How bookmakers create their balance books
Creating a Balanced Book
When a bookmaker has a balanced book on a particular market, he stands to make approximately the same amount of money regardless of the outcome. With an imbalanced book, the outcome would affect how much is made, and it could even result in a loss. A balanced book is usually the preference, for obvious reasons, and is what odds compilers typically aim for.
Continuing with the tennis match example, a balanced book would look something like this.
As you can see, based on $10,000 in total bets, the bookmaker stands to make roughly $500 regardless of the outcome. This is the target 5% margin. Let’s look at what would happen if that $10,000 in total bets was spread evenly on both players.
In this scenario, the bookmaker has an imbalanced book. He will make a profit if Djokovic wins, but will lose money if Murray wins. It’s usually a scenario to try and avoid.
This is why you see odds on sports events fluctuate over time. Odds compilers will continually adjust them to make sure their book is balanced. For example, in the above scenario, they could increase the odds on Djokovic to encourage more bets on his winning, or they could reduce the odds on Murray to discourage further bets on his winning. They could even do both.
There’s no guarantee that adjusting the odds will always create a balanced book, but it usually helps. This is one reason why the volume of bets is so important to bookmakers. As a general rule, more money coming in means they are more likely to get the balance right. It’s actually quite rare to get markets perfectly balanced; the goal is simply to get as close as possible.
A bookmaker isn’t always seeking to balance their book. Given their pockets will be deeper than most clients’, bookmakers will generally welcome variance, especially when they think they have superior predictions. The belief that a bookmaker is looking to balance their book minute to minute, hour to hour, or even day to day is generally an oversimplification.