Value betting: expected value explained with worked examples

Key facts

Expected value per $1 bet = your probability x decimal odds - 1. A positive number is a value bet, by your estimate.
The lowest price worth taking is 1 divided by your probability: rate a team at 40% and anything under $2.50 is a losing bet on your own numbers.
Stripping the margin from one market gives a fair price to compare with others. A 1.80 and 2.05 market makes the outsider worth $2.14, so $2.25 elsewhere is about +5.2%, in our calculation.
Value takes time to show: with a +5% edge on $3.00 bets, our calculation gives a 38% chance of being behind after 100 bets and 13.7% after 1,000.
Bookmaker terms let them limit or refuse bets, and the ATO treats betting wins as not assessable unless you run a betting business.

What value betting is

Value betting means backing only when the price is longer than the real chance of the outcome deserves. It is not about picking winners. A $5.00 runner that wins 25% of the time is a better bet than a $1.50 favourite that wins 60% of the time, even though the favourite wins far more often.

Every bookmaker price carries a margin, so most prices are slightly short of fair. That holds across the bet types on an Australian betting slip, from win bets to exotics. A value bettor is looking for the exceptions: prices where the bookmaker, or the crowd, has the chance wrong by more than the margin.

The expected value formula

Expected value (EV) is the average result of a bet if you could place it many times:

EV per $1 = (your probability x decimal odds) - 1

Your estimate	Price	EV per $100 bet	Verdict
40%	$2.80	+$12.00	Value
40%	$2.50	$0.00	Break even
40%	$2.30	-$8.00	No value
55%	$1.95	+$7.25	Value
30%	$3.60	+$8.00	Value
10%	$12.00	+$20.00	Value, but rarely wins

The expected value calculator runs these numbers for any price and estimate.

The lowest price worth taking

Flip the formula and you get the minimum odds for any estimate: fair odds = 1 / your probability. A 40% chance is worth $2.50, a 55% chance $1.82, a 30% chance $3.33 and a 10% chance $10.00. Write the fair price down before you look at the market. If you look first, the bookmaker's number anchors your estimate.

Where your probability comes from

There are two honest ways to get a number.

Your own rating. Form, team news, weather or a model you built. This is where any real edge comes from, and also where most punters fool themselves.

Another market, with the margin removed. If one bookmaker's market is sharp, you can use it as the yardstick for another. Take a head to head at $1.80 and $2.05. Those prices imply 55.56% and 48.78%, a total of 104.34%. Divide each by 1.0434 and the fair chances are 53.25% and 46.75%, so fair odds are about $1.88 and $2.14.

Now suppose another bookmaker has the outsider at $2.25. In our calculation the EV is 0.4675 x 2.25 - 1 = +5.2%. At the first bookmaker's own $2.05 it is -4.2%. The implied probability calculator strips the margin from any market, and our guide to bookmaker margin explains where that 4.34% comes from.

This method only works if the yardstick market is better informed than the one you are betting into. Betfair says its average overround on 2021 Australian Group 1 thoroughbred races before the jump was about 103%, so an exchange market can be a tighter reference than a bookmaker's.

Value takes a long time to show up

A positive EV is an average, not a promise. To show how slowly it comes through, we worked out the chance of being behind after a run of $10 bets, each with a +5% edge, using the binomial distribution:

Number of bets	$3.00, 35% chance: chance you are behind	$11.00, 9.55% chance: chance you are behind	Expected profit
100	38.0%	51.2%	about $50
500	21.3%	37.3%	about $250
1,000	13.7%	29.9%	about $500
2,000	5.8%	23.6%	about $1,000

Even with a real edge, there is better than a one in three chance of being behind after 100 bets at $3.00. At longer odds the swings are much bigger: after 1,000 bets at $11.00 you are still behind almost 30% of the time. A losing month proves very little either way, and so does a winning one.

Checking whether you really have an edge

Since results are so noisy, keep a record of every bet: the date, market, price taken, stake, your estimated chance and the result. Over time, compare your estimated chances with how often those bets actually won. If your 40% picks win 40% of the time, your estimates are well calibrated. If they win 33% of the time, your "value" was the market's margin all along.

A second check is to compare the price you took with the last price before the start. If you regularly beat the final price, the market tends to move your way after you bet, which is a sign your estimates carry information.

Pundit tip: set your minimum odds before you open the betting app. Once you see the price, it is far too easy to talk yourself into a 40% estimate for a $2.40 runner.

How much to stake on a value bet

EV tells you whether to bet, not how much. Bet too big and an ordinary losing run can empty the account before the edge shows up. The Kelly criterion calculator sizes a stake from your edge and the price, and our guide to bankroll management compares level, percentage and Kelly staking.

Why bookmakers limit value bettors

A punter who keeps beating the price costs a bookmaker money, and the terms allow it to act. The TAB's Conditions of Use, for example, say it may place limits on the bets you can buy over a period of time (clause 16.1) and may refuse a proposed bet at its discretion without giving notice or reasons (clause 34.1). Expect stake limits if you win steadily.

Value betting and tax

The ATO lists "betting and gambling wins (unless you operate a betting or gambling business)" among amounts that are not assessable income. A disciplined value bettor with records and large volumes is closer to that line than a casual punter, so get advice from a registered tax agent if it applies to you.

Value betting is still gambling. If your estimates start bending to justify bets you already wanted to make, step back; the gambling help page lists free support.

Frequently asked questions

What is value betting?

Value betting means only taking prices that are longer than the true chance of the outcome deserves. If you rate a team at 40%, its fair price is $2.50, so $2.80 is value and $2.30 is not. It says nothing about whether this particular bet wins.

How do you calculate expected value in betting?

Multiply your probability by the decimal odds and subtract 1. At 40% and $2.80, EV = 0.40 x 2.80 - 1 = +0.12, or +$12 per $100 bet on average. A negative result means the bet loses money over time by your own estimate.

Does value betting really work?

The maths is sound, but only if your probabilities are better than the market's. Most prices already carry a margin against you, and even a genuine edge can leave you behind for hundreds of bets. Keep records before you trust that you have one.

Is EV betting legal in Australia?

Yes. Value betting is just choosing which prices to take, and betting with licensed Australian bookmakers is legal for adults. Bookmakers can still limit or refuse your bets under their terms.

Do you pay tax on betting profits from value betting?

The ATO lists betting and gambling wins as not assessable unless you operate a betting or gambling business. If you bet at a scale and with a system that could look like a business, get advice from a registered tax agent.