Authors
Tadgh HegartyKarl T. Whelan
Topics
Sports Analytics and PerformanceGambling Behavior and TreatmentsConsumer Market Behavior and PricingISSN: 0003-6846 (Print) 1466-4283 (Online) Journal homepage: www.tandfonline.com/journals/raec20Tadgh Hegarty & Karl WhelanTo cite this article: Tadgh Hegarty & Karl Whelan (24 May 2025): Estimating expected loss rates in betting markets: theory and evidence, Applied Economics, DOI: 10.1080/00036846.2025.2507979 To link to this article: https://doi.org/10.1080/00036846.2025.2507979© 2025 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. Published online: 24 May 2025.Submit your article to this journalArticle views: 1492View related articlesView Crossmark dataFull Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=raec20Estimating expected loss rates in betting markets: theory and evidenceTadgh Hegarty and Karl WhelanUniversity College Dublin, Dublin, Ireland ABSTRACT Gamblers commonly use the overround – the sum of the inverses of the decimal odds – to estimate a bookmaker’s profit margin and this quantity has been used in various academic studies to proxy for bookmaker profitability. We show that if betting markets are efficient, in the sense of each bet on a contest having the same expected return, then this method of calculating returns on bets (and profits for bookmakers) is correct. However, if bookmakers set higher profit margins for bets with lower probabilities of winning (as implied by the evidence on favourite-longshot bias), then an equal-weighted average of loss rates across each of the available bets will be higher than predicted by this widely recommended calculation. We provide evidence from betting on soccer and tennis to illustrate that average loss rates across all available bets are consistently higher than predicted by the conventional calculation and that this difference is substantial.KEYWORDSSports betting; overroundmarket efficiency; soccer;tennisJEL CLASSIFICATIONG14; L83I.
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PublishedMay 24, 2025
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