Let's take a look at how margins works using the example of a coin. A coin has two sides, heads or tails, each with a 50% chance of landing upright. That means the odds of getting heads or tails is equal to 2.00. In order for these odds to earn a profit for a betting company, the amount of losing bets must be greater than winning bets. If the total lost and won bets are equal, the betting company ends up with nothing. To ensure a profit, the company includes a margin in its odds.With a margin of 5%, odds on heads or tails will be 1.90. In this case, the betting company will make a profit if 52% of players or less win. If everyone bets EUR 1,000 each, then the winning players will receive EUR 900, and the losers will lose EUR 1,000. The EUR 100 difference between winning and losing bets is the betting company's profit.
All betting companies have margins. Margins result in odds being artificially lowered. If players bet the same amount of money on all the different outcomes of the match, the betting company stays in the black. Thanks to the margin, it will pay out less money than it will receive from lost bets.
How large is the margin in betting companies?
On average, betting companies have a margin of 5–9%. But it all depends on the popularity of the sport, tournament and type of event: the more popular, the lower the margin. It's based on the amount of cash flow: with a large number of bets, all the betting company needs is a 5–7% margin to make a profit, but in sports without large bets, the margin is normally increased by another 2–3%. Typically, the lowest margins are found in the top 5 European football championships, and the highest in less popular sports like darts and baseball.
How does the margin influence winnings?
Margin affects player income in the long run. The higher the margin, the more often you need to win to maintain your earnings.
Consider the heads and tails example again. The betting company's margin is 5%, and odds for either side is 1.90. In this case, the player will make a profit if 52.5% of bets win. If the margin increases to 8%, then in order to make a profit, the player needs at least 54% of their bets to win. So when the margin changes, the player needs to increase the percentage of successful bets, but the amount earned remains the same.
How can I calculate the margin?
To calculate the margin, you need to convert the odds to event probability, add them and subtract 100%. For an event with two outcomes, the formula looks like this:
(100% ÷ D1) + (100% ÷ D2) - 100%
- D1 – the odds of the first selection
- D2 – the odds of the second selection
Here's a calculation of the margin for a tennis match. The odds for the first tennis player to win are 1.65, with 2.25 for the second.
The probability of the first tennis player winning: 100% ÷ 1.65 = 60.6%
The probability of the second tennis player winning: 100 % ÷ 2.25 = 44.4%
Calculate the margin: 60.6% + 44.4% - 100% = 5%
5% – this is the betting company's margin in a match with two outcomes.
If an event has three selections, the margin is calculated using this formula:
(100% ÷ D1) + (100% ÷ D2) + (100% ÷ D3) - 100%
- D1 – the odds of the first selection
- D2 – the odds of the second selection
- D3 – the odds of the third selection
Here's a calculation of the margin for a hockey match. The victory of the first team is estimated with odds of 2.80, the second – 2.25, and a draw – 3.70.
The probability of the first team winning: 100% ÷ 2.80 = 35.7%
The probability of the second team winning: 100 % ÷ 2.25 = 44.4%
Probability of a draw: 100% ÷ 3.70 = 27%
Calculate the margin: 35.7% + 44.4% + 27% - 100% = 7.1%.
7.1% – this is the betting company's margin in a match with three outcomes.