Question about betting odds

Factual Questions
1

Hi

I’m trying to understand the logic of “The dramatic drop in odds for Irishman has been attributed to a number of factors;” followed by what look like positive attributes. Why would the odds drop in his favor then? What have I misunderstood here.

I look forward to your feedback.
http://webcache.googleusercontent.com/search?q=cache:aS4dSOt8m9cJ:www.independent.ie/sport/mcgregor-v-mayweather/irish-bookmakers-could-lose-as-much-as-10-million-if-conor-mcgregor-defeats-floyd-mayweather-36065116.html+&cd=9&hl=zh-TW&ct=clnk&gl=hk

Irish bookmakers could lose upwards of €10 million if Conor McGregor defeats Floyd Mayweather in his professional boxing debut in Las Vegas this weekend.

McGregor was first priced by Boylesports at 12/1 before the fight was announced, before moving into 17/2 when the bout was confirmed in June, and is now as low as 7/2.

The dramatic drop in odds for Irishman has been attributed to a number of factors; his sparring sessions with Paulie Malignaggi, his decorated history of delivering on his predictions in the UFC, and the bout’s switch to 8oz gloves, as well as unbridled Irish patriotism.

2

A “drop” in odds means the payoff for a bettor decreases, which implies a higher expectation of winning.

For example,
12/1 implies an 8% chance of winning.
7/2 implies a 22% chance of winning.

So if a competitor’s expected chance of winning increases, the odds (payoff in the event of a win) that a bookmaker offers to a bettor will* drop*.

3

The key is that, if the bookies set their odds in the right place, they don’t care about the outcome: With the correct odds, their take will be the same in any event. This means that what they really care about is the behavior of the bettors, not the actual probabilities (except in so far as the probabilities influence the bettors).

When they set the initial odds, they figured that bettors wouldn’t like McGregor’s chances very much, and so wouldn’t be willing to bet on him unless they had potential for a very big reward on their bet (twelve times as great as their bet). But since then, a lot of things have happened which have made people more inclined to bet on him: People are saying “Well, he’s got a decent chance, good enough that 12:1 is a bargain”, and so a lot more people are betting on him, throwing off the balance. So they’re trying to compensate by decreasing the odds, and maybe they’ve decreased them enough now, but they still have all the bets that were made when the odds were higher, and they could still lose money on those.

4

What Chronos said is accurate, but it might be easier to understand with a more detailed explanation like this: How Do Bookmakers Make Money? - Guide to Understanding Bookies

5

There’s a more fundamental confusion here.

The word “odds” is used to mean two very different things:

  1. what is the probability of an outcome?
  2. what is the payoff if the outcome actually occurs?

Those two things are related, but aren’t the same.

The other thing worth understanding is the pari-mutuel betting system versus the fixed payoff betting system.

In a fixed payoff system a particular bet is made at a fixed payoff: e.g. pay $1 and receive $3 if whatever event later happens as you predict. The payoff is decided at the time you bet, not when the event happens or doesn’t happen.

In a pari-mutuel system, you pay $1 to make your prediction not knowing for sure how much it will pay off. After the event occurs, the house takes their fixed publicized percentage (the rake or vigorish or vig) of the total amount wagered by all bettors, then distributes the rest of the total wager pool pro rata to whichever bettors made the correct prediction.

With that background, the OP’s question can be answered.

Try this interpretation:The dramatic drop in the odds (meaning “payoff amount for a bet”) has been attributed to a number of factors. Thes positive attributes mean it’s seen as increasingly likely (meaning “odd of outcome”) that Irishman will win the race.

As lots more people act on this info and bet on him to win, the pari-mutuel pool is growing quickly, but many or most tickets are being sold on that horse.

So if he does win, after the house takes its vig, there will be lots of people splitting the pot. Which means each person’s share of the pot will be small.

People who bought a ticket early, when Irishman was disfavored, may have seen large expected payoff multiples (“odds”) at that time. But now as the horse becomes more favored, these bettors are seeing the expected payoff multiple decline steeply. Perhaps even well below 1 to 1. Meaning that a $1 bet might pay, worst case, more like $1.10. i.e. a return of the $1 stake to the bettor plus just a dime of actual gain.
Bottom line: In a pari-mutuel system if the public is betting mostly sensibly, the odds = payoff go up as the odds = likelihood go down. And vice versa. It’s all because the word “odds” is used to mean two different things.
Further caveat: the UK/Commonwealth use of many (most?) gambling terms is quite different from the US use of the same terms.

6

I don’t think Irish/UK betting is parimutuel though–I think you can get fixed-odds bets even at racetracks.

