A lot of times betting exchanges offer the best odds in online betting. There is a catch though. And that catch is the amount they charge as commission on each winning bet, which eventually determines the actual odds you are betting on!
Although the commonly charged commission of 5 percent on profits may sound negligible, the impact on the returns of a betting system is huge! Sometimes, even an otherwise profitable system could be proved a failure. Therefore, several professional sports bettors have managed to find ways to reduce commission to a minimum (most notably, by using multiple betting exchanges and placing huge surebets, a practice known as arbitrage betting).
In order to fully understand the effect betting exchanges’ commission has on our sports betting system, we must first realize the importance of comparing betting odds correctly. After we understand how different odds will affect our betting decisions, we will examine how the commission, charged by the betting exchanges, influence the betting odds.
Why odds comparison is paramount in sports betting
Suppose, according to our betting system, that the home team has a 50 percent chance to win a match. Furthermore, our system has been previously verified (hint: we backtested it), confirming this probability. In simple words, the betting system calculates the real probabilities perfectly.
In 100 identical matches, online bookmakers’ odds for the home win are 1.95, which makes no sense to bet at these odds, as we have discussed in the post about value betting.
However, when we visit the website of Betfair – so far the most popular betting exchange – we find that the corresponding bet is offered at 2.10. Easily, we could assume that there is value in such a bet and we should bet on the home team to win, since that bet will make money in the long run.
By betting $100 on each of the above 100 games, we expect to earn $110 50 times, while losing €100 50 times. The total accumulated profit comes down to $500.
Not bad at all. Nevertheless, when we check our betting account, we realize that we have become richer by just $225.
Commission affects the profitability of betting systems
This happens as Betfair specifically charge 5 percent commission on all profits per winning bet. Consequently, instead of $110 profit for each of our bets, we end up winning just €104.5 because of that commission. Still, we emerge as winners. However, 50 percent of our total profit has been evaporated for the sake of the commission, critically affecting the performance of our betting system.
Now suppose Betfair available odds for the corresponding games are 2.04 instead of 2.10. In most cases, players would consider the odds very tempting compared to 1.95 offered by the online bookmakers. With a closer look though, that’s not really the case.
As the odds are at 2.04, our betting system will make $104 in 50 matches, while still losing $100 on the other 50. After taking into account the 5% commission on the €104 profit, the net winnings drop to €98.8. Thus, we lose €50 overall, although our system was a winning betting system!
Consequently, as odds drop from 2.10 to 2.04 at a betting exchange, that decline not only will hurt our profits, but could also ruin our system’s profitability entirely!
What’s more, if the odds fell to 2.00, that would be equal with the 1.95 of Betfair’s competitors, resulting to even worse performance for our winning betting system.
However, by finding ways to reduce the commission at the betting exchange, we would see that those tactics may restore the system’s longevity. Finally, special attention has to be paid at the Betfair Premium Charges, which could seriously affect the betting system’s profitability by about 20 percent!