If you look at the odds
given by bookie
s in a typical
sports event you will notice the sum
of the probabilities will add up to an amount greater than one.
Here's an example using a hypothetical horse race:
Contestant Odds Probability
Horse-1 2-1 0.3333
Horse-2 4-1 0.2000
Horse-3 4.5-1 0.1818
Horse-4 5-1 0.1667
Horse-5 6-1 0.1429
Horse-7 7-1 0.1250
Horse-8 8-1 0.1111
Horse-9 9-1 0.1000
Overround: 1.3608 (sum of probabilities)
1. The overround in this case is > 1. If you think back to any statistics course you may have taken you recall that the sum of all probabilities must equal exactly 1.
2. The amount in excess of 1 is the bookmaker's profit. The larger the overround the greater the profit for the bookie.
You'll generally be on the losing end of any given bet, but only considering events with small overrounds minimizes the house's advantage.