What is ‘overround’?

What is 'overround'? Otherwise known as ‘vigorish’ – an Americanisation of the Russian word ‘vyigryshi’, meaning ‘winnings’ – ‘overround’ is the profit margin that bookmakers factor into a betting market, such that they make money regardless of the outcome. In a ‘fair’ market, the odds for each outcome, once converted to implied probability, should add up to 100%. In a simple coin toss, for example, the odds against tossing heads are 1/1 or ‘even money, which converts to an implied probability of (1/ (1+1))*100 = 50%; the same is true for the odds against tails, so it’s easy to see that 50% + 50% = 100%. However, to guarantee a profit, bookmakers offer odds that are shorter than they should be in a fair market.

Sticking with the coin toss example, let’s say a bookmaker offers odds of 10/11, rather than 1/1, about each outcome. Fractional odds of 10/11 convert to an implied probabiliity of (1 / ((10/11) + 1)) * 100 = 52.4%; 52.4% + 52.4% = 104.8% so, by creating an ‘overround’ book, the bookmaker can expect to pay out £100 for every £104.80 paid in, which yields an expected profit 4.80/104.80 = 4.6%. This approach requires only that each outcome, in this case, heads or tails, is backed proportionally to its chance of winning.