What the bookmaker's margin really costs you
The margin is not the two percent on the screen. Here is how to measure it properly, why it hides in the outsider, and what it does over a year of betting.
A three-way football market priced 2.10, 3.50, 3.80 implies 47.6%, 28.6%
and 26.3%, which sums to 102.5%. The book has sold you 102.5% of certainty.
That extra 2.5 points is the margin, and it is the fee you pay whether you win
or lose.
Why the headline number understates it
The 2.5% is an average over the whole market, and margins are almost never spread evenly. Most books shade the longer prices harder, because outsiders attract recreational money and because a mistake on a 20.0 shot costs less to correct than a mistake on a 1.20 one.
The practical effect is that if you mostly back favourites you are paying less than the headline figure, and if you mostly back outsiders you are paying considerably more. A market quoted at 4% margin can be charging 2% on the favourite and 9% on the third outcome, and the number on the comparison site tells you neither.
What it costs over a year
Suppose you place 500 bets a year at an average stake and a true margin of 5%. Before any question of skill, you have paid 25 stakes to the house. To finish level you now need to be right often enough to earn those 25 stakes back, and that is the bar every method has to clear before it clears anything else.
This is the concrete reason an edge is measured against the price rather than against your feeling: the price already contains a fee, and a method that ignores the fee is measuring the wrong thing.
What this does not tell you
Margin is not the only cost. Limits, closed accounts, the spread between books and the time it takes to place a bet at the price you saw are all real and none of them appear in this arithmetic. A book with a 2% margin that will not accept your stake is worse than one at 4% that will.
Common questions
How do I calculate a bookmaker's margin?
Convert every outcome's decimal price to a probability by dividing 1 by the price, then add them together. Anything above 1.0 is the margin, usually quoted as a percentage.
Is a lower margin always better?
Usually, but not always. A book with a low headline margin can still be worse on the specific outcome you want, because the margin is rarely spread evenly across a market.
Where is the margin hidden?
Disproportionately in the longer prices. Outsiders are shaded harder than favourites at most books, so the headline figure understates what an outsider actually costs.