How Bookmakers Price Up Horses

Ever wondered how online bookmakers 'make' their 'books'? When you visit a race course and look at the rows of bookmaker pitches, just how do they come up with the prices?

Surely the figures are not just plucked out of thin air, because its not often you hear the sob story about a poor online bookmakers losing out because they priced up a horse badly!

Normally the prices for any given race are settled around 4pm the day before a race.

Pricing Up Horse Races

All the best online bookmakers will have a team of five or so odds-compilers, one working on each race on the card. These odds are then delivered to the trading team, and the rails bookmakers at the respective race courses.

Once a market opens on track, most bookmakers that appear trackside will keep an eye on what other bookmakers are doing as the market unfolds.

Each will be competing against the others, trying to attract business by offering the best prices.

At the same time the online bookmakers need to balance their books and make a profit.

When pricing up any event, the first thing the best bookmakers need to consider is the amount of profit to build into their prices.

If they wish to make a 20% margin they will need to price the race at 120% of the natural odds in order for that to happen.

Calculating the profit margin is made all the more difficult in the UK because it is one of the most over-populated betting markets in the world, and very competitive.

Margins too high and you will be uncompetitive, but cut margins too much and you'll make less profit.

Comparing Horse Racing Prices

Here is a little game you can try, to help you understand how prices compare and also relate to the chances of a winning horse racing bets at an online bookmaker.

You'll need a pack of cards. First, place the four Ace cards face up in front of you on a table.

If you can imagine, these will represent the four runners in the starting stalls of our 'race'.

Now, shuffle the remaining cards. Next, deal twelve cards off the top of the deck, down one side of the table. These cards will represent the 12 furlong markers on our 'race-course'.

In our example, the 12 'furlong' cards comprised 4 clubs, 3 hearts, 2 diamonds, and 3 spades.

Start the race by turning over the first card off the top of the deck. A 'horse' will move forward one furlong each time you reveal a card of the corresponding suit.

So, if the first card is a club, move the Club horse out of the stalls and forward one furlong.

Repeat until a horse reaches the twelfth and final furlong - you have a winner!!

So, how should we have priced up each of these 4 horses before the race?

Well, first you need to consider these figures: with 4 Ace cards, and 12 further cards already dealt from an original pack of 52, there are 36 cards left in the pack.

Diamonds is the favourite with 10 cards left in the pack, followed by Spades and Hearts with 9 cards each, and finally the outsider Clubs with 8 cards.

Calculations go something like this for Diamonds: 10 cards in a pack of 36 remaining cards, so 10 divided by 36, times 120(%) profit margin, equals 33.3(%) which in fractional terms means odds of 2/1.

For Spades and Hearts: 9 cards in a pack of 36 remaining cards, so 9 divided by 36, times 120(%) profit margin, equals 30.0(%) which in fractional terms means odds of between 9/4 and 5/2.

Finally, the calculation for Clubs: 8 cards in a pack of 36 remaining cards, so 8 divided by 36, times 120(%) profit margin, equals 26.7(%) which in fractional terms means odds of 11/4.

Adding up the percentages you can see the total is 33% plus 30% plus 30% plus 26% equals 119% which gives you your 'over-round' profit margin of 19%.

Given that 67% of all races are won by the favourite, an online bookmaker might well shorten the price of the favourite, and then add some value to the other horses, to balance his book.

This was obviously a simplified example, with only four horses in the race, but hopefully it highlights the process online bookmakers go through when pricing up race horses.