An overview of the principles behind value betting
As matched bettors, our goal is to find bets that offer positive expected value (EV). So far, we've covered the use of promotions to tilt the odds in our favour. However, value betting takes this a step further by allowing us to make bets that have a positive expected return over the long term, even without relying on promotions.
Value betting is a strategy used by bettors to identify and exploit discrepancies between the odds offered by bookmakers and the true probability of an event occurring. The fundamental principle behind value betting is to place bets only when the odds offered by the bookmaker are higher than the bettor's estimated fair odds for the outcome.
Here's the concept in a nutshell:
But how do we "devig" odds and estimate fair odds?
All odds offered by bookmakers include a margin. This is known as the vigorish, or vig. Bookmakers build their pricing models to ensure they make a profit regardless of the outcome of an event. This means offering odds that include an overround — the total implied probabilities of all possible outcomes exceeding 100%.
Vig is not the same as overround
Sources online often conflate vig and overround. Whilst they are related, they are not the same thing. The vig is the bookmaker's margin on an outcome, whereas the overround is the amount by which the implied probabilities of all possible outcomes in a market exceed 100%.
If you're interested, this is a good article explaining the difference.
So how does PuntPilot devig odds?
The goal of devigging odds is to remove the overround - that is, to adjust the odds so that the total implied probabilities of all possible outcomes equal 100%.
There are several methods of doing this, each with varying efficiency. We'll cover the methods we support in the next lesson, but for the moment just know that PuntPilot uses the power method by default, as it tends to give the most accurate results when backtested across a wide range of markets.
Devigged consensus is the Derived source. PuntPilot also supports Line estimates from nearby consensus lines, Implied fallback prices from weighted market averages, and raw Sharp references from selected bookmakers. The Positive EV guide explains their evidence and limitations.
Once we've devigged the odds from multiple bookmakers, we can estimate the fair odds for each outcome in a market. This is typically done by calculating a (weighted) average of the devigged odds from various bookmakers.
By default, we weight all bookmakers equally. If you want, you can adjust the weights to match your own preferences in the bookmakers settings.
As an example, say we have the following devigged odds (rounded) for an AFL head to head market from four different bookmakers:
Bookmaker A
Bookmaker B
Bookmaker C
Bookmaker D
These are devigged odds: for each bookmaker, the implied probabilities of the two outcomes sum to 100% (approximately, we've rounded).
To estimate the fair odds for each outcome, we calculate the average across all bookmakers:
Home Win:
(1.85 + 1.83 + 1.87 + 1.90) / 4
= 7.45 / 4
= 1.8625
Away Win:
(2.15 + 2.17 + 2.14 + 2.10) / 4
= 8.56 / 4
= 2.14
Thus, the estimated fair odds for the AFL match are:
These correspond to implied probabilities of:
which sum to nearly 100% (again, we've rounded for illustrative purposes).
With the fair odds estimated, we can now identify value bets by comparing the bookmaker's offered odds to our estimated fair odds. A value bet exists when the bookmaker's odds are greater than the estimated fair odds.
Continuing with our previous example, we estimated the fair odds for the Away Win to be 2.14.
Now suppose we observe the following odds for the Away Win from a fifth bookmaker:
To determine if this is a value bet, we compare the two:
Since 2.20 > 2.14, this is a value bet, with an expected value of (2.20 - 2.14) / 2.14 ≈ 2.80%. Over the long term, repeatedly taking prices like 2.20 when the fair odds are 2.14 should yield a positive expected return.