Odds are a funny thing. In a handicapped race like the Grand National, you would expect that if forty horses run that each has a one in forty chance of winning. So all would be at around 40/1. But of course it doesn't work that way at all.
Some will go off as short as 7/1 while others will languish at the back on 100/1. Ironically the number of favourites that have the won the race are roughly on par with winners on much bigger odds. And statistically a runner on approximately 20/1 has a much better chance of winning!
But how do Bookmakers calculate odds on horse racing when there are so many variables to consider? There are a number of factors that get taken into consideration when bookmakers compile odds for a horse race. Each bookmaker will usually have a team of odds compilers and traders working to set the right prices. Their job is to gather all the available information before setting the early price.
That includes looking at factors such as the horses form and getting advice from private handicappers and gallop watchers situated at the various stables. They also take into account whether a jockey or trainer is particularly popular or successful. The likes of jockey AP McCoy always went off at ridiculously short odds. That's because punters wanted him to win. It didn't matter what horse he was riding. They backed AP. The result is that a lot of money gets lumped on one horse. Bookmakers must then adjust the odds of the other runners to balance out the race. They also do it to maintain a certain profit margin.
This is also known as over-rounding. The profit margin is built into the odds by shortening some or all of the prices. It is worked out based on the chances of the runner winning to help ensure the bookmakers make a profit. If a bookmaker wants a higher profit margin, they set shorter odds.
However, bookmakers that consistently ‘over round' or offer shorter odds soon find their customers going elsewhere. So competition between bookmakers is essential, even more so now. On course bookmakers used to be able to make more money as they had a captive market. Now with the rise of online betting and offers like Grand National free bets for 2019, racegoers can just use their phone to get better odds and still have a vested interest in the race.
Bookmakers make the most money on races where all of the runners are well known. The Cheltenham Gold Cup, for example, will have runners that everybody knows. As a result, the amount of information available to compilers is huge. The more information and tips, the more accurate the odds they can set. So even if huge amounts of money are staked, they can be fairly confident that they have correctly set the prices.
The problem for bookmakers are the races where the runners are not very well known. Not only is there very little information but also betting patterns from punters can be very difficult to predict. So if you don't know anything about the horse and you don't know how people will bet, your chances of making a profit are slim unless you set the odds very low. In this case it is essential to shop around to find the best odds.