Most punters take prices without ever asking how they were made. Knowing how a bookmaker prices a race tells you two things: how much margin they’re building in, and whether the price on offer matches the actual chance of the horse winning. The gap between those two things, when it exists, is where punters make their money.
This guide breaks down how prices get made, with a simple card-deck simulation that shows the maths in action. It uses Australian decimal odds throughout.
What the overround does
Every betting market a bookmaker frames is priced to return them a margin. That margin is called the overround, and it’s the gap between the implied probabilities of every horse (which add up to more than 100 per cent) and the actual probabilities of the race (which add up to exactly 100 per cent).
Typical overrounds in Australian markets:
- A sharp Betfair market sits close to 101 per cent. Very low overround, because the exchange takes a commission rather than building margin into prices.
- A Tote market typically runs around 118 per cent.
- Australian corporate bookmakers run anywhere from 108 to 130 per cent depending on the race and the operator.
The higher the overround, the more punting margin you’re fighting on every bet, before you’ve even thought about which horse to back.
How a bookmaker builds a market
Prices for most Australian races are set the day before the race by an odds compiler, who works through every race on the card. The compiler estimates each horse’s true chance of winning, then adjusts every price upward so the total implied probability for the field comes to whatever margin the operator targets (say, 120 per cent for a 20 per cent overround).
Once the market opens, the price moves with the money. Strong support shortens a horse. Lack of interest drifts it out. The compiler’s opening price is the starting point; the punters and other operators shape it from there.
This is why two bookies will rarely show identical prices on the same horse. They’re targeting slightly different margins, balancing slightly different exposures, and reading the market slightly differently. It’s also why price shopping is one of the simplest edges available to any punter.
A card-deck simulation
You can model how this works with a standard deck of cards. Grab one and try it.
Set it up:
- Take out the four aces and place them face up on a table. These are your four runners.
- Shuffle the remaining 48 cards.
- Deal 12 cards face down in a line beside the aces. These represent the markers each horse has to clear during the race.
That leaves 36 cards in the deck (52 minus 4 aces minus 12 markers). Each suit started with 12 non-ace cards. Whichever suit has the most cards left in the deck has the best chance of “winning” the race.
For this run, say the 12 markers came out as 4 clubs, 3 hearts, 2 diamonds and 3 spades. That means the deck now contains:
- Diamonds: 10 cards (the favourite)
- Hearts: 9 cards
- Spades: 9 cards
- Clubs: 8 cards (the outsider)
To run the race, turn cards one at a time from the deck. Whichever suit comes up, move that horse one marker forward. First horse to clear all 12 markers wins.
That’s the race. Now to price it.
Pricing the simulation
Each horse’s true probability of winning is just the share of cards they have left in the deck:
- Diamonds: 10/36 = 27.78 per cent
- Hearts: 9/36 = 25.00 per cent
- Spades: 9/36 = 25.00 per cent
- Clubs: 8/36 = 22.22 per cent
Total: exactly 100 per cent. This is the true book. A bookmaker who priced this market at the true probabilities would, over the long run, break even.
To make money, the bookmaker prices the market higher than the true probabilities. If their target margin is 20 per cent, they want the implied probabilities to total 120 per cent, so they multiply every true probability by 1.2:
- Diamonds: 27.78 per cent × 1.2 = 33.33 per cent → decimal odds $3.00
- Hearts: 25.00 per cent × 1.2 = 30.00 per cent → decimal odds $3.33
- Spades: 25.00 per cent × 1.2 = 30.00 per cent → decimal odds $3.33
- Clubs: 22.22 per cent × 1.2 = 26.67 per cent → decimal odds $3.75
Check the maths: 33.33 + 30 + 30 + 26.67 = 120 per cent. That’s the 20 per cent overround built in.
In practice, the compiler might shorten the favourite a touch further (because favourites win more often than even the bookmaker’s market expects), and lengthen the outsiders slightly to attract punters. The total still adds up to 120 per cent. The shape just shifts to balance the book.
What this means for your punting
Three takeaways from the simulation:
The true probability of every horse adds up to 100 per cent. The market always adds up to more than that. The gap is the margin you’re fighting.
Different markets have very different margins. A 130 per cent corporate market is much harder to beat than a 105 per cent exchange market, before you even look at form. If you have access to multiple operators, price shopping is mathematically essential.
Value exists in the gap. A bet only represents value when the price on offer implies a probability lower than the horse’s true chance of winning. If you’ve assessed a horse at 33 per cent and the market offers $3.50 (implying 28.6 per cent), there’s value. If the market offers $2.50 (implying 40 per cent), there isn’t.
That last point is the entire foundation of long-term punting profitability. Backing value, not winners.
Bringing it together
Pricing a race the bookmaker’s way is a useful exercise even if you never want to write a market yourself. It clarifies three things every punter should be thinking about:
- The overround is the margin you’re fighting, and it varies by operator and market type
- Your job as a punter is to find prices on offer that exceed the true chance of the horse winning
- Without comparing prices, you’re handing the operator their margin for free
For more on why the price you take is at least as important as the horse you pick, our guide on the importance of best price covers the practical side of price shopping. For the wider principles of value betting, Six keys to punting success sets out the framework these calculations sit inside.
Responsible gambling note. Gamble responsibly. If you or someone you know needs help, contact Gambling Help Online on 1800 858 858 or visit gamblinghelponline.org.au.