And is Vegas sports betting (other than on horses) parimutuel? I think you’re buying a fixed-odds/fixed-line ticket, aren’t you?

UK/Ireland bettors, please advise!

7

“The Tote” is parimutuel, but fixed-odds bets are more common.

You can also bet on an unspecified “Starting Price”, which is the (currently unknown) fixed-odds price prevailing among bookmakers at the time the race starts (assessed at a racetrack using some specified official procedure). It’s effectively similar to pari-mutuel, assuming that the bookies modify their prices to take into account the weight of money in all the bets they take. This may not always be the case, the bookies may take a significant position going into a race if they feel the weight of money is wrong.

8

I don’t think this is particularly relevant to the OP’s question, which I took as a much simpler question about what “odds” mean – i.e. odds (plus 1) is the reciprocal of probability, so when probability goes up, odds go down.

With either fixed odds or parimutuel, the odds/payout is still expressed in the same way.

9

ETA: Good points Reimann.
Typical sports betting is fixed-payoff. But it’s fixed payoff at the time the bet is placed. Which means the payoff can shift for bets placed later, closer to the event itself.

The goal for the bookmaker is to set the payoff multiples so no matter which way the outcome actually falls he comes out slightly ahead of even. The bookie wants to ensure that losers paid in enough to pay off all the winners at their contracted multiples and still leave some money in the kitty for the bookie.

A bookmaker can become screwed if he sells a lot of high multiple chances early on something that later becomes much more likely to occur. His response is to sell tickets later at much lower payoff multiples hoping to make the total bets and payoffs on that outcome tolerable. And meanwhile try to sell higher multiple tickets on the opposition.

The problem of course is the public reads the same newspapers the bookie does.

So ultimately the bookie is not trying to predict the outcome of the event. He’s trying to predict the outcome of total bettor sentiment expressed as all the bets made up to the event.

For an event with big geographic spread this can be a problem. All the Irish folks want to bet on McGregor and all the Americans want to bet on Mayweather. So the Irish bookies have far too much betting one way to offset with betting the other way. The American bookies have the opposite problem. They can “reinsure” between themselves to balance the overall situation.

But nothing can save the Irish bookies from taking a loss if they sold too many tickets at too high of a payoff multiple too early and then McGregor wins.

10

In other words, the bookies might themselves be gamblers.

11

Yes, for sure. Well, the term “gambler” may have pejorative connotations of an addiction to making random bets with a negative expected return, like a casino gambler. But traditional bookies are professional gamblers, more akin to professional financial traders. They have to make book before they see any money, after all, and if they are prepared to take large bets that leaves them highly exposed if they screw up. They must be astute at making a dispassionate assessment of the true probabilities, and factoring in expectations on the weight of price-insensitive money. In fact, traditional bookies rarely run completely neutral books. They will usually have a sense of how they eventually want to be positioned, based on beating the “wisdom of crowds” (or lack of wisdom, if many people are making emotional price-insensitive bets). So the bookie will try to capture implied “vigorish” (the total of the implied probabilities for all runners in his book will exceed 100%), but he will try to increase his profitability by positioning himself too, based on his expertise in the market.

The other modern aspect of betting that deserves mention here is the betting exchange, where the bookmaker is made obsolete, in rather the same way that electronic financial exchanges have disrupted the traditional role of the “specialist” market maker. The betting exchange allows individual bettors with opposing views to find each other and bet with each other directly. It does require a slightly higher level of sophistication, because (where more than two outcomes are possible) one side of the market for a runner is backing, and the other side is laying. The latter involves taking the role of the traditional bookmaker, and giving odds to the backer - i.e. as the layer of a bet you win the stake if the runner loses; but you must pay out the odds if the runner wins. The fact that many bettors are not so sophisticated means that traditional bookmakers still do plenty of business.

The other fun aspect of exchange betting is that you can trade in and out of bets as the odds move with changing expecations and make money before an event even starts.

The UK company Betfair is still dominant, I think - although I’m out of date, since ironically I have been forced to abandon betting since I moved to the US, the home of capitalism!

12

I know Riemann covered the facts with his usual thoroughness. But I have to share this other tibbit.

I’m reminded of a bit from a classic WC Fields movie. I don’t have it verbatim and couldn’t quickly find it on YouTube, but it goes roughly like this. Fields is playing his usual ne’er do well / raconteur character:

In the same vein if the bookmaker is doing it right there’s no gambling involved. Or at least very little.

Like anything involving money and the future there’s still ways they can screw it up. Or have it screwed up for them by forces majeure. But that’s to be avoided insofar as possible.

