There’s never been a wider choice of where or how to bet.  You can place bets online with traditional bookmakers such as Ladbrokes or William Hill or at one of the many betting exchanges such as Betfair or WBX.  However, although the product is the same, consider the cost before you place your bets.  And if you still use a traditional bookmaker, read on!

Lay bets 

Personally, I only bet on the Barclays Premier League and use betting exchanges as opposed to online bookmakers.  The main reason I prefer betting exchanges is that I lay as well as back teams.  Laying a team allows you to back your judgement that a team will not win, as opposed to will win a match.  Currently the high street bookmakers who have brought their business online only allow punters to back teams. 

Price structure 

The only other difference in placing a bet at a bookmaker or a betting exchange is how the bookmaker/ exchange receives their return for making the market. Bookmakers charge their price within the odds they offer. This is known as the ‘overround’ and represents the bookmakers profit.  The overround is discussed in my post (Betting exchanges - a new world in betting).  Betting exchanges work differently.  As the bets take place between clients, one backing and one laying, the odds are set by the exchange’s clients in the market and not by the betting exchange itself.  The price or commission paid to the betting exchange for matching the bets is taken as a percentage of the winnings, similar to the rake in poker.

Odds and price comparison

The table below compares odds of bookmakers against betting exchanges in order to compare the commissions paid.  Column 1 is the bookmakers odds which include an overround.  This is assumed to be 10%.  This is lower than the traditional 12% often attributed but given the emergence of competition from betting exchanges I have assumed profit margins have been reduced.  The overround is assumed to be the same at 10% regardless of the odds level.  That is to say, I have assumed the bookmakers increase the implicit probability within odds selections above the true probability by 10% at all levels whether the selection is a favourite at 1.01 or longshot at 100.  Only the bookmakers will know whether this is accurate or not but I imagine it varies between bookmakers and markets anyway. 

The bookmakers odds in column 1 are then converted to fair value odds in column 3 by removing the overround.  These fair value odds equate to the probabilities in column 4.  This is the actual probability a selection will occur; e.g. the chance of a selection with bookmakers odds of 1.82 and fair value odds of 2.00 occurring is 50%.  The next 3 columns are the odds adjusted for commissions at 5%, 4% and 3%.  In effect, these 3 columns are showing you the net odds you are receiving post commission payments rather than the ‘face value’ on the betting exchange.

Bookmaker odds	Implied probability	Fair odds*	True probability	5%	4%	3%
1.01	99%	1.11	90%	1.11	1.11	1.11
1.02	98%	1.12	89%	1.12	1.12	1.12
1.03	97%	1.13	88%	1.13	1.13	1.13
1.05	95%	1.16	87%	1.15	1.15	1.15
1.10	91%	1.21	83%	1.20	1.20	1.20
1.20	83%	1.32	76%	1.30	1.31	1.31
1.50	67%	1.65	61%	1.62	1.62	1.63
1.82	55%	2.00	50%	1.95	1.96	1.97
2.00	50%	2.20	45%	2.14	2.15	2.16
3.00	33%	3.30	30%	3.19	3.21	3.23
4.00	25%	4.40	23%	4.23	4.26	4.30
5.00	20%	5.50	18%	5.28	5.32	5.37
10.00	10%	11.00	9%	10.50	10.60	10.70
20.00	5%	22.00	5%	20.95	21.16	21.37
50.00	2%	55.00	2%	52.30	52.84	53.38
100.00	1%	110.00	1%	104.55	105.64	106.73

(rounded to 2 decimal places) 

*Assumes bookmakers odds include a 10% overround at all odds levels.  It is likely however that short odds selections include less of an overround as it is more difficult to hide a 10% profit in short odds than long odds.

An example 

Let’s take a look at an example below:

If we look at the selection within the table above with odds at the bookies of 1.82, adjusting for the 10% overround shows fair odds of the selection winning are 2.0 (evens in old money).  If we placed a one pound bet and won the bookmaker would pay us winnings of 82p.  However as the fair odds are 2.0 the winnings without commission payments would be 100p.  Next consider placing the bet on Betfair.  Since there is no commision reflected in the price we should be able to achieve the fair odds of 2.0 to back our selection in the market (assuming someone takes our bet on the exchange).  However if we win we pay Betfair 5% of our net winnings, assuming the market commission for this event was 5%.  The net odds we achieve therefore are 1.95 and the net winnings, 95p.  The same logic holds for other commission rates; 4% would be 1.96 and 3%, 1.97. 

Expected values

The expected value of a stake with the bookmaker is the sum of the probabilities of the outcomes multiplied by the return for each of those outcomes.   At odds of 10, £100 staked with the bookmaker gives an expected value of [0.91 x £0 (loss) + 0.09 x £1000 (win) =] £90. In other words they earn and you pay £10 in commission.  A betting exchange with 5% commission takes £5.  If you only bet with bookmakers the difference between the two really adds up.  To consider how much, just estimate your betting volume and multiply by 5% to see how much you could save or 7% if you switch to WBX.  

Betting exchanges and commissions

The following is a summary of commission payable on various betting exchanges for the Barclays Premier League.

Betfair (www.betfair.com) 5% 

Betdaq (www.betdaq.com) 5%

WBX (www.wbx.com) 3%

ibetx (www.ibetx.com) 3%