the draws (1+5).
So, we have:
• 6 + 4 = 10, which is 10/20 x 100 = 50%
• 1 + 3 = 4, which is 4/20 x 100 = 20%
• 1 + 5 = 6, which is 6/20 x 100 = 30%
Converting these percentages into odds, by dividing 100 by the total percentage, gives us our own betting odds of:
• Home win – 1/1
• Away win – 4/1
• Draw – There is no actual betting odds for exactly 30%, so we go to the closest. This is decimal of 3.3, fractional of 23/10
A value bet is where the percentage we have worked out is greater than the bookmaker is offering. So, the value bet here is the draw. The bookmaker believes there is a 26.32% chance, when form and our own odds show us there is a 30% chance. This is a 3.68% difference, representing value in the market.
Why it’s Important to Understand Probability
As you can see from what we have said above, understanding probability enables you to work out your long term profit and identify value bets in the market.
Obviously, just finding these value bets doesn’t necessarily mean you will win them all. However, your created odds showing a higher percentage than what’s on offer should mean you making a profit in the long run.
It’s all about identifying the value and having the knowledge to work out if the bet is worth taking a punt on. Sometimes, the variation from the bookmakers implied probability to our own is under or around 1%. In these cases, we would stay well away from betting on the event in question. Look for a decent buffer between percentages, something around 3-5% in order to make the bet worth having.