13

As an aside here, I’m intrigued about the relationship between gambling addiction and profitability. Can somebody be diagnosed with a gambling addiction if they have some degree of obsession, to a point where it disrupts their life in certain ways, yet are skilled enough to consistently make money at it?

14

That reminds me a bit of the old saw “I’m a drunk; alcoholics go to meetings” or equivalently “I drink; I get drunk; I fall down. No problem!”

IOW an addition becomes a problematic addiction when it becomes, well problematic. A gambler (or investor) who actually was winning wouldn’t be problematic.

The issue with most gambling addicts is they’re addicted to games (e.g. vid slots or vid poker) carefully designed with two features: actively fostering addiction, and fostering guaranteed losing. So they can’t, by design of the game, spend any time in the winning = “no problem!” zone.
If we define success in investing as having a positive ROI over a longish term, a lot more people can manage to stay in the “no problem” zone. Because long term, the broad market, debt or equity, has a positive ROI expectation.

It gets tougher to stay “no problem” as you refine the definition of success to factor in inflation. It’s tougher to stay ahead of that monkey, but not impossible by any stretch. Next we ought to include return risk, and general market ROI. Damn near nobody beats the broad market ROI for long. IOW, nearly everybody ends up on the losing side zone by that definition.

The question then becomes whether an investor (successful or not on whichever measure) is addicted or is just a market participant. After all, every dollar I earn and don’t spend this week has to sit someplace.

IANA expert on the innards of investment banks & such, but ISTM many of those highly paid speculator / trader guys are total gambling addicts.

They just have the really neat set-up where they can play with hefty dollops of OPM, skim a decent chunk of the returns when positive, and do a big :oops: whenever they’re negative. At worst they get fired but keep their skimmings of other people’s winnings.

Said another way, it’s like WC Fields said: “Gambling? Not the way I play it!”

15

Thank you all. Very helpful.

16

No, what drives gambling addicts is the thrill of putting money up and trying to beat the odds. They want the rush of a big win. Trying to get a game where they can get a couple of percentage points advantage and then grinding that to make money does not appeal to them.
Many pro poker players are huge gamblers in other areas. They are skilled enough at poker to make up for there losing in other areas but many gamble away the fortunes they win at the tables.

17

I see several mathematicians have posted in the thread. There is a wonderful little theorem about odds-making which is not well known and may not even have a name! (Lance Turbo certainly knows the theorem — this has been discussed here before. Don’t spoil it right away please, Lance!)

Alice and Bill each have opinions about who will win next year’s Superbowl. It is simplest to express these opinions as probabilities p[sub]t[/sub][sup]A[/sup] and p[sub]t[/sub][sup]B[/sup] (0 < t ≦ 32); each of these two lists sums to one. Bill (who is actually Bill Gates) is happy to let you bet any or all of the teams, getting $1 returned for every p[sub]t[/sub][sup]B[/sup] you invest if t wins. Alice, OTOH, has some fixed sum to spend on Bill’s tickets, say $R or $1,000,000. Unless the two lists of probability estimates are identical, Alice has opportunity to make favorable bets.

For any set of bets by Alice, there will be 32 outcomes (bankroll plus net winnings win[sub]t[/sub]) each with an (Alice-assumed) probability p[sub]t[/sub][sup]A[/sup].
Alice adopts the Kelly Criterion, choosing to maximize the weighted geometric mean of {R + win[sub]t[/sub]}.
What is Alice’s best strategy?

18

I am reminded of the time when I had a spell of working in a betting shop (in England). Two things I learned:

Betting shops (ie bookies) rarely lose as they will always lay off any potential losses to the big companies like Ladbrokes.

Betting shops sometimes lose big because they fail to spot a trend.

I was there one day when almost the whole of the UK had enough snow to stop all the races; the same snow meant that the guy who normally ran the “book” didn’t make it. Ireland was fairly free from snow so we were taking bets on unknown horses on courses we had never even heard of. The punters, in the same position, started to place bets on favorites across the board. Now, English bookies had very little chance of influencing the odds on Irish races, so when nearly all the favourites won their races, and so many punters had fairly small bets spread in accumulators over four or more races, the payouts were considerable.

Of course, punters being punters, he won most of it back the following week.

19

What’s an “accumulator”–is that what we’d call in the US a “Pick Three” (Pick Four, Pick Six) where you have to get the winners of three (four, six) races in a row for the bet to pay?

20

(I’ll provide closure for this hijack.)

The lovely solution is that Alice should bet p[sub]t[/sub][sup]A[/sup] of her capital on each team t. (These optimal bets are independent of the payoffs 1/p[sub]t[/sub][sup]B[/sup] !)