How do the bookmakers set the odds ?

The odds are set by the bookmakers in order to reflect the probability of different outcomes.

The bookmakers or the art of taking no risk

The bookmakers' objective is simple: to take the same share no matter the effective result; this means that, contrary to the wide spread idea, the bookmakers do not make bets, but look for taking the minimum possible risk.

Again, this means that the odds are a function of the different results probability : the more probable the outcome, because the team or the player is the favorite one, the lower the odds, the way round being also valid :

Odd = 1 / (probability of the outcome)

If a bookmaker believes that the team A has 80% chances to win, implicitly the odds is 1 / 0.8, that is 1.25. In other words, the odds of 1.25 indicates that the probability of a winning bet is estimated to 80%.

The strategy of a bookmaker

But how are these "probabilities" estimated ? The bookmakers always apply these two procedures :

The bookmakers try, by using complex statistical methods, to get the best estimation of each outcome probability. For this, they build-up models, consider the historic data and consult experts in sports odds.
On the other hand, the bookmakers want the players to bet in a balanced way on the different possible outcomes.

In fact, nothing worse may go for a bookmaker than the situation in which all his clients bet for example on team's A victory: if this happens, the bookmaker loses money. In this case, to balance the flows, the odds associated to the victory of team A has to be reduced, this making the bet less attractive.

Indeed, the bookmakers prefer then to have balanced flows for the different possible outcomes, allowing them to take a profit and ensuring them profits with no risk.

As a starting point, the bookmakers try to foresee which outcomes their clients may bet on, and adjust the odds in order to balance the betting flows. After this, the bookmakers adjust their odds in real time when they notice the flows get unbalanced.

Bookmakers set the odds in order to earn a profit. The bookmaker profit's is included in the odds and is not explicit. Most frequently the profit is between 5 and 10% of the stake but it can vary a lot depending on the sports, on the bookmakers etc.
The higher the profit, the more the players pay for their bets and the more money the bookmaker makes.

All the bookmakers selected by Moodds.com have odds amongst the highest on the market. The profit taken by the bookmaker complicates a little the computation of the different outcomes probabilities. In fact, for a bet of 1€, the bookmaker pays back to his clients less than one euro, the rest being his profit. The amount paid back to the clients is :

Amount paid back to the clients = 1 / [(1/odds_A) + (1/odds_X) + (1/odds_B)]

If the odds offered by the bookmaker are :

Team	Odds
England	2,10
Draw	3,00
Germany	3,75

See then by calculation that the bookmaker pays back to his clients 1 / [(1 / 2.1) + (1 / 3.0) + (1 / 3.75)] = 0.93 € for a one euro bet. The bookmaker's share is then 7% (only if the stakes are perfectly balanced).

So the odds displayed by the bookmakers do not represent the real probabilities of the different outcomes, because the odds include the bookmaker's share and change depending on the bet flows! If you think you are better than the bookmaker in estimating the probability of each different outcome, then you will always have the possibility of taking profit from this.