What is Value Betting?

So let’s consider an example of a coin toss.

With a toss of a coin, there are two possible outcomes. The coin either lands on heads or it lands on tails. (Yes, ok, it could land on its side. But the likelihood of that is infinitesimally small. So let’s ignore it shall we?).

Using this probability to calculate the odds, would give us a decimal price of 2.00 for heads and 2.00 for tails. e.g 100/50 = 2.00.

So let’s say we have two bookmakers.

• Bookmaker A is offering odds of 1.90 on heads while
• Bookmaker B is offering odds of 2.10.

Let’s say we want to bet on the coin landing heads, which one of these bookmakers is offering value?

So let’s look at Bookmaker A.

• He is offering us 1.90.

At -5%, Bookmaker A is offering us less than true value betting. This is not a bet we would want to take. It is not a value situation.

So let’s look at Bookmaker B.

• He is offering us 2.10.

Bookmaker B is offering us 5% value to bet on heads in a coin toss. We will take this situation every day thank you very much. It is indeed a tremendous value opportunity.

For example, a real life bookmaker would offer odds on a coin toss in the range of 1.90 for heads and a 1.90 for tails.

Let’s say they receive £100 worth of bets on heads and £100 worth of bets on tails, accepting a total of £200 worth of bets in all. Now let’s say that heads wins. The bookmaker pays out the odds of 1.90 for the £100 worth of bets on heads, essentially paying out £190.

But they accepted £200 worth of bets, I hear you say.

Yes. And they keep the £10 for themselves. This is popularly known as the commission, but commonly also referred to as the Juice or the Vig. This is essentially how a bookmaker makes their money, by not offering full value odds. We will discuss this concept in more detail in a later tutorial.

A football match:

Let’s say that Manchester United are playing with odds of 2.50 to win.

The odds of 2.50 on offer imply a probability of Manchester United winning at 40%. Now let’s say we have done our homework and have calculated our own probability of Man U winning at 50%.

Nice work. If our estimated probability of a Manchester United win is accurate, we have identified a very handsome value betting situation. On the other hand, if our assessed probability was less than the bookmaker odds implied probability of 40%, the odds of 2.50 would not represent value.