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Understanding odds and implied probabilities in sports betting

As sports betting is becoming a more and more popular gambling activity, people develop greater interest in understanding how betting works, what do the odds mean, what do the odds represent and what they are actually telling them about the likelihood of the event they are being accompanied with. 

In every single sport bet offered by bookmakers all around the world, odds stand for the estimated forecasts that the bookmakers themselves have made about a particular event. These forecasts can be expressed in American odds (which are, quite evidently, used in the US), in fractional odds (which are used in the UK) or in decimal odds (which are used in Europe). So, if you bet in an Italian bookmaker, such as those listed at https://allbets.tv/it/bookmakers/, you’ll find different odds formats for bets than the odds formats given by UK bookmakers or American sportsbooks. 

But this is a technicality, since at the end of the day irrespective of the format, the odds represent the predictions of bookmakers on an event, a match or an outcome.

Odds and implied probability 

As we’ve said, odds are set in such ways that they reflect the estimated potential that an event will turn out to be true. So, odds are not inherent to the bets themselves, but they are developed by the sportsbooks based on sophisticated, systematic data analysis and predictive models.

Provided that sportsbooks and serious betting sites have invested in such analytical tools and have built odds-setting capabilities, we expect that their forecasts have at least some decent level of accuracy in their predictive value. 

So, when we’re looking at odds, we essentially look at what bookies think about an event, how they assess it and the extent to which they anticipate its occurrence. Normally, the greater the odds, the lower the estimated likelihood of the event and vice versa. Here, it is important to understand that greater likelihood goes with lower ROI and lower expected yielded returns, whereas smaller likelihood goes with higher ROI. 

Why is this? Because, greater likelihood means lower risk and lower risk means lower returns. Or, smaller likelihood means greater risk and greater risk means higher returns.

How to calculate the implied probability

Odds give you a general picture of which event is the most probable one, always according to the estimations of sportsbooks, or which team is the favorite in winning a match, let’s say. Likewise, they give you a picture of who is the underdog or which event is less likely to occur. Overall, the odds present you with a generic trend over one event, compared to the other available options of that event. 

But how much of the probability is implied in the odds is not explicit and it is something that bettors themselves need to calculate. It’s not a difficult thing to do and for this reason it is very useful to know how to do it, so as to get a more clear sense of what sportsbooks have forecasted for a given event. 

Τhe formula

In order to learn how to calculate implied odds in sports betting, you simply need to convert odds into a percentage and to do this you simply need to divide 1 by the odds (decimal) and then multiply this by 100. 

Implied Probability = (1/ Decimal odds)*100

If the victory of a football team, let’s say, is given at 2.40, then the implied probability for the team to win the match is (1/2.40)*100 =41.66%. So, the bookmaker assesses that the team’s chances of winning are nearly 42%. At the same time, for the same match, the victory of the opponent is given at 1.61, which means that the implied probability is (1/1.61)*100=62.11%. 

The favorite is the second team, with slightly above 62% chances of winning the match. What is interesting is that if we add up the two implied probabilities they are more than 100%! This is the vig or juice of the bookmaker – the built-in profit for the bookmaker, which in the end is what differentiates the implied probability from the probability.

Key takeaways 

As a key takeaway, you need to keep in mind that the odds represent the probability of an event occurring against complementary outcomes (not occurring), while the probabilities represent the likelihood of the occurrence of the event overall.

And above all, what matters the most is understanding that calculating implied probabilities can prove really effective in sports betting, because if they are far from what the bettors themselves predict about a certain event, then they are probably in front of a value bet.

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