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Calculating The Bookmaker's Margin: Why Bets Lose More On Average Than You Are Warned

Author

Listed:
  • Hegarty, Tadgh
  • Whelan, Karl

Abstract

If betting markets are efficient, then the expected loss rate on all bets on a game can be calculated from the quoted odds. Guides to sports betting tell bettors how to do this calculation of the predicted average loss rate. We show that if bookmakers set higher profit margins for bets with lower probabilities of winning (as implied by the evidence on favorite-longshot bias) then average loss rates across all bets will be higher than predicted by this widely-recommended calculation. We provide evidence from betting on soccer and tennis to illustrate that average realized loss rates on bets are consistently higher than predicted by the conventional calculation.

Suggested Citation

  • Hegarty, Tadgh & Whelan, Karl, 2023. "Calculating The Bookmaker's Margin: Why Bets Lose More On Average Than You Are Warned," CEPR Discussion Papers 17948, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17948
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    Cited by:

    1. is not listed on IDEAS
    2. David Winkelmann & Marius Ötting & Christian Deutscher & Tomasz Makarewicz, 2024. "Are Betting Markets Inefficient? Evidence From Simulations and Real Data," Journal of Sports Economics, , vol. 25(1), pages 54-97, January.
    3. Hegarty, Tadgh & Whelan, Karl, 2025. "Forecasting soccer matches with betting odds: A tale of two markets," International Journal of Forecasting, Elsevier, vol. 41(2), pages 803-820.
    4. Kai Fischer & W. Benedikt Schmal, 2025. "Pricing in response to new information: The case of betting markets," Economic Inquiry, Western Economic Association International, vol. 63(1), pages 236-264, January.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • Z20 - Other Special Topics - - Sports Economics - - - General

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